Raytheon's financial woes lead to executive shuffle

 - May 19, 2008, 8:32 AM

One of the most thorough corporate management shakeups in recent memory has left Raytheon Aircraft Co. (RAC) insiders and outsiders scribbling notes to keep track of who went where and why.

Reporting directly to Daniel Burnham, chairman and CEO of parent Raytheon Co. of Lexington, Mass., James Schuster took over as chairman, president and CEO of Raytheon Aircraft from Hansel Tookes at the end of May. Schuster immediately went to work on restructuring and replacing key positions, just shortly after he announced that he was moving his management team from the fourth floor of the executive offices to the shop floor.

Handpicked members of his senior leadership team, who work closely with and report directly to Schuster, include Richard Danforth, senior vice president of aircraft business; Gary Hart, president of Raytheon Travel Air; Dave Riemer, vice president of government business; Dwayne Johnston, director of the Horizon program; Mike Scheidt, vice president of the commuter airline program; Jack Hulsey, vice president of development; and James Gregory, director of corporate affairs and communications. These executives sit at the top of a long list of players, some with new faces, some with new jobs and some with the same job but now reporting directly to Schuster. The only thing about the structural changes that’s crystal clear is why they were done.

“Quite simply, this happened because the financial performance of RAC was below our own expectations,” Gregory told AIN. “We needed to boost employee and customer confidence in what we’re doing. It wasn’t one specific thing but clearly the Horizon is an important program that needs to get to market, so that’s certainly going to be a focus. Similarly, there is going to be renewed emphasis on moving the Premier I from development to production.”

Gregory said customer support would be another area of focus. “[Schuster] has made some changes that needed to be made. The company will grow and get better from here.” The top spokesman previously reported to the vice president of human resources but now reports directly to Schuster, who “considers communications as a fundamental leadership responsibility. That’s why he escalated some relationships to the senior leadership team,” according to Gregory.

Changing of the Guard

Schuster was formerly president of Raytheon Aircraft Integration Systems (RAIS), which includes the aircraft completion facility in Waco, Texas. RAIS itself was plagued with Boeing Business Jet completion problems that have recently been said to be ironed out. Schuster joined RAIS in 1999 after leaving MagneTek, where he served as executive vice president of the company and president of the motors and generators division. Before that he held senior positions in operations for AlliedSignal Aerospace and Westinghouse Electric Naval Systems.

Tookes had been recruited in 1999 after 19 years with United Technologies, where he served as president of Pratt & Whitney’s Large Military Engine Group. He was named CEO of Raytheon Aircraft in March last year and became chairman when Art Wegner retired in August last year. Tookes is now president of Raytheon International, where he will head up international expansion. When asked if there was friction between outgoing Tookes and incoming Schuster, Gregory replied, “Hansel and Jim continue to work together amicably and closely.” The changing of the guard was only the first of many changes to take place at RAC.

The company is in the process of reducing its Wichita workforce, reflecting a reduction in new aircraft deliveries. Forecasts call for 468 new aircraft to be delivered this year, only eight below last year but 40 fewer than originally targeted. The deficit is the result of 16 fewer Beechjet and 24 fewer King Air deliveries this year. Regardless, the company maintains that demand for the Hawker Horizon remains strong. There is an internal date set for the Horizon’s first flight this summer, but management is tight-lipped about specifics.

RAC management also claims continued customer interest in the Premier I, despite ongoing problems with the program. The company estimated the Premier I program overran costs by more than $300 million, mostly due to the protracted certification process (the new jet was certified in March, 28 months later than scheduled). The entry-level jet continues to show subpar takeoff performance, which cost orders for at least three airplanes.

RAC claims that by tweaking the software for the Williams FJ44-2 engines, turning them into FJ44-2A variants, it can shorten takeoff roll by the 800 ft necessary to put the aircraft back on its promised 3,000-ft field length guarantee. The company said it has firm orders for 320 of the $5.3 million jets, with a full product line backlog of more than $4 billion.

Economic Troubles

With anticipated 2001 revenues of $3 billion, a decrease of $200 million from last year, Raytheon Aircraft has already seen a $4 million operating loss the first quarter of this year. First-quarter revenues of $637 million, down from the $815 million during the same period last year, reflected the company’s woes. In the recently released second-quarter report for Raytheon there was little improvement.

RAC reported sales of $768 million, compared with $810 million for the second quarter last year, reflecting an upward trend for the year but still lagging the previous year’s performance. The company shipped 117 aircraft in the quarter, compared with 145 in the second quarter of last year. Twenty seven million dollars in operating income was reported so far this year, down from $35 million a year ago.

In light of these results, it’s a good bet Schuster has more changes on the way that go beyond moving executive offices and changing key leadership. Still, there is a story about leadership style with respect to the move that reflects a hands-on, strong communication orientation.

“Jim noticed that senior leadership on the fourth floor of the administrative office building was too isolated from the factory,” Gregory said. “So he and his senior leadership team have moved back to Plant One to reduce some of the barriers between employees and management.” He said sales and marketing personnel stayed behind because the facility is adjacent to the customer-delivery center. The future of the mostly vacant fourth floor was being considered. “We anticipate it will become part of an increased customer-support effort,” Gregory said.

Emphasis on getting RAC back on track can be seen by some of Schuster’s personnel changes, many of which see key execs keeping the same job but reporting directly to Schuster. For example, Johnston retains his slot as director of the Horizon Program, but now reports directly to Schuster instead of senior vice president of aircraft business Danforth. Schuster clearly wants to take an aggressive, day-to-day role in seeing that the Horizon finds its way into the marketplace sooner rather than later.

Another telling move is that of Hulsey, who has retained the vice presidency of development, reporting directly to Schuster, but has shed his role in the Premier I program. That has gone to Bill Patterson, who is now Premier program director, a position that reports to Danforth. The shift is subtle but important– Hulsey’s expertise is engineering; Patterson’s is operations.

Emphasis on customer satisfaction is evident by a shift in Ferney’s reporting line. He retains his job as vice president of customer support, but is now also a member of the senior leadership team.

New to the company is Edward Dolanski, vice president and chief information officer. He made the move from RAIS with Schuster to replace Jim Siebauer, who left the company. Dolanski is also acting head of RAC’s Six Sigma initiative until the company can find a new champion for the program. Six Sigma is an internal disciplined fact-based approach to problem-solving used throughout the company, including engineering, R&D, administration and manufacturing. One of Schuster’s main concerns is to streamline operations and make them more efficient and cost effective, so the emphasis on Six Sigma is likely to escalate.