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Wed, Apr 29, 2009

Aero-News Alert: Cessna Cuts Workforce, Bend Plant, Puts Columbus On Hold

1600 Workers, Columbus Development, Bend (OR) Plant -- All Suffer Economy's Wrath

ANN is monitoring reports of more aggressive cost-cutting at GA giant, Cessna Aircraft. What we know so far is this... about 1600 jobs are being eliminated, the Citation Columbus program is being suspended with applicable deposits returned, and the former Columbia plant in Bend OR is being closed.

Jet deliveries are expected to be 20 per cent less than originally forecast and that will affect cash flow drastically... hence the cost-cutting-- and it is unlikely that we have seen the last of the jet order cancellations that are rocking this company. It is also unlikely that we have seen the last of such workforce reduction measures, as curtailing the Columbus development program (among other issues) is reported to pose as many as 700 more losses by the summer. In the meantime, though, a number of Citation programs and the SkyCatcher LSA program survive... for now.

Among the not-so-pretty stats from Textron's analysis of the most recent quarter:

  • Cessna’s revenues decreased $477 million in the first quarter from the same period last year. This decrease primarily reflects the delivery of 69 business jets compared to 95 during the same quarter last year, partially offset by higher pricing.
  • Segment profit decreased $117 million primarily due to the lower volume and higher inventory write-downs for used aircraft. These items were partially offset by a $50 million pre-tax gain on the sale of a customer maintenance tracking service and pricing in excess of inflation.
  • Cessna backlog at the end of the first quarter was $13.0 billion, down $1.5 billion from the end of 2008, reflecting 92 net cancellations during the quarter.

A memo from CEO Jack Pelton pretty much sums up the decision-making process, and is reproduced below:

Pelton Memo

Late yesterday, Textron released its financial results for the first quarter of the year. They reiterated, as we told you at the end of March, a continued decline in global demand for our aircraft, which in turn requires us to reduce our production rates for this year and next. That also means a reduction in revenue that will require us to be very strategic in our investments to ensure the long-term success of Cessna.

Our primary near-term objective is to focus on our strengths and protect our core products in the light and mid-size business jet market segments, our leadership position in the single-engine piston and turboprop product segment, and our world-class customer support. This strategy brings with it more hard decisions, but necessary in this trying economy.

To ensure our focus is on our strong products in existing markets, we are suspending our development of the Citation Columbus. This was a very difficult decision, but critical to sizing our business to the realities of today's market. We looked at every possible scenario before coming to this decision. We still feel this is a program with great potential and one we will pursue when the market recovers.

 Today, it is critically important to support the markets we compete in by strengthening our existing product line and support services. Our strategic investments will be in these areas. To that end, we will continue programs such as the Citation CJ4 and the 162 SkyCatcher. We also will continue to work on research and development of numerous yet-to-be-announced new products, all of this while exploring new ways to strengthen our customer support offerings. 

The reduced production rates, regrettably, require another reduction in the work force as I told you in my last memo a few weeks ago. We began today issuing layoff notices to approximately 1,600 Cessnans at every level of the company. As we have done in the past, these colleagues will remain on the payroll 60 days. As we re-evaluate our requirements in the coming weeks following the changes in our product development plans, we will issue additional layoff notices within the salaried work force - up to 700 - by mid-June. This sizes our work force for our currently planned production in 2010.

Quickly reducing the number of aircraft we produce is somewhat more involved than simply slowing our operations. It will require us to extend the planned companywide employee furlough to four weeks, running June 22 through July 19. This companywide furlough will coincide with various assembly line furloughs already instituted to match production to demand. This action is required to remove the aircraft and the associated costs from this year's production schedule. 

We will still have the people on duty we need to support customer deliveries, customer service and a few programs and operations that must continue uninterrupted. The rest of us are expected to take part in this furlough unless notified by your supervisor. Additional information regarding the furloughs will be shared soon.

A key part of our activity is cost reduction and that will include consolidation of facilities. We continue to look at a number of options, but some decisions have already been made. While very painful to share, we will be closing the facility in Bend (pictured below-Ed.) and moving that assembly line to Independence. This is not a result of any dissatisfaction with the Bend operation, but is driven by the need to consolidate facilities for factory efficiency. 

I will be meeting today with the Cessna Leadership Team to share details of the state of the market and the economy and of our plans to weather the downturn. They will, in turn, be cascading this information throughout the company in smaller meetings to continue to promote open dialogue through this difficult period.

There doesn't seem to be a lot of good news for Cessna right now, but times will change. That does little to lessen the pain and disappointment brought on by what we're all going through. For those employees who will be leaving Cessna, I want to thank you for your dedication and hard work. For those who will remain, we need to work together to ensure we continue the highest level of service to our customers, survive this economic recession, and prepare for the days when we begin to grow again. 



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