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Business North - The Daily Briefing - Business Newspaper Online
Cirrus battered by changing forces
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7/2/2009 by Richard Thomas |
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(Photo: Cirrus Design’s co-founder and former CEO Alan Klapmeier is bidding to acquire the rights to produce the single-engine jet Vision SF50.)
About 150 private planes carrying 300 people flew into Duluth June 25 for the Cirrus Owners and Pilots Association annual convention.
Overshadowing the event was that their beloved aircraft manufacturer is buffeted on several fronts: recession, shifting internal control, wrongful death lawsuits and its co-founder seeking to split the company.
Board chairman Alan Klapmeier announced June 26 he had formed a team to raise money. His goal to buy Cirrus’ highly touted SF 50 Vision personal jet program from the company’s majority owner Arcapita Bank and embark separately on production.
“It’s very, very preliminary,” said Todd Simons, vice president of marketing.
The split would not necessarily be a hostile one. Klapmeier could remain on the Cirrus board, though he would step down as chair. The goal is to speed up production for waiting customers.
Cirrus has orders for more than 400 jets, but has refunded about eight percent of the $100,000 deposits, according to Aviation International News. The jet costs about $1 million.
“Yes, we’d like to have more funding,” Simmons said. “In a capital-constrained environment it’s good stewardship that we explore opportunities. Alan has the unique ability to raise capital.”
He noted Vision production is on schedule with current internal funding. “It’s not for sale. We’re entertaining an offer from an insider.”
Klapmeier and his brother Dale founded the company in 1984. By 1994 it moved its headquarters into Duluth with 35 employees.
By 2001 the company was plagued by net losses and a desperate need for capital infusion. Crescent Capital, the American arm of the First Islamic Investment Bank of Bahrain (now called Arcapita) bought 58 percent of the company for $100 million.
By 2008 Cirrus had more than 1,300 employees. But in September, motivated by the recession and the need to streamline production, the company eliminated 208 employee positions in Duluth and at its fuselage assembly plant in Grand Forks. Four-day workweeks were mandated. In November, 500 employees were laid off, though most now are back at work.
In February Alan Klapmeier stepped down as CEO but remained as chairman of the board, with less day-to-day activity. Brent Wouters, Cirrus’ chief financial officer, replaced him.
“Wouters personally has a strong relationship with the principals at Arcapita: They introduced Wouters and Cirrus to each other in 2002,” states a June 2009 article in Plane and Pilot magazine, which Cirrus posted on its Web site.
Wouters implemented a production schedule based on demand. The company built only three to four aircraft per week, down from 16 the year before. In April, Cirrus suspended its SRS light sport aircraft program.
On June 1, there was a hint of sunshine as the company announced it was calling back 50 furloughed workers and increasing production to eight aircraft per week.
“We’re very excited about the future,” Simmons said. “There were painful things we did last year, but we’re coming out of that.”
Meanwhile Cirrus is weathering another flurry of bad publicity over fatal accidents involving its planes. (In 2003 BusinessNorth reported, “Cirrus executives are considering relocating the customer delivery center outside of Duluth, citing negative local press coverage of Cirrus crashes and fatalities.”)
In early June, an Itasca County jury awarded more than $16 million to the families of Gary Prokop and James Kosak, who died when their plane crashed near Hill City in 2003.
The original award was $19 million but the jury found Prokop, the pilot, to be 25 percent responsible. The remaining damages of $16 million are to be split evenly between Cirrus and the University of North Dakota Aerospace Flight Training Center, which taught Prokop to fly.
Simmons expects the company to appeal, but said it is exploring all legal options. “We were disappointed” in the decision, he said. “We would not have gone to jury trial if we did not think we were in the right.”
Cirrus also faces lawsuits over the deaths of Gerald Miller, who crashed in Park Falls en route to Duluth in 2004, and Yankees pitcher Cory Lidle, who rammed a building in Manhattan in 2006.
The Miller case is set to go to a jury trial in St. Louis county March 22, 2010. The University of North Dakota Flight Training Center again is a co-defendant.
On June 16, four people, including CyberOptics founder Steven Case, died in a Cirrus SR22 crash in Crystal near the Twin Cities.
“The accidents are tragic and they get a lot of coverage, but they are a very, very small probability,” Simmons said.
The ongoing debate in the private plane industry is whether blame should rest with pilots or Cirrus planes are trickier to handle than other private models. Cirrus has its staunch fans who scoff at the notion that the plane’s design is to blame for pilot error. But others have dubbed Cirrus planes the new “doctor killers,” attracting wealthy customers who don’t have the temperament to handle the aircraft.
“How safe is a Cirrus?” asked Rick Beach in an article published by the Cirrus Owners and Pilots Association Nov./Dec. 2008. Beach looked at 41 accidents (82 fatalities) with SR20 and the faster SR22 planes since customers started flying them in 1999.
The rate of fatal accidents overall for SR planes is 1.53 per 100,000 flight hours. That’s higher than the general aviation rate of 1.19 (including multi-engine turboprops and turbojets flown by two pilots). But it’s lower compared to other single-engine piston aircraft, which have a rate of 1.86. Most Cirrus accidents happen in bad weather from October to March.
Members of the pilots association (who make up the majority of Cirrus pilots, 2,900 of 5,000) have one-fourth the fatality rate of nonmembers, indicating the importance of taking part in forums and safety programs.
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