Cirrus Plans An IPO

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When CubCrafters announced the novel idea of raising capital through a public stock offering last year, I think the general reaction was, well, that’s creative. Now along comes Cirrus with its own IPO plans, this time on the Hong Kong exchange, and it’s tempting to think we’ve got a full-blown trend afoot here.

But if reality is allowed to intrude, probably not. However good or bad small airplane companies going public is, there are limitations on the idea mostly related to finding enough investors who are willing to forgo a 30 percent return on a hedge fund in favor of rather less on the risky business of building small airplanes.  That said, if such investments are to sustain, they are probably a boutique market consisting of airplane buyers and aviation junkies not looking to retire on the proceeds. Nonetheless, CubCrafters in May said demand for shares—initially priced at $5 with a $400 minimum buy, has been strong enough to bump the price to $5.45. Not a bad showing to start.

CubCrafters—and I’m sure Cirrus—faces the same difficulty all small manufacturers do and not just aircraft builders: how to raise capital for expansion. Most have done it with a combination of net profits and outside investment, but the sums involved can be staggering and the return both uncertain and long term.

Some years ago, a marketing guy leaked me some data on aircraft development costs done by a company that specializes in collecting such information. The amount of money burned in these projects is just eyewatering. The Cessna SkyCatcher, for example, consumed $83 million, the aborted Mooney M10 trainer $87 million, the Cirrus SR22 $90 million, the Adam A500 $226 million. And, of course, the all-time champion for incinerated capital was the Eclipse jet, at more than $3 billion invested. Given that only one of those projects came to profitable fruition, you can see that it takes delusional optimism to throw money at airplane projects. But hey, somebody’s gotta do it.

In CubCrafters’ case, they share an acute problem with Cirrus: They have more demand than they can rapidly fill and need to expand production capacity. Six months or a year backlog is a good problem to have, two years isn’t. The company also wants to expand and improve its service network.

Cirrus has the same backlog problem. A friend who just ordered a million-dollar SR22 told me he expects to see it no sooner than 2025. A guy could lose interest in that amount of time and I suspect some buyers have.

Cirrus’ announcement was perplexing to me. It has no timeline or detail other than the capital will be used in the same way CubCrafters will, with factory expansion, new model development and human resources. The IPO will be traded on the Hong Kong exchange, which signals a couple of things. One, the company is probably looking for capital from Asia and perhaps Africa, since U.S. investors can’t directly buy shares on the HKEX but can purchase ETFs (Exchange Traded Funds) through third parties. Although the HKEX has more stringent disclosure and reporting requirements, it’s free of SEC oversight. HKEX ranks seventh in size, behind the Shenzhen and EuroNext exchanges.

There’s another good reason for Cirrus to sell on the Hong Kong exchange and might as well be upfront about it: It’s the geopolitical taint. Cirrus may be in Duluth, but it’s also a Chinese company and not just a Chinese company but a company owned by the Chinese government. I don’t know how much of the reported $300 million Cirrus would like to raise could come from the U.S., but it’s a better bet to get it from Asia, I would guess. For good or for bad, Chinese interests seem to be viewed with ever more disdain on this side of the Pacific.  

Cirrus is the crown jewel of the China Aviation Industry General Aircraft (CAIGA), which is itself a subsidiary of the government-owned Aviation Industry Corporation of China or AVIC. AVIC also owns the former Continental Motors, now Continental Aerospace Technologies. I’m not sure why they didn’t put Continental in CAIGA, not that it matters much. (AVIC is listed on the Shenzhen exchange, as is Diamond Aircraft’s parent, Wanfeng Auto Wheel Co.)

So where is Cirrus going to spend all that money, if indeed they’re trying to raise $300 million? There’s no prospectus yet so your guess is as good as mine. My guess is mostly upgrades and expansion in Duluth and maybe some investment in China. It seems unlikely to me they’re angling to ship the whole thing from Duluth to China. This would make no sense. While Cirrus has continued to expand worldwide, especially in Europe, Cirrus sells to primarily a North American market because that’s where the aviation-oriented wealth is.

For years, we have been hearing that the Chinese general aviation market has vast untapped potential that would be realized when the country opened up its airspace to broad civilian use. Hasn’t happened, at least at large scale. If anything, China seems to have become more of a security state that’s incompatible with the freedom general aviation offers. The rest of Asia may represent some demand, but nothing like North America. I could see expanding the Cirrus manufacturing factory at Zhuhai, but it’s hard to see how that facility would match Duluth’s volume for a long time, if ever. Even building and shipping components around the world might not make much sense. But then neither did spending $3 billion to birth the Eclipse or $97 million to still birth the PiperJet. We are, after all, talking about aviation logic.

What no one ever seems to talk about as U.S.-China relations continue to sour is what happens when war breaks out in the Taiwan Strait. Increasingly, I think this is inevitable because China has a score to settle and the U.S. may be unable to defuse it diplomatically. The U.S. is at a distinct disadvantage because the military isn’t structured for a long, high-intensity war and our industrial base has been hollowed out by offshoring to, where else, China. The Chinese know this, too. Then what happens to Cirrus, to Continental and its subsidiaries and to Diamond in Ontario? Does business go on as usual? Or are these companies’ assets nationalized by the governments where they reside? Garmin has some exposure here, too, because it recently opened up its fourth manufacturing plant in Taiwan. No less than the Oracle of Omaha, Warren Buffett, recently divested his shares in TSMC, the giant Taiwanese chip maker. And he was blunt about it: “I don’t like its location, and I’ve reevaluated that.” He moved his money to Japan.

I don’t wish to be an alarmist about this, nor do I wish to stick my head in the sand. The world could be on a precipice, and it could have immediate implications for aviation interests.

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18 COMMENTS

  1. Scary, but I agree. Concern is warranted. FYI, the bigger issue is semiconductor supply. TSMC has more that 50% of the global market for building contract semiconductors. If something serious happens to the supply of chips from Taiwan, we won’t be able to buy an iPad, yet alone an airplane.

  2. Paul, I agree with you.
    I met you several times in Redbird Migration but yet to talk with you as you seemed so unreachable.
    I always wonder why American companies sell their business (and their innovations) to China. May be money ranks higher than patriotism. The biggest one is IBM selling their laptop. Then, followed by so many in aviation. Once, there were even rumor that Lycoming and Textron were also under negotiation.
    Why didn’t rich guys in US spare some of their monies to keep these jewels in the hand of their own citizens? There were many Hundred Billionaires, not to mention Ten Billionaires.
    China and Taiwan will not go into war unless their is a Chinese Putin. Xi is sensible enough not to do that but doesn’t mean he will not bark on the doorsteps. I give this comment as I am a Hongkie kicked out by the British Empire. My family is still having factories in China employing several ten thousands workers. But I do not particularly like communism.

  3. Trouble is, once you start down this road, no where is safe.
    Russia keeps threatening to use nukes, and once that happens all bets are off.
    As eye watering as the aircraft development costs are, they are tiny — French bank Société Générale lost €3 billion (with a b) pulling out of Russia when the war started.
    Boss lost his job but there is no link to his Russia calls after 2014, they say.

  4. Cirrus may be counting on the “meme stock” effect, from wealthy pilots specifically. Planning an IPO is complex and invites a great deal of scrutiny from finance types who look carefully at the fundamentals. That level of detail alone could pour cold water on the whole idea and keep the offering price so low as to sink the effort. Certainly, US investors should be very wary of investing in a stock traded in China.

  5. Still NO DIRECT PRESS REALEASE from company other than their recycled triage response from this periodical and flying mag’s initial discovery. Paul, a personal thank you for doing a follow up here. As I stated in the original article reply section: (https://www.avweb.com/aviation-news/cirrus-files-for-public-offering-on-hong-kong-stock-exchange/). This is a control move from CAIGA. The current strategy is to dismantle certain smaller sections of the partner network (those who built that brand) and build direct Cirrus centers for training/sales/etc. to justify this capital gen. Although they wont directly say that. The pleasant (or unpleasant) result is more tethers to CAIGA and other players trading in Hong Kong, as well as the benefit of direct control and gaining some pockets of revenue opportunities in training/sales/etc. In a short couple of years, we will see a mostly dissolved sales team, a full internet order form, followed by a sales demo conducted by a 400 hour pilot from a cirrus direct center. However, as stated above THERE IS NO WAY THE PRODUCTION RATE/QA DILLEMA can be managed in its current state. That requires half a decade of tooling, training, and a massive culture change. Not to mention, a whole lot more than a lousy $300M. Its a power move and a quick cash flow burst to sink the smaller “partners” and inflate the brand name. “If we build it, they will come”…maybe. Big risk that gravitates around their current teetering production capabilities and true brand loyalty. If I had access to trade it through HK or posses through EFT, I would short it… big time.

  6. Cessna is positioned to compete meaningfully with Cirrus / Diamond with the TTx, BeechCraft and Pipistrel acquisitions. But they’ve not even moved the Bonanza/Baron to the far superior Lycoming powerplants (which they also own). Now they own Pipistrel and are trying to field the Denali – which could compete with the TBM and Piltatus. Textron could provide an alternative to the offshoring anti-patriotic profiteering Paul lays out, but they don’t publish a plan, build an inventory of planes to sell or apparently care that US pilots prefer the Cirrus and Diamond stole the light twin market. Factory rep tells me Textron is more than a year out on a Bo, a 206 or a 182. What gives ?

  7. In my opinion, Cirrus is listing their IPO on the Hong Kong Stock Exchange (HKEX) because it is a beneficial and deconflicting option. I would think that HKEX can facilitate CAIGA more favorable rules and regulations, reducing risks related to U.S.-China current geopolitical climate.

    • Perhaps. Equally likely they’re list on HKEX because that’s what the boss told them to do. But it’s easy for we Americans – stop buying Cirrus and Diamond and forget them.

    • Absolutely Raf, because if Cirrus attempted to apply for IPO in the NYSE/etc. it would take years of audits to even qualify based on their foreign ownership (three year min), especially China. A wave of supply chain issues remain and continue to worsen even BEFORE THE COVID excuse matrix was implemented. Continental has ceased to even try manufacturing engines for some traditional Cessna/Beech twins due to parts availability. Additionally, it doesn’t help when thousands of your engines must be inspected for a crankshaft counter balance lock ring. Still ZERO DIRECT PR FROM COMPANY. Wonder what the in person responses at Oshkosh will be when asked. Vague deference and misdirection likely. It feels like the mothership acted without informing or considering the US leadership representation. The question still remains, what is worth a $300M cash flow burst? Its certainly not R/D for a new product line in VTOL or a new airframe. Hangars, paint, furniture and a new marquis are cheap. I think it’s more “factory direct” cirrus propaganda centers. “Thanks 3 decade Cirrus training and sales partners! Oh, and our relationship is terminated, we’ll take over from here”.

  8. Many prominent eyes wide open statesmen and authors have revealed the CCP’s 100 year plan to make the United States into a subservient province. We laugh as we allow the CCP to buy our politicians and destroy ourselves from within. This is the way of Sun Zu. The CCP sees the the US as a mass of groveling surfs dumb enough to allow their country to be destroyed. They also see vast GA opportunities outside the US when world reserve currency is the yuan. We view GA as a freedom device. Not the CCP. They view GA as controlled transportation for party members. Make a reservation and be tracked via ADSB. When Taiwan is invaded and the chips stop, so will the US economy, food, fuel and transportation. Get the bunkers ready.

  9. Raising money is only useful if a company has big plans. One of the things that surprises me is how little Cirrus et. al. have tried to reduce the cost of manufacturing. Aircraft production is ridiculously labour-intensive. It’s fine to chase specs (useful load / speed / range) but the best thing for GA would be to chase cost which would significantly expand the total addressable market. It would be worth a major redesign or even clean-sheet design for an airframer to design a GA 4-place that costs very little to produce and then pull a Commander (or modern Cirrus) and market it to non-pilots. Cirrus should be razor focused on reducing the cost of their aircraft so that people who are considering $200k 50-year-old Cessnas and Pipers have a reasonable alternative.

  10. Another good question is: “Is it 45% mark up or honest increased costs?” Good point Chipmunk. Shamefully, “innovation” is paraded as holes drilled in wheel pants or new colors from the Sherwin Williams catalogue. 2023 price increase was nauseating. There is no G7 in 2023 (or limited number, which they are gouging current favorite customers for), touchscreen won’t make it in time for Osh, maybe not even 2023. Yet, converting another Duluth abandoned airport space (old Northwest hangar) into the “Duluth Chinese Cultural Center for Provincial Takeover” is another great win for CAIGA. There was total Mayoral and City Council support for this reduction in 800k overhead as quoted in Duluth News Tribune. https://www.duluthnewstribune.com/news/local/duluth-based-cirrus-aircraft-may-tap-foreign-investors-with-hong-kong-stock-offering

    • I’ve been concerned about how easily CAIGA was allowed to acquire Cirrus Design right from the start. When I voiced my complaints about it in 2010, others were more focused on the potential job losses and the negative impact on the local and regional economy. However, my dissatisfaction stays because I believe this acquisition demonstrates poor judgment as it involved handing over a significant American aircraft company entirely to a communist entity, a military and trade adversary. This decision appears thoughtless and possibly undermining American socioeconomic interests. While I understand the difficult situation faced by the 1,700 workers involved, I find it hard to believe that CAIGA truly has the best interests of American workers in mind. It wouldn’t surprise me if most or all of the manufacturing eventually gets moved to mainland China. Trinculo remains correct.

      • Quite possible the company could have gone under without that cash infusion. It certainly couldn’t have finished the jet. But that’s American capitalism for you. The bottom line matters, not the customers and not the workers.

        • But Paul, it’s like technology predatory practices in plain view. Muggings in broad daylight.

  11. Lastly, the U.S. might have to do business with its adversaries, but it should make sure they don’t take ownership of the country. Allowing the People’s Republic of China (PRC) to have unrestricted access and control over American industries is in my opinion, an ominous loophole. Needs a protective fix.

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