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US, CANADA: Business aircraft makers face severe test

by Kevin DoneFinancial Times
February 8th, 2009

Business jet makers reeling from the US political attack on some of their highest profile corporate high fliers are being forced to make increasingly drastic cuts in production and jobs in the face of the deepening global recession.

Jim Schuster, chief executive of Hawker Beechcraft, one of the leading US corporate jet suppliers, said: “We are undoubtedly facing one of the most severe tests in our company’s history.”

The group said last week it would remove 2,300 jobs on top of an initial 500 it eliminated late last year, a combined reduction of close to 30 per cent of the workforce of about 10,000.

Big production and job cuts have also been announced by Cessna, part of the US Textron group, and by Canada’s Bombardier.

The downturn and the credit crunch are biting deeper and more quickly into the operations of the business jet makers than the suppliers of commercial jets, although Boeing has also announced recently it is cutting 4,500 or close to seven per cent of the jobs from its commercial aircraft division.

Mr Schuster said Hawker Beechcraft was being forced to reduce production and workforce levels further “due to the increasing severity of the global economic decline”.

He said the US government’s stimulus package had failed sufficiently to loosen credit markets, which were “absolutely vital” to the success of the business aviation sector.

At the same time, orders from previously high-volume business segments, in particular fractional jet ownership groups such as NetJets, part of Warren Buffett’s Berkshire Hathaway group, had slowed considerably.

Mr Schuster condemned the political attacks in the US that had “cast general aviation as a wasteful extravagance instead of a critical business tool and the source of millions of American jobs.”

Corporate use of business jets has come under increasing fire in the US since the leaders of US carmakers flew to Washington by private jet to plead for government financial help.

Intervention by Treasury officials forced Citigroup to scrap the purchase of a Gulfstream jet.

Jack Pelton, chief executive of Cessna, the world’s biggest maker of light and mid-sized corporate jets, said since the third quarter last year jet orders had dropped significantly and cancellations and deferrals of orders were seriously affecting 2009 production growth.

The number of hours being flown by the existing business jet fleet had slowed, inventories of used aircraft were growing, the US domestic market remained very soft, and “the international markets that were very strong a year ago are now quiet,” said Mr Pelton.

Cessna had also been hit by a deferral of a significant number of planes by NetJets that were scheduled for delivery in 2009.

It is eliminating another 2,000 jobs, bringing the total cuts to 4,600 in three months, and is planning to reduce jet production by 20 per cent to 375 in 2009 from a record 467 last year.

Mr Pelton said: “The challenges we face are unprecedented in recent memory”.

Customers and potential customers continued to feel the impact of declining corporate profits and tight credit markets.

Bombardier, the world’s leading business jet maker by value of deliveries, said last week its business jet orders had fallen by 42 per cent from 452 to 262 in the 12 months to the end of January.

The group had been hit by a “greater than usual” level of order deferrals and cancellations and was cutting deliveries in 2009 by about 10 per cent from 239 in 2008.

Bombardier is removing about 1,360 jobs or 4.5 per cent of its 30,000 strong workforce, comprising 1,010 temporary jobs and subcontractors and 350 permanent employees - at its plants in Montreal, Wichita, Kansas and Belfast in Northern Ireland.

Guy Hachey, Bombardier Aerospace president said: “The industry is experiencing strong turbulence and we anticipate more volatility in the short term”.

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