Credit crunch felt by GA manufacturers
The most obvious effects of a worldwide credit crunch this past week were reported by Cirrus Design, AAI Acquisition (formerly Adam Aircraft), and Grob. But all general aviation companies are affected.
Cirrus Design had been on a restructuring plan for months, one not driven by the economy but rather by a long-standing need to streamline its operations. Positions were created in the past that were not needed. The first job elimination of 103 positions took place earlier this fall. This week, Cirrus continued the process by eliminating, not laying off, another 105 total positions at its two locations. Production was reduced due to slowing demand, but only to 12 aircraft a week, down from 14 a week. Four-day workweeks already in place continue. Available resources are focused on completing the Cirrus Design Vision jet, and that means the SRS light sport aircraft is now delayed with no schedule set for it. Maybe it will emerge from the factory at the end of 2009, and maybe not.
For AAI Acquisition and its Adam A700 personal jet, the news was more dramatic. The company was draining money from its Russian investor faster than the investor, Industrial Investors, could supply it. The situation was directly due to the worldwide credit and stock-value crisis that nearly collapsed the Russian stock market. The Centennial Airport-based Denver firm laid off 200 workers this week, keeping 30 engineers who will continue to work on the aircraft’s certification. Certification once was planned as early as 2010, but that is now optimistic.
At Grob, the company entered bankruptcy while the search for an investor continues. A message issued by Niall Olver, Grob Aerospace’s CEO, says that the company has no option but to declare bankruptcy. The company has failed to attract new investors for its all-composite Spn twinjet project. As a result, most of the Grob employees at the Mattsies, Germany, factory will be released from work on Nov. 3, reports Thomas A. Horne, AOPA Pilot Editor at Large. A core team will remain to keep business running on a minimum scale. Meanwhile, Grob executives in the Zurich branch of the company will continue to seek a new investor. When one is secured, Olver says that “…we will be in a position to re-hire most of the employees.”
Because investor funding is hard to come by these days, two analyst firms are predicting that Eclipse Aviation will either declare or be forced into bankruptcy by mid-2009. First it was the Teal Group, and now it is Forecast International predicting a grim outlook for Eclipse. Eclipse declined to comment on either of the reports.
But Teal Group’s Vice President of Analysis, Richard Aboulafia, claims that the current economic condition isn’t the only factor that could lead Eclipse into bankruptcy. In a critical report, Aboulafia says that a faulty business plan and lawsuits from consumers and suppliers also could play a role.
“This program is the single worst aviation program Teal Group has ever covered,” wrote Richard Aboulafia in his scathing evaluation of the company in the Teal Report. “It isn’t the aircraft itself. Rather, it was a business plan that makes no sense, except to attract investors who don’t know much about the aviation business.”
In an interview, Aboulafia also explained that success is difficult, regardless of the economic condition, for turbine start-up companies. He asked, and then answered his own question: “How many new turbine manufacturers since 1960 worldwide have successfully entered the industry? One. Embraer.” Embraer is headquartered in São José dos Campos, Brazil.
To many, the credit crunch appears to have sprung into the headlines this fall after giving hints of trouble in the spring. However, it was fully documented as early as February in a routine 10K-form filing with the Securities and Exchange Commission by American Capital Strategies, the holding company that includes Piper Aircraft among its 122 companies. That February report reads like October’s financial headlines. Aviation Week reports that the same Russian firm that bought Adam Aircraft, Industrial Investors, had planned to buy Piper, but the deal has been put on hold. Had the purchase continued, it could have provided funding needed to complete the PiperJet, the article said.
However, Piper spokesman Mark Miller denied the story, saying, “This unwarranted speculation is absolutely untrue. The future of the PiperJet does not depend in any way on what AAI Acquisitions may or may not do.”
CEOs at both Cessna Aircraft and Hawker Beechcraft have warned employees to fasten their seatbelts, without giving specifics. Hawker Beechcraft Chairman and CEO Jim Schuster said in a memo to employees that he would “take actions necessary” in coming weeks to counter “wildly uncertain” market conditions.
Cessna chief Jack Pelton said, according to a story in The Wichita Eagle, that the impact on Cessna is unclear, and the company is filling only critical positions for now and into 2009. Cessna received orders for 47 jets in the third quarter, lower than expected, but not bad considering conditions.
“Some models [of piston-engine aircraft] have seen declines while others seem to be holding their own,” said Cessna spokesman Doug Oliver. “Fleet sales are still fairly strong. Our sales team reports continued strong interest across the range of piston aircraft—the customers seem to be waiting a bit to see how the economy fares [over] the next few months.”
Oliver was also asked if the Cessna SkyCatcher light sport aircraft is in jeopardy as a low priority project.
“A few years back, there was a similar downturn, and Cessna/Textron chose to invest in the future with a new service center and several new models. When the market rebounded—as it will again—we were ahead of the competition and in a position to be an industry leader. We are following that strategy, and so development continues on programs such as the SkyCatcher, the Citation CJ4, and the Citation Columbus.”
FBOs, and especially charter operators, are feeling the pinch as well. Eric R. Byer, vice president of government and industry affairs for the National Air Transportation Association, had this to say about his charter and FBO members: “We, unfortunately, do not have any hard data to substantiate the impact the current financial crisis has on our members…however, in speaking to our members on a regular basis, I can tell you that for charter, nationwide, business is down roughly 15 to 20 percent compared to last year. FBOs are down a little less, in the 5 to 10 percent arena.”
An official of the National Business Aviation Association said all trends are moving downward. “Take fuel consumption: We're hearing from reliable fuel providers and charter companies that, because of the cost of fuel, purchase of Jet A is down anywhere from 10 to 20 percent and purchase of avgas is down 30 to 40 percent,” the official said. “Take flight operations: The FAA recently reported that activity at GA airports was down significantly, and, as an example, mentioned that operations in Springfield, Illinois, are down 30 percent.”
October 30, 2008