Has anyone run a D&B on Cirrus Design? I should think they would have a cash flow problem.
Dennis Persyk – wishing I could buy an SR20!
Has anyone run a D&B on Cirrus Design? I should think they would have a cash flow problem.
Dennis Persyk – wishing I could buy an SR20!
I’ve seen years of financial reports and also business plans…
They are cash flow positive with no problems…
Obviously they want to sell planes rather than get loans and investments…
But they are very solid and recently received a 5 million dollar loan that was reported in an article…that was posted on this board…
I haven’t seen a D&B report and don’t know if one exists. But unless I’m missing something, it would seem that Cirrus’s cash flow prospects should be brightening just now, rather than the reverse. Until last July, their revenue stream per SR20 maxed out at $15,000 per plane. If they’re now delivering planes at a one per week rate, they’re in a position to collect another $160,000+ cash per week. At face value it would seem that they should prefer whatever cash flow problems them have now to those of 12 months and 24 months ago (when they already had large capital costs and a medium-large work force but virtually no revenue). Plus, their brisk rate of sales keeps bringing in a flow of $15,000 payments.
I would assume that their margin on the early planes is slim or negative. But unless the Klapmeiers are much worse businessmen than they have seemed to be, they must have set the price at a level that will produce a positive per-unit margin as soon as they have somewhat higher production volume (with lower per-unit cost). This is the whole theory of mass production, after all: you have upfront capital costs, which you then amortize with higher production runs. And,yes, their operating costs increase now with a bigger workforce and higher material costs. But presumably they are not following the Internet strategy of pricing the plane at a level that guarantees permanent operating loss.
So do we have some reason for supposing that their situation is darkening – when prima facie it would seem finally to be improving, because of (a) their steadily growing order book and their (b) slowly-increasing-but-increasing-nonetheless output rate? The contrast with Lancair – while too bad for GA, since it would be great to have two healthy innovative competitors – would seem to highlight Cirrus’s financial achievement, since they’ve raised enough dough to start getting product into paying-customer’s hands.
I’m not denying that there could be cash problems. I’m just wondering whether there is any reason for suggesting or assuming that things are getting worse for them, rather than improving?
Jim F
Has anyone run a D&B on Cirrus Design? I should think they would have a cash flow problem.
Dennis Persyk – wishing I could buy an SR20!
They have had MANY rounds of financing stock…which the proceeds have been used for businesss purposes…plus lines of credit, and loans…Like was said earlier at 180k a pop when they start selling 1 a day…that should markedly change things…
As for a copy…you would have to be an investor…
Has anyone run a D&B on Cirrus Design? I should think they would have a cash flow problem.
Dennis Persyk – wishing I could buy an SR20!
While I personally think that they are doing OK, let’s be realistic & try to look at some facts: They have millions of debt on top of a substantial fixed cost base. These expenses have to be paid no matter what.
Last I heard, they have over 423 employees. Let’s also assume the number is 423 and they earn an averag of $35,000/yr. including benifits. Since benifits are usually about 1/3 of an employees annual salary, that equates to about $25,000 in actuall salary. For a skilled labor force this is low.) Anyway I digress, this annual salary amounts to $14.8M or $285K (rounded) per week. They have to sell 2 planes per week just to meet payroll.
If they only have $15 million in financing, at prime rate, and payable for the remainder of the year at interest only (without principal amortization), that amounts to a monthly payment of $106K, or almost one more airplane (1/9th of a plane per week).
But wait, we haven’t paid for the parts and materials going into the airplane. Lets assume that this is a low 50% of the total cost. Now we have to sell 4.5 airplanes a week to break even, and we haven’t even paid the electricity, insurance (for the factory, not the planes, which for arguments sake is included in the costs above), R/E taxes (I bet they have some sort of abatement), ongoing development costs, etc.
So, by my calcualations, they won’t even break even on a cash basis until they are selling more than one plane per working day!
Now this is all guesses, but I bet they are somewhat conservative!
I still think (& Hope) that their business plan accounted for all of this, but if they expected to be selling almost one plane per day by now, they are still capitalizing an awfull lot of expenses (Another way to say this is spending a lot more cash than they are earning).
Here is a column I recently did in the ‘Industry Standard’ magazine, which covers the Internet industry (and has 300+ pages per week in the print edition). It has a brief mention of Cirrus, plus quotes from Alan Klapmeier and This Forum’s Own R. Karlgaard, and alludes to today’s overall financing follies.
Anyone who happened to see this in the print edition will have seen the howler: Cirrus was listed as being based in “Duluth, Ga.” I sent the copy in just saying “Duluth” – apparently there is a Duluth in Georgia, and the copy desk helpfully tacked that on without checking with me. Jeesh!
AP wrote:
They have millions of debt on top of a substantial fixed cost base.
Actually, I believe they don’t have much in the way of debt, AFAIK the investments made by the large number of private investors have been in the form of equity. This means they would not have a large interest bill. IT still means they have to make a profit, those investors will be wanting to see a return one day (though they may be hoping for a capital gain rather than dividends). Quite frankly, I doubt that debt financing of a project like the SR20 would be viable, given the long time overrun (and therefore cost overrun) that occurred.
Nonetheless, the estimate of 4.5 planes per week to break even is probably not far wrong. But it would appear that Cirrus plan to achieve that and better (1 plane per working day) before the end of the year, and without a commensurate increase in workforce.
It’s often been said that to make a small fortune in aviation you should start with a large fortune. But Cirrus are looking good right now - there is every indication that they are adequately capitalized, and can look forward to making a profit in the not too distant future. And they have an order book worth $100 million, growing at over $1 million/week.
If I had a spare $100K to invest, Cirrus would certainly be one company I would investigate.