Cessna layoffs show business jet weakness
By The Globe and Mail
Sept. 22, 2010, Witchita, Kan. - Reports of the business-jet market's recovery may have been premature. Cessna Aircraft Co.'s decision to cut back production, resulting in the slashing of 700 jobs at its facility in Wichita, Kan., is not a good omen for the industry as a whole, says Benoît Poirier, an analyst with Desjardins Securities. The Globe and Mail reports.
By The Globe and Mail
"We believe the announcement indicates that the bizjet recovery is stagnating, especially in the low-end segment," Mr. Poirier said in a research note Tuesday.
Key industry players – including Montreal-based Bombardier BBD.B-T – have been forecasting a pickup in business-jet activity, especially in the second-half of this year.
"The gains made in the first half of this year in the global economy have stalled, and Cessna's performance continues to mirror the lacklustre economy," Cessna chief executive officer Jack Pelton said in a letter to employees Tuesday.
"While cancellations have slowed, the recovery and growth we expected to see throughout the year have not materialized, and the timing of any recovery remains uncertain."
Cessna is a unit of Providence, R.I.-based aerospace, defence and industrial giant Textron TXT-N
Textron said in a statement Tuesday that robust performance at other divisions has not been matched by a "discernible improvement in business-jet order activity" at Cessna.
"Therefore, we are taking further production and restructuring actions at Cessna," Textron chairman and CEO Scott Donnelly said.
Mr. Poirier said the move represents "a slight negative for Bombardier as it provides negative implications" for deliveries of its smaller business jets under the Learjet banner. However, he stressed the fact that the Learjet line of planes accounts for only 7 per cent of expected fiscal 2011 business-jet revenue.
Demand for Bombardier's high-end Global Express jet remains strong and the company could opt to increase production of that line to counter a decline in low-end aircraft deliveries, he said.
He also pointed to industry speculation that Bombardier could launch a new version of the Global Express next month at the National Business Aviation Association show in Atlanta. That model would be a response to Gulfstream Aerospace Corp.'s popular G650 corporate jet.
Just three weeks ago, senior Bombardier executives were predicting that an upswing in business-jet deliveries in the second half of the year would help offset continued weakness in the company's commercial aircraft division, whose key products are regional jets and turboprops.
George Tsopeis, a former Bombardier executive who now heads up aerospace consulting firm Zenith Jet, said in an interview Tuesday that the Cessna announcement took him by surprise.
"For the industry in general, it's not great news," he said, adding that he remains bullish on the business-jet market. "I think a recovery is taking shape."