Aerospace cluster buster

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Wichita, Kansas, one of the few remaining US aerospace clusters, has been under a siege of negative economic news, including a US political climate openly disdainful of its chief export, business aircraft.

The global economic downturn has slammed Wichita's largest employers Cessna and Hawker Beechcraft, with roughly 30% of the workforce being laid off at each company. Cuts are also planned by Bombardier for its Kansas Learjet facilities.

This economic environment, coupled with the difficulty securing financing for aircraft, has resulted in the "bottom half of the [business aircraft] market falling out", says Richard Aboulafia, vice-president for analysis at the Teal Group.

The "bottom half of the market", as Aboulafia sees it, is centred on the light jet sector dominated by aircraft such as the Beechcraft Premier IA, Bombardier Learjet 40/40XR, Cessna Citation Bravo, CJ3, CJ4 and Encore, and Hawker 400XP/450XP - all assembled in Wichita.

Business jet output at Wichita is expected to drop significantly in conjunction with the coming cuts. Industry sources confirm that some production lines could be shut for as long as six months, with manufacturers giving serious consideration to curtailing development of new products or permanently shut existing products in a cost-saving measure.

"There's no reason to think growth will return again soon," says Aboulafia. The goal is to "stop the bleeding".

Business aircraft, which have been regarded as high residual value assets, risk a downward spiral as decreased demand significantly affects production rates. Industry observers say that a surplus of unused or underused business aircraft in service has the potential to make the rebound for manufacturers more difficult by making operation of an existing aircraft more appealing.

The assault on business aircraft production has also been fuelled by public opinion.

Congressman Barney Frank, who chairs the US House Financial Services Committee, proposed an amendment to the second round of financial bailout funding that would have stripped aviation assets from banks receiving federal funds. This was withdrawn after political pressure from Kansas-based elected officials,

The amendment was drafted after automotive executives, including Ford chief executive and former Boeing Commercial Airplane chief Alan Mulally, travelled via company jet to testify to a Congressional hearing in a request for emergency funding.

The incident helped cement the public's conception of business aircraft as luxury item.

"The media and some politicians have cast general aviation as a wasteful extravagance instead of a critical business tool and the source of millions of American jobs," Hawker Beechcraft chief executive Jim Schuster wrote in a letter to employees announcing significant job cuts.

As recently as six months ago, Wichita was booming. Last year the Cessna Columbus and Hawker 450XP were launched, Spirit AeroSystems won significant contracts to produce parts for the Gulfstream G650 and Cessna Columbus, while Hawker Beechcraft certificated and delivered its first Hawker 4000. And Bombardier announced that final assembly for its Learjet 85 would be in Wichita.

Wichita is a tale of two cities in this economic downturn. The first is the still robust commercial aviation sector anchored by Spirit AeroSystems, formerly Boeing's Kansas commercial division.

Steady commercial production rates from Boeing has spared the 737 and 787 fuselage supplier from job cuts, although industry analysts expect a drop in production rate as backlogs soften with deferrals and cancellations.

Boeing expects a book-to-bill ratio of less than one for 2009 and is entertaining the idea of production cuts in early 2010. Spirit requires Boeing to notify it six months ahead of such cuts, introducing more uncertainty to the Wichita aerospace landscape.

For Kansas state Representative Raj Goyle, aerospace is the largest employer in his Wichita district of 25,000. Goyle sees reinvestment in public education and job retraining as central to maintaining the city's industrial competitiveness when the economy recovers.

He adds that much of the future of Wichita's aerospace industry, and the economy at large, hinges on the passage of federal stimulus legislation as a spur for job growth, reinvestment and reactivation of credit markets.

"[The downturn] will end," says Goyle. "The answer is to position ourselves now for the upswing."