Tuesday, April 17, 2012

Cirrus secures funding for new jet: Financing from its Chinese owner will allow Cirrus to complete work on the new plane, which it expects to begin producing in Duluth in 2015

Cirrus Aircraft's plan to develop its first jet is taking what could be a big step to get off the ground.

Almost five years after starting work on a prototype, the Duluth-based company said Tuesday it has landed financing to finish developing the new plane. Designed for the personal aircraft market, it's an integral part of a strategy to expand Cirrus' current product line of piston-engine aircraft.

It also could be the industry's first single-engine jet - a low-cost alternative to twin-engine models now on the market.

In an interview, CEO and co-founder Dale Klapmeier declined to disclose the amount of the investment from China Aviation Industry General Aircraft Co. (CAIGA), which acquired Cirrus about nine months ago. But Klapmeier said the financing represents most of the previously-estimated $150 million total development cost.

"It has been a struggle to keep this program moving forward," Klapmeier said. Cirrus and the rest of the industry went into a tailspin during the recession, forcing the company to scale back funding for work on the new plane.

"It has been a struggle just to survive," he added.

Since 2008 Cirrus has cut its workforce in Duluth and Grand Forks, N.D. from about 1,350 to 500 people. But Klapmeier said the new jet could generate more than 100 jobs in Duluth where production is expected to begin in 2015.

He said the company already has added engineers and technicians to finish work on the plane, called the Vision SF 50. Klapmeier said the funds from CAIGA will be used for further testing and to build tooling needed to manufacture the new plane.

The jet, which will seat up seven people, is designed to be owner-flown like Cirrus' other aircraft. Klapmeier said about 500 people already have put down $100,000 deposits on the Vision, whose current pricetag is $1.7 million.

But its list price will move up to almost $2 million in July. Michael Boyd, a Denver-based aviation industry consultant, said that's dangerously close to being too pricey. "With anything over $2 million, you're going to have an issue," he said.

Even so, a single-engine jet would fill a gap in the market, said Jens Hennig, vice president of the General Aviation Manufacturers Association (GAMA). He said the current average cost of twin-engine jets is $4 million to $5 million. Boyd noted that in addition to a lower initial cost, a single-engine jet would be more fuel-efficient and have lower maintenance costs than a twin-engine model.

The challenge of recouping development costs already has sidelined some competitors, which like Cirrus, began working their own version of a single-engine jet in the last several years.

Piper Aircraft Inc. suspended work on its model last October amid a corporate restructuring that included laying off 150 of its 850 employees. Eclipse Aviation Corp. ended work on its jet when the company was liquidated after filing for bankruptcy in 2008. Another competitor, Diamond Aircraft, had to stop work on its jet due to a shortfall in funding but resumed development late last year.

With more power, load capacity and range than its piston-engine models, the Vision is a "step-up airplane for our current customers," Klapmeier said. The company has previously said the new jet could add more than $100 million to its total sales in its first year of production and eventually add about $300 million a year to sales.

Cirrus' shipments last year fell 3.4 percent to 255 planes, more than the 1.5 percent decline for the piston-engine plane segment, GAMA said. Cirrus which was privately-held before being acquired by CAIGA, saw its sales fall slightly, last year to about $170 million and has been unprofitable for the last four years, Klapmeier said.

He said Cirrus will likely post another loss this year, but it will be smaller than the one in 2011. He said the company expects to move into the black in the second half of 2012. "It's still tough, but it's an improving picture," he said.

Source:   http://www.startribune.com