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May 11--Cessna Aircraft is building business jets as orders come in rather than building up backlog, company officials told analysts and investors gathered in Wichita for an investor meeting Monday.
Cessna told the group that it hopes to build up some backlog as it heads into 2012, RBC Capital Markets analyst Robert Stallard wrote in a report to investors.
"Management pointed out that given the current depressed state of its backlog, it is practically building (a business jet) as the order comes in, thus 'working hand to mouth,' " he wrote.
The meeting, attended by about 40 analysts and investors, was hosted by Textron chairman and CEO Scott Donnelly. Donnelly is serving as Cessna's interim Cessna CEO until Jack Pelton, who left the company last week, is replaced. Cessna's sales and marketing, operations and customer service teams also took part.
Whoever replaces Pelton likely will have an "operating aptitude," an aviation background and an ability to manage a services business, J.P. Morgan analyst Steve Tusa said in a report after the sessions.
In the presentation, company leaders mentioned "four pillars" at work: workforce reduction, facilities consolidation, material cost improvements and a productivity "drum beat," Tusa wrote.
Cessna has reduced its footprint by 800,000 square feet and has another 400,000 square feet "of opportunity," he wrote.
It has expanded its Mexico facilities from 63,000 square feet and 175 employees to 575,000 square feet and 750 employees, Tusa wrote.
In 2009, 5 percent of Cessna's production hours were in Mexico.
"They expect this to move to 15 percent in 2013," he wrote.
Cessna spokesman Bob Stangarone noted that Cessna started moving wire harness and small assembly work to Mexico in 2009.
Since then, it expanded to include tail cones, nose cones and other items.
The "lion's share" of the work has already moved, he said. The rest is expected to come through incremental growth, Stangarone said.
Cowen and Co. analyst Cai von Rumohr said Cessna management praised the new labor contract with the Machinists union, noting that it dropped work classifications from 200 to 20.
"That's a huge plus," von Rumohr said.
Tusa wrote that Cessna faces challenges, including emerging competition, and "investment headwinds" to get new products to market and to remedy cost overruns on the new Citation CJ4 business jet.
"We come away feeling incrementally better about recent demand trends, including a better than expected April," Tusa wrote.
Cessna's 1,500 engineers -- which dropped from 2,500 at the peak of the upturn -- are working on research and development.
The company expects to introduce more than one new product or upgrade each year beginning at October's National Business Aviation Association show in Las Vegas, analysts said.
Recovery in small business jets is still running at a sluggish pace, Stallard said.
"This slow recovery rate, when coupled with Cessna's volume and supplier driven margin pressures, makes for a less than ideal situation, Stallard wrote.
But Stallard wrote that he thinks demand is gradually improving, although it's slower than many earlier predicted.
He rates Textron stock as an "outperform." Tusa ranks the stock as "overweight."
Reach Molly McMillin at 316-269-6708 or [email protected].
