Cost-Cutting Leads To Outsourcing

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Raytheon Looks To The Outside...

They've tried layoffs, belt-tightening and other in-house economies and now to save money Raytheon is looking at farming out some of its production work. In a letter sent to employees earlier this month, Raytheon Aircraft CEO Jim Schuster outlined plans to send some of the work currently performed in house to outside suppliers. "If it makes good business sense, then we will consider that option," the letter said. Raytheon's memo cited a rising number of used aircraft up for sale and reduced demand for new planes for the company's reduced sales. Schuster's letter to employees also stressed the company's need to become more competitive. "You have all probably seen recent articles about restructuring in our industry, most recently at Bombardier and Boeing," Schuster wrote. It will take some time to implement any changes that do come about. "This change to our model won't happen overnight," Schuster said. "It may take two to three years." Raytheon has cut more than 2,000 jobs in the last two years and will chop another 600 this year, leaving a workforce of nearly 7,000 in Wichita. Bombardier and Cessna have laid off a total of 3,000.

...Subcontractor Finds New Financing

What's bad news for the aircraft company production workers is sometimes good news for companies like Avcorp, which have carved out a niche building components for the big companies. But it can still be a struggle for the subcontractors and earlier this month Vancouver-based Avcorp's bank called a $12.5 million loan. Last week the company announced it had found new financing and the business would be carrying on. That was undoubtedly good news to Cessna, Eclipse, Boeing and Bombardier, all of which have various pieces of fuselage built by Avcorp. In fact, it was probably a major deal with Cessna that helped convince the unnamed bank to jump in to save the company. Last September, Avcorp won a contract to make the wing box and tail assemblies for Cessna's third-generation business jet series, the CJ3. The deal boosted Avcorp's contracts in hand to almost $500 million (Canadian). In addition to the bank refinancing, the company is looking to sell its 300,000-sqaure-foot building with a lease-back arrangement and is looking for more investors. It's also arranged short-term loans for operating funds until these other ships come in.