Cessna Blames Higher CJ4 Costs for 1Q Loss

Despite steadily improving sales and flat deliveries, Cessna posed a $38 million segment loss in the first quarter, leading Scott Donnelly, Chairman and CEO of Cessna parent Textron, to call the operation performance below expectations and to promise that more cost-control measures are ahead.

The operating loss was greater than the $24 million loss reported in first quarter 2010. “While there are a number of items in the quarter which contributed to the magnitude of the loss, I would say our underlying operational performance at Cessna was disappointing,” Donnelly says.

Contributing to the loss, Donnelly says, is higher-than-expected costs associated with the CJ4 business jet. “The production ramp of the new CJ4 is going well technically but is above our production cost targets,” he says. He attributed this to higher component costs and says the company needs to work out material costs with suppliers.

Also contributing to the down performance were lower forfeiture income and an increase in engineering costs, the company says.

And, while aircraft pricing is stabilizing, “inflation did erode margins, and even with low levels of production in the factory, I believe we could do better in terms of driving productivity,” says Donnelly.

Donnelly notes a series of actions Cessna has taken over the past couple years to drive cost, but says, “[we] clearly have more to do I can assure you we are taking necessary actions to restore our profitability, even as we increase our investments in new products and service offerings”

The loss comes in spite of a $123 million increase in revenues to $556 million in the quarter. Donnelly attributed the increase primarily to a higher mix of its light and mid-size jets and an increase in used jet sales. Cessna delivered 31 jets in the first quarter, the same as in first quarter 2010.

Donnelly also was encouraged that order and customer inquiry activity has increased and that the inquiries are broad-based geographically, including the U.S. Bonus depreciation is still in effect, he notes, and predicts that Cessna should see a boost from that in the fourth quarter, similar to 2010.

Another improving indicator is used aircraft sales, where the availability of used Citations has dropped to 14% of the fleet, compared with 14.5% at the end of the year and 17.3% at the peak of the down cycle. The improvements reinforce the company’s belief that Cessna’s deliveries will be up slightly in 2011, he Donnelly.

Even so, backlog slid $293 million to $2.6 billion at the end of the first quarter. “We did see gross orders up a quite a bit --the market is coming back,” Donnelly says, but adds, “It is coming back slower than we would like.” He adds that backlog may begin to increase again before the end of the year.