Cessna Light Jet Production Stalls

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Cessna has again cut back production of its light jets including the Mustang, CJ2, CJ3 and CJ4, potentially by up to 30 percent, citing a first-quarter loss and weak sales. In June of 2010, the company briefly stalled production of the Citation Mustang, largely as a result of issues in the supply chain. At the time the company also said sales had been softer than expected. This time, the company is entering the second quarter fresh off an $8 million loss suffered in the first quarter. The Wichita Eagle reported that during a conference call with analysts, Wednesday, Textron CEO Scott Donnelly speculated that small business owners were putting off purchases due to concerns over higher taxes and uncertainty about the direction of the economy. But there were additional complications in the small business jet market.

Cessna believes that the value of many small jets has been impacted by the bankruptcy of Hawker Beechcraft and the restructuring that has led to Beechcraft Corporation. The value of used Hawker jets has fallen, and that has dragged down the value of used Citation jets. The company believes that depressed pricing deters some potential buyers from upgrading to new jets. Whatever the cause, reduced market demand is leading Cessna to slow production. Cessna is now forecasting that sales will be down in 2013 by $200 million, in part because of a dragging light jet market. On the upside, Cessna is sitting on a $1 billion backlog and has seen strong used aircraft sales. However, it has also spent $25 million in severance packages for employees who accepted voluntary buyouts of their salaried position to match with a projected drop of more than 25 percent in light jet production.