Cuts could leave Cessna unprepared, analysts say

Cessna Aircraft's announcement last week that it will cut 700 jobs and adjust production rates has analysts wondering whether the company will be unprepared for the inevitable upturn.

"We worry Cessna has cut through muscle and bone into marrow," research analyst Ronald Epstein of Banc of America Securities-Merrill Lynch wrote in a report this week.

The business jet recovery is "quietly percolating" under the surface of an otherwise tepid market, he wrote.

"Sooner or later demand will punch through," he wrote.

Cessna has suffered the most among the major business jet manufacturers, he wrote.

"Managing a business in the face of a severe downturn is an unenviable task and tests the mettle of all management teams," Epstein wrote.

Last week, Cessna told employees it will cut 700 jobs — 11 percent of its work force — and adjust production to match demand in the near term. Cessna has cut half its work force since late 2008 and now employs 8,600 people, including 6,200 in Wichita.

Gains made in the first half of the year have stalled, Cessna CEO Jack Pelton said in a letter to employees last week. "Cessna's performance continues to mirror the lackluster economy."

The recovery and growth expected this year have not materialized, Pelton wrote. "And the timing of any recovery remains uncertain."

With new production levels, the company is confident it can meet customer demand over the next year in a timely manner, Cessna spokesman Bob Stangarone said Thursday in an e-mail.

Cessna must cut costs to line with production to not lose money, said Teal Group analyst Richard Aboulafia. At the same time, it must preserve its capabilities to make some necessary product enhancements.

"That's a tough act to pull off," Aboulafia said.

Some layoffs were inevitable given the market, he said.

But the number of job cuts is high, Aboulafia said. "So you have to wonder what skills are being lost with that."

The industry is facing a determined competitor, Brazil-based Embraer, that's taking market share, he said.

The company will be in trouble if it has major difficulties bringing new products to market, he said.

Stangarone says Cessna must put in aggressive cost controls to ensure costs are competitive with emerging global business jet manufacturers.

"Even in this down market, we will continue investing in and launching new products," Stangarone said.