Cessna Aircraft To Layoff Another Round Of Employees

 

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Cessna Aircraft To Layoff Another Round Of Employees

By Bill Goldston
 

September 22, 2010 - Textron Inc. reported that it is adjusting aircraft production schedules and reducing headcount at its Cessna business unit due to continued weakness in new aircraft orders. Textron is the parent company of Bell Helicopter, Cessna Aircraft Company, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, and Textron Systems. Cessna is to cut 700 employees which will affect 11 percent of its workforce and it will include hourly and salary employees at its Wichita plants.

"While we are seeing solid performance in most of our other businesses, we have not yet seen a discernable improvement in business jet order activity," said Textron chairman and chief executive officer Scott C. Donnelly, "Therefore, we are taking further production and restructuring actions at Cessna." 

On Tuesday Cessna CEO Jack Pelton sent out letters to employees stating "Dear Cessnans, the gains made in the first half of the year in the global economy have stalled, and Cessna’s performance continues to mirror the lackluster economy. 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."

 

"This requires additional adjustment to our production schedules, and more than ever, cost is critical to our competitive position. We must continue to lower our cost structure to remain competitive. These continuing challenges have forced us to make the difficult decision to announce an additional work force reduction of 700 employees. This was not an easy decision and not easy news to bring to Cessnans. I know you have questions and concerns regarding these reductions, and we will work diligently to ensure we communicate the full impact to employees as soon as possible.

"Our strategy is to defend and protect our current markets while investing in products and services to secure our future, but we can do this only if we succeed in restructuring our processes and reducing our costs. This is not the responsibility only of one organization or department; it means every Cessnan must keep a watchful eye on costs, focus on continuous improvement and quickly and decisively eliminate processes that do not add value.

"It is not easy to bring news to you of further reductions, but our ability to compete now and in the future leaves us little choice. I know these are hard times, but we will get through if we work as one team, each of us playing an important role."

 

 Textron Inc. reports that it still expects 2010 earnings per share from continuing operations excluding special charges to be in the range of $0.55 to $0.65. Manufacturing free cash flow from continuing operations for the year is now expected to be approximately $400 million, compared to a previous target of $500 - $550 million, reflecting lower expected jet deliveries. 

Higher finance receivable liquidations at Textron Financial should more than offset the lower expected cash from manufacturing operations, as the company now expects to reduce receivables by $2.4 billion this year, up from its previous target of $2.0 billion and its original target of $1.6 billion. During the third quarter, the company repaid the $665 million balance remaining on the Textron Inc. $1.25 billion bank line. The company continues to be on track to reduce net debt below $5.5 billion by the end of the year. Textron plans to issue third quarter financial results on Wednesday, October 20, 2010. 

In 1992, Textron Inc. bought Cessna and, after passage of the General Aviation Revitalization Act of 1994, resumed production of the piston-engine 172, 182, and 206 designs. 

In 2007, Cessna had been involved in a public controversy regarding the contracting of production of the Cessna 162 SkyCatcher to the Shenyang Aircraft Corporation of the People's Republic of China. By manufacturing the aircraft in China, Cessna reports it saved $71,000 USD in production costs per aircraft, or about 40% of the cost. A second reason cited for moving production to Shenyang Aircraft Corporation was Cessna has no plant capacity available in the USA. 

Cessna received a high degree of negative feedback from 162 customers and potential customers regarding this decision. Complaints centered around the recent problems with Chinese production of other consumer products, China's human rights record, exporting of jobs, and China's less than friendly political relationship with the USA. 

The backlash surprised Cessna and resulted in a company public relations campaign to try to explain the decision from a business perspective and assured customers that quality of the aircraft would not be compromised. The reaction to the explanations and assurances has been overwhelmingly negative, although a small number of customers have applauded the production in China. In early 2009, the company attracted further criticism for continuing plans to build the 162 in China while laying off large numbers of workers in the USA. 

In 2008, Cessna announced that a total of 665 jobs would be cut at its Wichita and Bend, Oregon plants starting in January 2009. The Cessna factory at Independence, Kansas which builds the Cessna piston-engined aircraft and the Cessna Mustang, was not forecast to see any layoffs, but one third of the workforce at the former Columbia Aircraft facility in Bend was laid off. This included 165 of the 460 employees who built the Cessna 350 and 400. The remaining 500 jobs were eliminated at the main Cessna Wichita plant. 

In January 2009, the company announced 2,000 additional layoffs, bringing the total to 4,600. The job cuts included 120 at the Bend, Oregon facility reducing the plant that builds the Cessna 350 and 400 to fewer than half the number of workers that it had when Cessna bought it. Other cuts included 200 at the Independence, Kansas plant that builds the single engine Cessnas and the Mustang, reducing that facility to 1,300 workers. 

In April 2009, the company announced that it was suspending the Citation Columbus program and closing the Bend, Oregon facility where the Cessna 350 and 400 are built. The Columbus program was finally cancelled in early July 2009. The company said, "Upon additional analysis of the business jet market related to this product offering, we decided to formally cancel further development of the Citation Columbus." With the 350 and 400 production moving to Kansas, the company indicated that it would layoff 1,600 more workers, including the remaining 150 employees at the Bend plant and up to 700 workers from the Columbus program. 

In early June 2009, Cessna announced that it would layoff an additional 700 salaried employees, bringing the total number of layoffs to 7600 or more than half the employees. 

In December 2009, the company announced that it will close its three Columbus, Georgia manufacturing facilities between June 2010 and December 2011. The closures will include the new 100,000-square-foot (9,300 m2) facility that was opened in August 2008 at a cost of $25M USD, plus the McCauley Propeller plant. These closures would result in total job losses of 600 in Georgia. Some of the work to be relocated to Cessna's Independence, Kansas or Mexican facilities. 

Cessna's parent company Textron posted a loss of $8M USD in the first quarter of 2010, largely driven by continuing low sales at Cessna, which were down 44%. Cessna's workforce remains 50% laid-off and CEO Jack Pelton stated that he expects the recovery to be long and slow.  (See Cessna Aircraft Maker Prevails Over Strike Vote)

 

 
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