Cessna managing downturn; foresees market recovery soon
No one has had it easy in business aviation these past six months, and Cessna has certainly had its share of knocks with enforced reductions in production capacity and a sudden decision to suspend development of its new Columbus model. But the U.S. airframer believes that it and the rest of the industry are about to turn the corner into more encouraging economic times.
“In 2008, we delivered 467 jets, reported revenues of $5.7 billion and thought we would be delivering 500 jets in 2009,” said Jack Pelton, Cessna chairman, CEO and president, at the company’s EBACE press conference yesterday morning. “Instead we’ll probably deliver between 290 and 300 jets. We may be a little disappointed, but we have a backlog worth $13 billion and 2009 will still be a very good year.”
In the first three months of this year, Cessna delivered more business jets (69) and propeller airplanes (66) than any other company, according to General Aviation Manufacturers Association figures. Of the jets, 26 Citations were delivered in Europe to date, and the company expects to deliver more than 90 total by year-end, said Roger Whyte, Cessna senior vice president of sales and marketing. In 2008, the company delivered a total of 1,301 airplanes.
“We’re seeing a lot of positive news,” Pelton said. “The stock market is rising, consumer spending is improving, housing activity has stabilized, general inventories are declining and the chairman of the U.S. Federal Reserve is becoming optimistic. We expect the U.S. GDP will become positive in the third quarter of this year.”
From experience, business aviation is correlated with corporate profits and lags behind changes in the general economy by 12 to 24 months. While Cessna expects the used aircraft inventory to peak and flight activity to bottom in the third quarter, Pelton said, “The true indication of a turnaround will be increasing orders.”
To cope with the current lower demand, Cessna has reduced its production rates to the level of deliveries it expects this year and next, laid off 6,200 employees and scheduled a company-wide, four-week furlough in June and July. It is also in the process of moving the Corvalis piston-single production line from Bend, Oregon, to Independence, Kansas. During the first quarter of this year, Cessna reported the cancellation of 92 jet orders.
Pelton said, “We will spend about the same percentage of revenue in 2009 on new product and new feature development, and we will spend it on satisfying customer requirements for existing products in existing markets.” This obviously means the dollar amount spent on research and development will be less.
The suspension of development of the Citation Columbus accounts for much of this reduced spending, and Pelton said the state of the economy will be the main factor determining when development of this large-cabin jet will be restarted. About 300 Cessna employees had been working on the project, he said; now there are a just handful of engineers, engaged in making sure the work done to date is not lost and can be managed when the time comes to restart the program.
Meanwhile, Cessna is focusing on its core business, namely its small and midsize business jets from the Citation Mustang to the Citation X. “We will continue to improve our global customer service network–already second to none in the industry–and make it even more responsive to the customer,” said Pelton.
In this area, Mark Paolucci, Cessna senior vice president of customer support, announced that Cessna plans to build a new European Citation Service Center at Valencia Airport in Spain. “The new facility will be an excellent complementary location for our Paris service center, offering our customers yet another option for service in an area we did not serve before,” he said. Cessna chose the site because it is convenient to destinations popular with many European operators, as well as its proximity to North Africa. Site development will begin in six months and construction plans will be announced in the future.
Separately, Cessna reached an agreement with sister company Bell Helicopter to use Bell’s European parts facility at Amsterdam Schiphol Airport. Both Cessna and Bell are owned by Textron.
Cessna is located in Booth No. 7081 and is showing 10 of its models in the static display area, ranging from the Corvalis piston single to the high-speed Citation X twinjet.