April 17, 2013
Credit: Cessna Aircraft
Cessna Aircraft is cutting light jet production rates and reducing costs as the company is now facing the prospect of another down year.
The moves follow a first quarter in which Cessna posted an $8 million loss and its business jet deliveries fell to 32. The loss eclipsed the $6 million segment loss in first quarter 2012. And, first quarter 2013 deliveries were down by six jets over the same period in 2012.
Cessna had expected a soft first quarter for its Cessna Aircraft business unit, with sales improving throughout the year. Cessna had predicted deliveries would be near if not up over last year’s 181 deliveries.
But the early returns have been so weak that the company is now saying deliveries for the entire year will be below the 2012 level, once again pushing off anticipation of a market recovery by another year.
“Based on current business jet market conditions, we are reducing our 2013 business jet delivery outlook and now expect that deliveries will be down this year compared to 2012,” says Scott Donnelly, chairman and CEO of Cessna parent Textron. He added that as a result, Cessna is adjusting production schedules and implementing other “appropriate cost actions.”
These include workforce reductions, which Donnelly says will include voluntary actions. The reductions will come from lower production in the light aircraft models and up through the CJ4. Cessna is expected to incur costs of $25 million as a result of the reductions.
“We were hopeful that demand would recover as the impact of last year’s elections and fiscal uncertainties moved behind us. We also thought the recent strength in U.S. equity markets would have supported improved business confidence and therefore business jet demand,” Donnelly told analysts. “Sales dialogue, customer inquiry was reasonably active in the quarter. However, customers, especially in the light jet segment who tend to be small business owners, continued to defer purchase decisions, reflecting continued concerns about their financial outlook … The demand just isn’t there.”
Donnelly did not say how much the company is scaling back on business jet delivery expectations. But he did say it expects the “top line” to be down “a couple hundred million.”
While the depressed light aircraft market drove the dampened results, midsize aircraft are showing some signs of improvement, Donnelly says. “The market in that medium segment has been more consistent with our expectations.” But the light market is driving down pricing to a point where the company just isn’t willing to sell, he says.
But he adds that “While we are taking these immediate actions, we believe the global business jet market still has significant long-term growth potential.”