April 17, 2013

Cessna cuts production, outlook after first-quarter loss

Cessna is cutting jet production for the rest of the year following a disappointing $8 million loss in the first quarter, Cessna parent Textron announced Wednesday.

Cessna is cutting jet production for the rest of the year following a disappointing $8 million loss in the first quarter, Cessna parent Textron announced Wednesday.

The company delivered 32 jets in the quarter, down from 38 in the first quarter of last year. It lost $6 million in the first quarter of 2012.

The company announced voluntary buyouts of salaried positions earlier this month to reduce costs.

The CEO of Cessna parent Textron, Scott Donnelly, said in a conference call with analysts Wednesday that light-jet sales remain weak despite traditional leading indicators such as corporate profits looking better.

Donnelly said that the small-business owners who buy Cessna’s light jets – the Mustang, CJ2, CJ3 and CJ4 – remain spooked by the prospect of higher taxes and general uncertainty about the economy.

He acknowledged that the plunging value of used Hawker jets has depressed the value of used Cessna jets, which in turn hampers those buyers from being able to sell or trade in their used Cessna jet for a new one.

“It just leads guys to say, you know, ‘I’m just going to wait a while or give me a lower prices to incent me to do it,’ ” Donnelly said. “And if that’s where the market is, we’ll back off on production and accept that there’s less demand out there in the market place.”

Hawker Beechcraft recently went through bankruptcy reorganization, and as Beechcraft Corp. restructured, it left the jet manufacturing business and has worked to liquidate its inventory.

Sales of Cessna’s medium-size jets were slightly higher than last year.

Even at the beginning of the month, Donnelly said he thought Cessna could keep production levels even, but a number of recent potential buyers would buy only with steep discounts, and that has convinced him that the market for jets at which Cessna could make a profit had shrunk from last year.

“We got to a point where you say, ‘OK, guys, we didn’t have it lined up right this year, and so let’s make an adjustment,’ ” Donnelly said.

He said he expected the company to pay $25 million in severance costs for the departing salaried workers.

Revenues for Cessna actually rose $39 million in the first quarter, but that was because of greater used aircraft sales.

Donnelly estimated that Cessna sales would be down roughly $200 million for 2013, with the drop concentrated in the light jet segment. Although he didn’t mention any numbers, he acknowledged that it would be a 25 to 30 percent reduction in Cessna’s light jet production.

Cessna’s backlog at the end of the first quarter was $1 billion, down $28 million from the end of 2012. Donnelly said the backlog has finally become stable, with only a few cancellations, but that Cessna takes orders for a jet, builds it and delivers it in the same quarter.

In the short-term, the company has hired more sales staff and given them smaller territories in expectation that they will push harder to find new customers.

It has also continued to invest in new models. The M2 and updated Sovereign and Citation X come on line later this year. The Latitude will start to be delivered in 2015 and the Longitude in 2017, he said.

He remains optimistic long-term about the return of jet demand, especially given the potential overseas.

“While we are taking these immediate actions, we believe the global business jet market still has significant long-term growth potential, and we remain committed to our new product plans,” he said.

Related content



Editor's Choice Videos