Jack Pelton: Revving Up Cessna’s Bottom Line and Ready to Chair GAMA

Jack Pelton: Revving Up Cessna’s Bottom Line and Ready to Chair GAMA

By Karen Di Piazza

Cessna CEO Jack Pelton expects Citation Sovereigns and other models to hit a higher production rate in 2006. He credits higher production rates to his adopted “lean” philosophy.

Cessna CEO Jack Pelton expects Citation Sovereigns and other models to hit a higher production rate in 2006. He credits higher production rates to his adopted “lean” philosophy.

Cessna Aircraft Company Chairman Jack Pelton is eager to chair the General Aviation Manufacturers Association. Its current leader, James Schuster, who heads Raytheon Aircraft Company, will hand over the gavel in a time-honored ceremony next month.

Each year, GAMA elects a new leader. Pelton, who continues as Cessna’s president and CEO and currently serves GAMA as vice chairman, believes his longstanding relationship with the organization has “accelerated his status to chair” sooner than he expected. He’s ready to help industry “fight for aviation justice.”

Taking on the FAA

Pelton says Schuster has done an excellent job with GAMA, but he believes that next year is going to be a tough one.

“Next year is really the start of the FAA reauthorization process, so there’s going to be a lot of industry coming together in a uniformed approach to debate about user fees and a lot of other issues,” says Pelton, who became Cessna’s chair 11 months ago. “I believe that all of us in the leading companies in industry have an obligation to make sure we not only fight for our shareholders, but fight for the industry as a whole.”

The Federal Aviation Administration hasn’t been certifying aircraft at a rate that meets with the expectations of aviation original equipment manufacturers.

“We’ve been pressuring the FAA for quite some time,” Pelton said. “As an industry–and me individually–we want to work on solutions to that problem. The solution we all know needs to occur is that we have to get where reputable aircraft manufacturers have complete design delegation, and have authorized design organizations that can act and certify on behalf of the FAA. It’s the only way to relieve ongoing resource constraints, both in dollars and people at the FAA.”

GAMA has been focusing its efforts in that area. Has its initiatives been as successful as they hoped?

“It’s a top agenda item for industry, with Congress and with the FAA; that drum is constantly being beaten by all of us,” Pelton said. “As the chair of GAMA, I have the obligation to make sure I’m representing the consensus of industry, the membership of GAMA. Right now we’re holding meetings in developing what the 2006 agenda will be. But I can assure you that two areas that will be on that agenda, along with many others, will be addressing user fees and the FAA reauthorization bill. We’ll address overall needs of GA, along with continued improvement in the certification process and the delegation needs that the airframe manufacturers have.”

He believes the path of progress concerning the FAA will be faster than it has been, “because the sense of urgency with the FAA and with industry, in finding solutions, will become much more pronounced in 2006.”

Cessna’s Mexico facility

Recently, Cessna, based in Wichita, Kan., received some negative publicity regarding its intentions to open a facility in Mexico. In fact, competitor Raytheon moved its wire harness production to a supplier in Mexico in 2003, and Bombardier Aerospace plans to open its Mexico component plant in May 2006, with Mexico being the eventual destination for its final airplane assemblies.

Bombardier’s move will initially affect mainly 700 Canadian workers, whereas Textron-owned Cessna could lose 110 of its workforce. Pelton said you couldn’t argue with the inscrutable bottom line, or blame OEMs for moving, building or outsourcing.

“A lot of OEMs’ airplane parts haven’t been made in the U.S. for years,” he said.

Cessna is opening a 62,000-square-foot wire assembly and sheet metal facility in the first quarter of 2006. As for the workers laborers in Mexico will replace, Pelton’s plan is to give employees retraining opportunities, as Cessna will expand its U.S. workforce in 2006. They’ll also be given the opportunity to redeploy to Mexico. Pelton agrees that many U.S. workers, because of other obligations in their lives, won’t necessarily be able to relocate to Mexico.

“We have a lot of national issues that industry is going to have to address long-term; healthcare is one of them,” he said. “The airline and automotive industries have shown us that pension plans for companies that have been in business for many years are almost being penalized as a result of having to carry those costs. Those costs don’t go away; they just grow every year.”

Pelton, a “business-minded leader,” explained that Cessna struggles constantly to find ways to offset the inflationary effects of those costs.

“Unfortunately, consumers don’t want the price of their goods to go up and match those costs, so we can’t make it up in price,” he said. “It puts an extreme amount of pressure on businesses to find and look for ways to take costs out of their businesses while still maintaining the key and critical core elements of their businesses here in the U.S.”

This is Cessna’s first out-of-country venture, where they will manage and operate the Mexico plant. But for numerous years, they have subcontracted around the world.

“Companies build to print; in other words, we do the design work, and they build the components,” he said. “We have tooling built in China, and parts that are built in Eastern Europe, Canada and the Netherlands. That’s not an uncommon practice.”

Pelton said the investment for the Mexico plant was minimal.

“It doesn’t require having to build a building; we’re going to use an existing facility,” he said. “It’s the labor cost that we’re saving the money on; we’re not putting machinery or capital down there.”

He said Cessna has focused on its newest Citation Service Centers, one in Orlando and one in Wichita, which cost about $100 million.

Cessna’s “lean” production increase

Industry’s bonus depreciation plan, now over, helped the company’s single-engine piston business more than it did its Citation business.

“We were in a little bit of an enviable position in the industry, as we had a very large backlog already; we had introduced the Sovereign, the XLS and the CJ3, to begin delivery in 2004,” he said. “Most of our production was consumed with orders that were taken a few years ahead of that. And we couldn’t increase our production capability just because of lead times to really add capacity, on top of that, taking advantage of bonus depreciation.”

He said a lot of Cessna’s focus in 2004-05 was on developing its capability of producing more bizjets–without increasing the size of its facility or of the workforce dramatically. The trick to that, he said, was credited to the Toyota-manufacturing “lean” concept, where you can rearrange your factory, and by organizing it, produce more with less of a workforce. He expects his adopted philosophy to boost Cessna’s 2006 production.

“We’ve been on the lean path since mid-2004; we’re really starting to see some of the benefits,” he said. “We’ve increased our production significantly this year over last year. We’re going to go up to 240 this year–and I’m talking just business jets!”

Cessna’s slogan, “Beats other business jets and steals their milk money,” is applicable, says Pelton. For the third quarter of 2005, Cessna shipped 180 Citation jets, but competitors didn’t fare nearly as well. Raytheon shipped 77, Bombardier 136, Dassault 30 and Gulfstream 65. Ending in the third quarter of 2005, Cessna reported a total of 743 units shipped, inclusive of piston and turbine aircraft.

Pelton said Cessna would be positioned for future growth next year, but he forecast 2007 only slightly better than 2006.

Cessna’s Citation Encore is considered a posh aircraft, but it’s even better now. Last month, the Encore+ was introduced; it’s priced at $8.095 million.

Cessna’s Citation Encore is considered a posh aircraft, but it’s even better now. Last month, the Encore+ was introduced; it’s priced at $8.095 million.

“There are a lot of unknowns, dealing with an economy not nearly as predictable as it’s been in the past,” he said. “I think that certainly with the concern over oil prices, and just the general projections on economic growth, it slows a little bit in 2007.”

Although Pelton forecast slower economic growth in 2007, Cessna’s bottom line continues upward. Last month, the company unveiled the newest addition to its Encore line–the Encore+. Priced at $8.095 million, the aircraft is scheduled for certification at the end of 2006, with initial deliveries in February 2007. Some of the Encore+ features include Pro Line 21 avionics, Pratt & Whitney Canada PW535B engines, FADEC, a 200-pound increased payload capability and LED indirect lighting.

Benefiting from bust airlines and the air-taxi market

With so many of the airlines filing bankruptcy and with very light jets soon emerging, Pelton believes Cessna, as well as other OEMs, will profit.

“Just because the airlines are going bankrupt doesn’t mean that people are going to stop traveling; they’re going to have to find alternative ways getting from city to city,” he foresees. “And with some of the creative solutions–fractional, jet cards, and straight charter, some of the emerging methods of getting around–the general aviation industry will capitalize on that.”

In an earlier interview, Pelton said he didn’t see any evidence that there was an air-taxi market, referring to VLJs filling a phantom market niche.

“There’s going to be increased growth–whether the model that’s defined today as air taxi is the solution or not–but somewhere in the next many years, there’s going to be growth in getting people from point A to point B,” he says. “Whether you want to call it air taxi or something else, the need is going to be there; it will emerge.”

He said the bottom line is that Cessna will be well positioned to produce large quantities of aircraft–satisfying any market.

Don’t call the Mustang a VLJ!

Pelton is adamant that the Mustang, with 230 orders and priced at $2.4 million, is not a VLJ. Then what is it?

“When we introduced the Mustang, people viewed it as a continuation of the Citation jet family, as it was a little more predictable in what volumes or market shares could potentially be,” he said.

Although Pelton doesn’t agree with the term VLJ to describe the Mustang, he explained why he believed Honeywell used the term “VLJ” when including the Mustang in its 2004/2005 business jet delivery forecast, while at the same time ignoring start-up OEMs’ VLJ delivery schedules.

“My guess is that in that ‘VLJ’ market size or segment, there isn’t as much visibility by Honeywell and predictability (for startups), so they just elected for their forecast to ignore (other OEMs producing VLJs), plus they don’t provide engines in that segment,” he said. “So they are really a lot less familiar with where that’s going.”

He said he believed Honeywell excluded VLJ delivery forecasts from startup companies for several reasons, one being the inability to verify how financially sound some of them were; most are privately held companies.

“On the other hand, Cessna is a publicly traded company, and they knew if we announced plans to produce a new aircraft–dubbed a very light jet or not–you could take that to the bank,” he said. “They know that Cessna’s overall capital expenditures, worldwide, are inclusive of parts and service that will support a new aircraft production.”

For instance, Honeywell isn’t familiar with the financial wherewithal of start-up companies such as Eclipse, even though they claim in excess of 2,100 VLJ orders. They have no way to verify if production or postproduction can truly be supported; there’s no “public” quarterly report or track record to evaluate.

Pelton said the term ‘very light jet’ was coined long before the Mustang came along. In fact, labeling the Mustang a VLJ set off a few sparks at Textron. Lewis Campbell, its chair, president and CEO, said the air-taxi market would be tough to make work financially, unless the aircraft is very inexpensive. Describing VLJs on the market as less expensive than the Mustang, he added they’re also “smaller and more cramped.”

Agreeing with Campbell, Pelton said air-limo VLJs would have to be filled up to generate profit for operators, but remain affordable for users. The aircraft would have to have all of its seats occupied at the same time, or the cost per mile to operate would be cost prohibitive.

He said that when VLJs were first announced, using extremely small engines, it never truly represented what the Mustang was and is. The Williams FJ22 engines, “small enough to put in your pocket,” could power very small jets, but couldn’t support the Mustang.

“It was a marketing campaign that created excitement around something that’s very different than what we have created in the Mustang,” Pelton said. “It isn’t a Bonanza with jet engines on it!”

He said VLJs were originally coined “microjets,” which denoted purchasers coming from the bottom–pilots flying a Baron or turboprop, and getting into the smallest possible jet.

“I might even be guarded or being humble in saying we weren’t able to create a ‘microjet’ or ‘very light jet,’ as the Mustang is an extension of the Citation line, which means it’s coming down from the top,” he said.

Pelton said the popular Eclipse 500 is a true example of what started out as a VLJ or microjet, and that the aircraft was a breakthrough class.

“Now they’ve evolved to something closer to where we are,” he said. “But the Eclipse and the Mustang are distinctly different airplanes. The Mustang is significantly larger in ramp presence; when you look at it, it looks like an extension downward of the Citation family–not a midget twin brother. Also, the Mustang has two external-access baggage areas, one in the tail and one in the nose. Typically, with the VLJs, you have to bring the baggage in through the cabin and store it in the back of the airplane.”

Pelton offers another caveat: If you compare the cross-section of the Eclipse 500’s and the Mustang’s fuselage, looking at the interior space, you’ll notice the Mustang’s is a good six inches greater. Still, because of the nature of these types of products, whether it’s a CJ type or competitors’ VLJs, you can’t stand up in any of them. But something that the Mustang has, which most VLJs don’t, is a toilet.

“The Mustang doesn’t have a walk-in lav; it has a facility with a curtain around it,” Pelton says. “What we found in focus groups is that it’s not a gender-biased result; it’s important to have that capability.”

Mustang training helps with insurance

FlightSafety International, Cessna’s longstanding type-training partner, will provide initial type training for Mustang pilots as well, using two motion-based Level D flight simulators and two avionics flight training devices. Cessna is known for its advanced safety training. Through FSI, pilots who become type rated will have the opportunity to fly with experienced flight instructors, to teach them one-on-one, day-to-day Mustang characteristics.

The Mustang operates at altitudes up to 41,000 feet. It made its first flight April 23, and to date has logged over 248 hours. The initial production Mustang achieved first flight August 29; FAA certification is expected in late 2006.

“We have the worldwide service and support network, and we have the 24/7 parts supply,” Pelton said. “We have a training provider who’s not only going to provide the fundamental training for those pilots to get type-rated, but also ensure they can successfully operate the airplane.”

Understanding that getting insurance for a reasonable rate is a big “wow factor” for pilots, Pelton says its mentor program will help pilots to obtain reasonable insurance rates.

“Insurance is probably one of the unknown factors in how big of a market the lower-end jet business can be, because it’s still a barrier to entry that’s out there,” he said.

Pelton invited about 25 aviation underwriters to spend the day at Cessna, where they experienced firsthand what it was like to sit in the simulators.

Cessna’s new Encore+ interior cabin will look as good as the Encore, featuring high-end amenities to accommodate any business trip.

Cessna’s new Encore+ interior cabin will look as good as the Encore, featuring high-end amenities to accommodate any business trip.

“We educated them on what the training curriculum looked like,” he said. “We gave each of them full briefings on our products and explained what we do to certify, and how we stay ahead of continued airworthiness safety issues and service. We do that on a recurring basis.”

Pelton, a very experienced Citation type-rated pilot himself, favors full-motion simulator training over other methods.

“From personal experience, going through the training curriculum we offer, you can provide scenarios and situations in full-motion based simulators that you wouldn’t want to do in the airplane itself–and from a safety perspective, you can’t do on a fixed-based trainer,” he said. “It’s invaluable, actually going through the real-life experience of ‘what if this happens.’ You’re in an environment where you can experience it and either be successful, or not, in getting out of the jam, but you will have experienced it. If you’re ever in that unfortunate situation, it will be something that you will have trained for.”

He said instead of making a wrong decision in actual aircraft, you could be wrong in the simulator but live to learn from your mistake.

“When you get into CRM and managing the airplane, it’s always been understood that ‘one plus one in the cockpit doesn’t equal two; it equals more than two,'” he says. “Having that resource available is going to allow pilots to ensure they don’t get behind the power curve going into high traffic, bad weather, where you can crosscheck.”

He said pilots that have this type of training are more likely to make better decisions.

Poor pilot decision-making skills have proven to be the leading cause of incidents, accidents and fatalities.

Ready to expand

Pelton said Cessna has a $6 billion backlog, which is where they were before 9/11. If things continue as they are, they might exceed that figure.

“This gives you an idea as to where we are in the recovery of post 9/11,” he said. “But the majority of our backlog is business jets.”

He said Cessna will be ready to expand as markets open up.

“Geographically, we have a reasonable international presence with our Citations,” he said. “With the Mustang, interestingly enough, the sales mix was far more international than it has classically been with our other Citation models. In 2005, we’ve had some significant penetration into China with our CJ products line and some significant sales.”

He expressed excitement, as countries outside of Western Europe are becoming familiar with the business jet. Nevertheless, he said many countries still are oppressed, as many regulatory restrictions control how fast those aviation markets will emerge.

“China is a great example; the government controls the airways, so the ability of individuals to operate business jets in those countries is far more prohibitive and restrictive than what we see in Europe, the U.S. or South America,” he explained. “It got worse at Beijing Airport; they put in slot restrictions making it even more constraining for independent GA business travel. We think they’ll lighten up; that’s why we’re excited about some of the recent Citation acquisitions that have occurred in the country.”

Cessna figures it has one foot in China’s door already. They’ve been putting a lot of single-engine piston airplanes into their training colleges.

“We think that by continuing to maintain a good presence we’re also positioning ourselves nicely,” he said. “As the country opens up, we’ll be there to provide product and training.”

As for Cessna’s regional element of business, 70 percent of the company’s Caravans this year have been ordered from overseas. The piston-powered Caravans are workhorses; they have good utility and are designed for unprepared strips.

“From a strategy standpoint, when you look at emerging countries like China or India, that’s one of the things we think give us a competitive advantage,” he said. “We have products like the Caravan that can get us in there to some of these unimproved strips, and some of the little emerging strips.”

These countries and many others will be able to accommodate Cessna’s Citation CJ2+, which uses less runway at maximum weight limits. The CJ2+ can take off in 3,360 feet and land in less than 3,000 feet. The FAA granted type certification October 3.

In bringing the CJ2+ to market, Cessna has taken 17 of the CJ2’s most popular options, added 10 new features not available on the CJ2, and has made them standard. Some of these features include a copilot PFD, flight management system, broadcast weather, Skywatch HP Traffic Collision Avoidance System, and LandMark Terrain Awareness and Warning System. The Citation CJ2+ will serve single-pilot operators and offers significant enhancements in both performance and specifications, including the ability to direct climb to 45,000 feet in 34 minutes at maximum takeoff weight.

Pelton said the aircraft’s avionics suite, the integrated Collins Pro Line 21, is the most advanced that’s available on this class of business jet. The integrated CPL 21 encompasses many of the same features as the Citation CJ3 and CJ1+.

“Europe is in second place to the U.S. for deliveries,” he said. “We sell a lot of the CJs, and the XLS is very popular in Europe.”

He’s confident the Mustang will do well in Europe, too.

“The Mustang is an ideal airplane for the type of missions they would fly within typical Western Europe city pairs,” he explained. “It has adequate range to serve most of the city pairs and allows you to have the safety and benefits of flying above weather, at jet altitudes and relatively low operating costs, because of the weight of the airplane.”

Expanding factory authorized service centers in Europe

Currently, Cessna owns 10 service centers–nine in the U.S. and one in Paris–plus they have 24 authorized service centers globally. Pelton wants to have more–specifically in Europe.

“That’s the first order of business; we’ll expand our factory authorized centers into that region, and then we’ll continue to look at ‘does it make sense’ for us to have a factory-owned center,” he said. “There are a lot of operating advantages to having ‘factory authorized’ versus ‘factory owned,’ for many reasons–import/export, labor laws, etc. You can partner with some very good people that can operate better within their given country than sometimes we can.”

In Germany, from 1995 to 2005, Cessna doubled its Citation fleet.

“We’ve seen factory authorized service centers in that area grow in capacity and capability in supporting that fleet,” he said.

As Germany uses business jets more often, and as they continue expanding business outside of the country, the business jet becomes a necessary tool.

“Their economy typically has been in technology up until the recent years; they tend to be a proxy for Western European economy,” he said.

Getting into the groove

Pelton served as the company’s former senior vice president of engineering, and oversaw engineering and product development, before becoming president and CEO of Cessna in December 2003. Has the last 11 months as chair changed how he manages the company?

“What’s changed is that I’ve surrounded myself with a great team, so I have the utmost confidence that they will spend their time hands-on,” he said. “That allows me to really look longer term, and strategically deal within a little more of a hands-on fashion.”

Pelton has always been a hands-on leader, and he continues to foster relationships with Cessna’s customers.

“From an attention standpoint, while I love the details and the engineering side, I’m spending a lot more time with customers,” he said. “Whether it’s through individual Citation owners or through our distribution channel, it’s occupying a lot more of my time. A lot of that is by design, so I can get a better feel for what our customers need and want.”

By the time many people reach Pelton’s status, they lose the day-to-day grasp of what’s going on. But he’s still involved with the design process of aircraft and attends weekly meetings with Cessna’s advanced design team, including marketing.

As he grew up in the aviation industry, he watched other leaders and determined some of the qualities that made for good leadership.

“It was fundamental in the foundation of what the companies had that leaders were very much in touch with new product design,” he said. “For me, product design is in my blood.”

He hinted Cessna would be making other large capital investments. When asked if they plan on coming out with a new aircraft, he said the easy answer is yes.

“Specifically, as to what kind, what it will be or when, I can’t offer that up,” he said. “But we certainly are going to continue our investments and development of new airplanes, both in turbines and pistons. As much as everybody tries to be coy and hide behind statements, there’s no doubt that Cessna’s future and what has made us successful up until now is the continued development of new products; we’re going to stay that course.” He added that Cessna’s biggest problem was trying to pick which aircraft project they want to do next.

A self-admitted workaholic, Pelton still has a passion for flying, and says he’s found a “new favorite gadget.”

“The integrated avionics suites that have the satellite weather along with the navigation charts on the display is my favorite gadget,” he smiled. “No paper in the cockpit; that’s just wonderful, but on the primary displays within the cockpit. The ability to see that weather in advance, and then when you’re in the approach to have your chart come up on your multi-function display is just remarkable.”

For more information, visit [].