Textron's Cessna to Cut 700 Jobs, Output on Weak Demand for Business Jets
Textron Inc. plans to cut 700 jobs at its Cessna plane division, representing about 8.3 percent of the unit’s workforce, as the aircraft maker reduces production further because demand hasn’t yet picked up after the recession.
Manufacturing free cash flow from continuing operations this year will fall to about $400 million, from a previous target of as much as $550 million, because of lower jet deliveries, the Providence, Rhode Island-based company said today in a statement. Profit, excluding some costs, will still be 55 cents to 65 cents a share this year, Textron said.
Orders for business jets haven’t improved along with the economy, Chief Executive Officer Scott Donnelly said in the statement. He predicted in May that Cessna’s results would bottom out this year as corporate earnings rebound. Cessna, which has cut half its workforce since 2008 to about 8,400, declined today to detail the reduced output levels.
“Meaningful recovery in bizjet production may not happen until 2012,” Robert Stallard, an analyst with RBC Capital Markets in New York who rates the shares “outperform,” wrote today in an investor note. “We think it is better to take action now versus oversupplying the market in the long run.”
The lower cash from manufacturing operations will be more than offset by a higher liquidation rate at Textron’s finance unit, which is shrinking its portfolio, the company said. Receivables will be reduced by $2.4 billion this year, up from the previous target of $2 billion, Textron said.
The company said it repaid the $665 million balance remaining on its $1.25 billion bank line in the third quarter, which should allow net debt to drop below $5.5 billion by year- end as planned.
Textron gained 10 cents to $20.29 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have risen 7.9 percent this year.
“While we are seeing solid performance in most of our other businesses, we have not yet seen a discernible improvement in business-jet order activity,” Donnelly said in the statement. “Therefore, we are taking further production and restructuring actions at Cessna.”
Cessna’s largest facility is in Wichita, Kansas, where it employs about 6,500 to build and maintain business jets and Caravan turboprop aircraft, followed by plants in Independence, Kansas, and Columbus, Georgia. The cuts will take place in multiple locations and will include both management and workers, Karen Gordon Quintal, a spokeswoman, said in an e-mail.
The announcement comes three days after assembly workers and mechanics in Wichita rejected a contract that would reduce health-care costs for the company and increase expenses for employees. The seven-year deal was ratified by default, because there weren’t enough votes for a strike.
In July, Cessna told investors that it reduced the 2010 delivery forecast for its Mustang aircraft, one model of its business jets, to about 70 units from an earlier projection of 105 planes. During the call, the company didn’t update its previous delivery forecast of 120 light-to-midsize jets.
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