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The following customer update was mailed overnight via USPS:
This issue of our “Customer Update” is intended to broadly clarify for all of you some of the issues raised by individuals in recent conversations with
our Sales and Marketing staff. Areas of interest include the status of current production rates, the timeline for an award of a Production
Certificate and its implications for future production rates, our expectations for our next product and a better understanding of the
relationship between serial numbers and order numbers.
Increasing the rate of SR20 production is the “prime directive” at Cirrus Design. Present employment at our three facilities is at 378. Many departments are running double shifts. Concurrently, Manufacturing Engineering is developing additional tooling, both to facilitate the manufacturing process and to stay ahead of the growing workforce. Four SR20s were built in January, achieving the intermediate goal of one per week. We hope to deliver five units in February. Cirrus is committed to dramatically increasing that rate in the months to come, but it will take additional people, tooling and, of course, money. It is gratifying to see the production line filling and the continuous improvement in production rate.
Sixteen airplanes have come off the line, including Company demonstrators. Our Regional Sales Managers have been sharing demonstrators, not only to sell airplanes, but also to complete customer demonstrations. One of the
demonstrators is currently being utilized for stormscope certification, which furthers our commitment to ongoing product improvement. As most of you know, another of those demonstrators became the first Cirrus to fly to Europe last fall.
We look forward to the completion of our Production Certificate (PC) audit this spring. The PC represents a very visible milestone for the company. The FAA has now selected the PC Audit team members, and they hope to complete their review by April. Many people believe once we get the PC, that the rate of production will increase at a faster pace. However, that’s not necessarily true. As we have demonstrated results, the FAA’s
cooperation has mitigated significant delays in our production ramp-up. Cirrus has been using the approved Quality Assurance Manual for several
months and has been gradually implementing all of the required PC procedures. A PC will reduce costs, since we will no longer need to pay FAA
designees to perform oversight functions on the production line.
Many of you have expressed interest in our upcoming derivative aircraft. Future aircraft designs have been part of our business plan for years. New aircraft development epitomizes Cirrus Design’s obligation to be a viable airplane manufacturer. Customers, shareholders, employees and the industry all benefit from this commitment, yet it requires a fine balancing act that
integrates both long-term and short-term perspectives. Consistent with those plans, last August, Cirrus president Alan Klapmeier told the media at Oshkosh that we would soon commence the research and development of a new airplane, modeled after the SR20, but incorporating a larger engine. This aircraft, which we are calling the SR22, is a modified SR20 with a 300HP
Continental IO-550 up front. We flew the prototype (our original C1) in October 1999. The performance numbers we are getting from flying the
prototype are encouraging. However, until more testing is complete, it is too early to discuss them.
Please rest assured that our efforts on the SR22 are not detracting from SR20 production. In fact, many of the design improvements we are working on
for the SR22 will be incorporated into the SR20 first. Our production and refinements of the SR20 are our immediate concern, but our strategy to grow a family of airplanes positions the company to remain healthy over the long-term. Together, the SR20 and the SR22 work hand-in-hand to offer
options to a larger customer base, and this diversity ultimately will feed the support and service infrastructure that can better serve you.
We have not finalized a policy and schedule for the formal introduction of the SR22, nor have we determined implementation of its production line. We have begun accepting deposits. However, these are non-contracted, refundable deposits, which do not guarantee price, specifications or
availability. When details of the SR22 are defined/refined, we will begin to take deposits for firm purchase contracts. At that time, we expect to offer current SR20 customers the option to upgrade to an SR22. SR20 and SR22 production will be re-sequenced according to each customer’s date of deposit.
As SR20 production continues to accelerate, we will be revising the contracted delivery schedules. Specifically, we have been assigning revised “Scheduled Delivery Dates” for order holders as to when we expect to have an
airplane delivered in the next six months. Also we have been requesting detailed options choices and “Additional Payments.” These new dates have
been allocated conservatively and will be followed by notification of “Actual Delivery Dates,” which will be the date the airplane is ready for the customer. We expect the actual delivery dates to be either on or ahead of the new scheduled dates. We hope to extend this formal notification
process beyond the six-month horizon. Obviously, given our past delays, we want to make sure that the new schedule is accurate. We hope to have our
production on schedule with the original contracted delivery dates by early next year.
Position numbers and serial numbers differ because they have two separate purposes. Position numbers were assigned to establish a sequence in which our customers will receive SR20 aircraft. In that sequencing, aircraft were reserved by Cirrus for demonstrators and R&D aircraft. When Cirrus elects to keep an unassigned airplane for testing or as a demonstrator, it does not affect the sequence in which you will receive your airplane. Of course the reverse is also true. As many of you know, the original delivery schedule
had the first nine production SR20s listed as demonstrators for the company. We elected to defer these demo aircraft and to begin deliveries to customers instead, effectively moving some deliveries forward.
Serial numbers are developed for each airplane coming off the line and represent the formal designation of aircraft and associated parts for the company, as well as for the FAA. The first customer aircraft, which was delivered to Walt Conley this past July, was actually serial number 1005. Although the two sets of numbers no longer match, the sequential relationship among customers remains intact.
One of the realities for a new airplane manufacturer is the difficulty in capitalizing its projects. That’s why we continue to sell airplanes and offer equity through a Company private placement for Preferred Convertible
Stock. Our 500 plus orders represent $100-million-dollars in future revenues, which is helpful when talking to the financial community about maintaining our measured growth. It also attracts investors to assist us with that growth.
We hope this update helps you better understand the status of the subjects raised. Please donÂ‚t hesitate to call or write us with your comments. We welcome your input.