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The Weekly of Business Aviation

(Copyright 2001 McGraw-Hill, Inc.)

Cirrus Design Corp., the startup single-engine aircraft manufacturer that was forced to lay off workers and revamp its production process early this year, has managed to sharply reduce the time needed to build new aircraft. As a result, officials expect the Duluth, Minn. company to show a profit later this year, a spokesman told BA Thursday.
Cirrus, which won type certification for its original SR20 single-engine model in the fall of 1998 (BA, Oct. 26, 1998/186), has captured a lot of interest and hundreds of orders for its products. But the company has struggled to find financing for its operations and wrestled with production startup problems. In February it laid off 127 employees, 20 percent of the work force, just after the company had managed to get the SR20 production rate up to nearly one aircraft per day in December (BA, Feb. 12/77). Officials said then that the increased production rates had “exposed weaknesses in supply lines and process flows.”

Officials subsequently suspended production of the SR20, which carries a price of $197,600, and began building the $276,600 SR22 exclusively after winning type and production certificates for the new model in November and December. While this displeased some SR20 customers, it convinced 180 of them to convert their orders from SR20s to SR22s to ensure an earlier delivery position.
In addition to focusing effort on the more profitable model first, Cirrus also claims to have made dramatic gains in reducing labor hours per aircraft. Spokesman Ian Bentley told BA that it was taking workers more than 6,000 hours per aircraft in December, but the average was down to 2,900 hours per aircraft in April. “Changes put into effect have made a significant improvement,” he said, adding that officials expect they easily will be able to hit the 2,500-hour mark soon. And then “we’ll see how low it can go,” he said. In addition to the company’s own analysis, it retained the services of McKinsey & Co. to help find ways to improve production flows and cut hours from the process. As a result of the improved production flows and lower labor hours, Bentley said the company expects to show an operating profit in the third quarter of this year and a net profit in the fourth quarter. “We’re heading for the straight and narrow and looking forward to a pretty bright picture,” Bentley said.

Cirrus wants to stabilize production in the short term at about 20 aircraft per month, or one per work day, and continue that rate through June and July. Then officials plan to establish a second production line to build SR20s. For the year, Cirrus expects to build and deliver 260 to 280 new aircraft. The factory delivered 140 SR20s before switching to the SR22, and 25 of the higher-priced models are now in the field for a total operating fleet of 165. In addition, Cirrus has an order backlog for 620 aircraft - 412 SR20s and 208 SR22s - and sales are continuing at a rate of about one per day, Bentley said.

While operations are trending toward profitability, the search for additional financing continues to support expansion of the business and make improvements - such as the acquisition of more hard tooling to further reduce labor costs. Officials turned down one potential financial offer earlier this year, however, after winning shareholder approval to consider it. The management team ultimately decided the terms of that agreement were not acceptable, but officials continue to review and consider other financing arrangements on a regular basis.

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