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Mon, Feb 28, 2011

Updated: Concerns Grow Over Much-Delayed/Hyped Cirrus Jet Program

Schedules Missed, Refunds 'Delayed,' Staff Disappearing, And Questionable Marketing May Mean Downfall Of Once-Iconic Cirrus

News and Analysis by ANN CEO/Editor-In-Chief, Jim Campbell

ANN Editorial Update 02.28.11, 1102ET: Just hours after we posted this analysis of the problems at Cirrus Aircraft, ANN has learned that the company has 'merged' with a Chinese entity, CAIGA (note separate story on that topic in today's news feed). While statements have been made that suggest that Cirrus will stay in the US, we have to admit to little confidence that the company will still be building airplanes here just a few years hence. Regardless, right now, we feel that a truly unique American icon has been giving a black eye by questionable management, over the last few years, that seems to have resulted in a last ditch sale to the Chinese... we'll have more analysis shortly. -- ANN E-I-C

The past few years have not been kind to one of the former darlings of the GA world... Cirrus Design/Cirrus Aircraft. With thousands of SR20 and SR22 aircraft in circulation, there is little doubt that the company once guided by GA wunderkind Alan Klapmeier has fallen on hard times. Up and through the better economic times leading into 2008, Cirrus enjoyed pretty significant success under the management and direction of Alan -- but since then, not so much.

It was Alan Klapmeier that pushed the company toward a new level of hoped-for success with the announcement and fabrication of the Cirrus SF50 jet program -- garnering hundreds of orders, held by refundable deposits (usually $100K). Under his leadership, the aircraft excited the industry to no small extent, and a flying prototype was produced and exhibited to further ignite intense interest in a new generation of small owner-flown jet aircraft. The future looked bright for Cirrus... until the storm clouds of a faltering economy and bizarre political posturing, virtually shut down much of the GA and BizAv industry in a matter of months. Klapmeier was reportedly in the process of implementing a survival plan to equip Cirrus for the uncertainties of the future when majority shareholders, Arcapita, set forth to remove Alan as CEO and put the CFO into his shoes, early in 2009.

It was not a pleasant parting... as Klapmeier and new CEO Brent Wouters clashed over the future of the company while Alan's vision was shunted aside. Over the course of many months, Wouters took on extensive cost-cutting measures as well as changes in the manner and operating attitudes of the company. Jobs were slashed. Prices were raised, service suffered, and the kinder/gentler Cirrus started to disappear. Despite numerous pronouncements of the great successes achieved by Wouters in cutting costs and "making the company self-sustaining," rumors continued to fly about that the company was heavily into debt, that staff morale was plummeting, and that Wouters and senior staff were looking for a way out of the Cirrus Jet program... as well as the millions of dollars of obligations/refundable deposits placed for the program. In many cases, Cirrus marketing staff managed to put a somewhat positive spin on the process, bragging about new deposits/sales and continued progress on the intricate details necessary for the jet to see eventual certification... despite the fact that pivotal (even critical, according to insiders) personnel either were let go or left the program.

In the meantime, complaints mounted by suppliers who reported that they were encountering great difficulties getting paid by Cirrus, while some vendors alleged that Cirrus used tactics and actions that placed in them in difficulties above and beyond the gross issues of not getting paid. Once-favored vendors were "thrown to the wolves" under the leadership of the Wouters-led Cirrus -- especially those who were known to have enjoyed the confidence of his predecessor, Alan Klapmeier (who had incurred the wrath of Wouters). This enmity became more severe and even vocal as time wore on. During a number of occasions and conversations in which ANN carried on interviews with Wouters, he expressed severe displeasure over actions and comments he alleged Alan to have made -- and at one point accused him of being "the son-of-a-bitch who left Cirrus in such poor shape," while often making numerous other statements expressing his dislike for Klapmeier. Vendors and partners such as Avidyne, L-3, Tornado Alley, Patty Wagstaff, and BRS saw their relationships suffer greatly in the transition from Klapmeier to Wouters... and a number of them wound up in legal altercations with the increasingly rocky company.

L-3, who had been touted as a major partner in the development of a glass panel alternative for the SR piston line, as well as the Jet program, wound up in an extensive legal altercation when Wouters-led Cirrus made Garmin the primary contractor for both The Jet as well as much of the SR piston program. Cirrus reportedly settled the matter... but not without reports of some significant present and future costs to the company. In the meantime, the well-thought-out L-3 SmartDeck program for the piston line and The Jet pretty much died out as a result of what one L-3 insider called, "Cirrus throwing us under the bus."

The relationship between Avidyne and Cirrus continued to suffer as the company nearly abandoned the rebounding avionics entity that brought GA and Cirrus to the forefront of GA cockpit innovation. Wouters ruled in favor of industry Goliath, Garmin, who had actually followed Avidyne to the market months after the Entegra hit the market. When Avidyne developed a system that many pundits considered to be superior to the highly lauded G1000/Perspective system, the "Entegra Release 9" program, Cirrus provided lip service suggesting that they would support it and offer it... but only via a pretty complicated (and not very cost-effective program) that was little more than a retrofit rather than an actual OEM install. Further; while Cirrus announced it would sell and support R9, many purchasers reported 'reluctance' from Cirrus sales people to write such an order and that aggressive tactics were utilized to substitute the Garmin system whenever Avidyne was mentioned.

Indeed, in blind calls to Cirrus sales outlets looking for a "new" R9-equipped airplane, ANN staff inquiries were met with great reluctance to even discuss the program.

Much the same seems to have happened to Tornado Alley... the original developers of the STC that produced the first SR22 Turbo-Normalized aircraft (possibly one of the most positively reviewed Turbos in GA). When TCM was mentioned as a new vendor for the upgraded SR22T All-Continental Firewall forward solution, it quickly became apparent that Cirrus sales personnel were pushing hard for the TCM version and discouraged discussion of the Tornado Alley option (again, as confirmed by our own calls).

In the case of BRS, there seems to have been a pretty hard break with what was once one of the most innovative collaborations in GA. The company that researched, certified, and built the first commercially viable airplane parachute recovery system, BRS, was allegedly cut out of The Jet program... while efforts by BRS to develop an alternative to Cirrus' expensive CAPS repack program were reportedly met with 'strong resistance' by Wouters and company... even though such a program had the potential to save Cirrus owners serious dollars...

 

But... one of the most startling departures from "good ol' Cirrus" occurred when Cirrus cut ties with renowned airshow pilot Patty Wagstaff. Cirrus and Wagstaff had previously enjoyed a pretty positive sponsorship/business relationship... which Cirrus not only failed to continue, Post-Klapmeier, but allegedly put Wagstaff through significant turmoil as she tried to get paid (indeed, many industry vets noted that relationships with Cirrus seemed to sour when 'money issues' became paramount). Persons close to the situation indicated that Wagstaff went so far as to put a lien on her Cirrus SR22 support plane in order to break through Cirrus' apparent unwillingness to pay her. The matter was eventually resolved, but parties close to the matter reported that Cirrus put Wagstaff "through hell."

In these and other circumstances, numerous sources noted that dealing with Wouters and his staff was not only difficult but often required significant attention to detail... just to keep all the stories, details, promises and statements straight. A number of industry vets found Wouters abrasive, evasive, and difficult to pin down -- but more than willing to extol the virtues of his own leadership on short notice. While this was occurring, Cirrus layoffs continued, critical jet personnel were let go or otherwise were taken off the program, and the overall effort given the Jet development was greatly diminished. Further; positive statements (from Cirrus) about the company's ability to get the Jet certified within a few years were described by those familiar with the program as "wildly optimistic."

Internally, though, the company appears to have been a lot less certain about The Jet program than the public face they put on the project. While they spent considerable money flying The Jet to events around the nation in order to sell positions and take deposits, company officials were involved in troubling studies to see what could be done with a program that was falling so far behind. Cirrus officials actually took to joking about it (using a toy airplane as proof that they were 'delivering airplanes'), at a number of press conferences and open houses, in order to defuse the inevitable complaints about the program's doddering schedule.

An internal report from mid-2009, a 'Jet Program Analysis' shows that in the short time between the fall of the Klapmeier leadership and Wouters' reign, that Cirrus had soured on the potential of The Jet. The analysis spent considerable time casting serious doubt on the viability of the SF50 and the numbers, in many cases, (especially in terms of The Jet's pricing) seemed much higher than what Cirrus was discussing outwardly. Still, Cirrus continued to market and promote The Jet as the next big thing -- without admitting to any of the internal turmoil or doubts its own management and internal reports espoused privately.  

The initial portion of the analysis looked at four alternatives for the SF50:

  • Alternative A: Aggressive Funding Plan (at both 50% and 90% schedules)
    • Requires substantial external capital by mid 2009
    • Late 2012/early 2013 delivery (50%/90% Schedule)
    • Moderate & Premium Price strategies reviewed
       
  • Alternative B: Internally Funded Plan for 2014 delivery
    • Proceeds with internal funding based on positive Cirrus cash flow only
    • Scheduled suggests late 2013/early 2014 delivery (Internally Funded)
    • Moderate & Premium Price strategies reviewed
       
  • Alternative C: Continue with Modest Spending
    • Keep program moving forward with low, fixed spending
    • Schedule to be determined
       
  • Alternative D: Shut down Jet Program
    • Refund deposits

While the report went into considerable detail to cast serious doubt on The Jet, it seemed to be suggesting that Cirrus' future might be better served with the development of a turbo-prop as well as a possible investment in an entry level aircraft -- "180hp, fixed pitch simple approach to capture customers early."

At the time the report was prepared, they noted that they held 364 orders for The Jet and that 60% of those deposits were current Cirrus owners (218). The report also estimated that only a "...Very few individual pilots worldwide (estimated at 1,450)" would have the net worth necessary to purchase The Jet... and yet, Cirrus continued to sell The Jet to anyone who would cough up the $100K.

Additionally; since there was so much doubt in the program and serious concern over the liability they had for unrefunded deposits, it was a mystery as to why Cirrus and Arcapita failed to sell the program to an investor group headed by former CEO Alan Klapmeier (outside of Wouters' admission that he "hate[d] the bastard").

As a few more details became available, the questions multiplied (while finding FEW answers). With such an internal lack of confidence in the jet now well-established, why would Cirrus keep selling the jet without disclosing the great deal of difficulty that they admitted internally?

Was it even ethical to be so 'positive' about a program that was being examined so critically at the highest levels of the company's management? ANN attempted to get answers to a number of these questions over the course of the last two years and has been shunted aside by a number of questionable claims of solid financial health (often in conflict with others that they had made) or details that they refused to verify. Questions put to the most senior levels of Arcapita, by ANN, were often not answered and the one call that actually got through to a senior person (Arcapita's Kevin Keough) resulted in Keough's hanging up on ANN.

There were other problems developing at Cirrus... reports of difficulty getting service and support for existing SR20 and SR22 customers, suppliers continued to report increasing difficulty getting compensated, service centers reported issues getting warranty work approved and service payments made, the company became more evasive in answering customer complaints, prices increased often and rapidly, and the confidence espoused by so many in the Cirrus community in the past, grew more and more negative. Things looked bad... and seemed to be getting worse.

But... the biggest controversies surrounding Cirrus continued to revolve around the much-ballyhooed Cirrus SF50 jet program. From the moment that Wouters took over, much of the Cirrus community worried that this program would never see certification. As worries mounted, refund requests were made... and made... and made. Many depositors complained of extensive delays in seeing refunds and what was once supposed to take about 30 days often took longer... if it occurred at all. Cirrus insiders indicated that one of the reasons that refunds were made at all only occurred when new deposits were taken... 'encouraging Peter's deposit to pay Paul's refund." In the meantime, Cirrus officials touted the future of The Jet relentlessly, while admitting that they were looking for additional investment to see the project through, and while being all too willing to continue to take deposits for a program they promoted all over the nation via advertising, press releases, on-site customer events and other aggressive efforts.

The situation at Cirrus grew more ponderous as rumors of outright sale or bankruptcy become more prevalent, especially in conversations conducted on the message boards hosted by the Cirrus Owner's and Pilot's Association... where the imminent failure or sale of the company seemed to be taken, more and more as a "when" rather than 'if' proposition. Further; one of Cirrus's most valuable commodities, the great number of repeat Cirrus buyers who would upgrade their airplanes on a regular basis (a surprising number) appeared to be abandoning such practices in the Post-Klapmeier era. Criticism of the company and Wouters mounted with a number of experienced Cirrus owners publicly doubting Wouters' ability and veracity.

Questions mounted yet again... the greatest of which was... what was going to happen to The Jet and if Cirrus wasn't going to build it... what were they going to do?

Ultimately; the one thing that seems to have kept the Jet alive (with Arcapita unwilling to fund it) and Cirrus having a tough time paying the bills and attempting (unsuccessfully, we might add) to maintain its credibility, was simply this... they needed to put off the massive hit that would occur if they had to pay back ALL those refunds... Internal documents addressed this issue with startling detail. One page of the aforementioned 2009 Analysis simply asked, "Why Continue With Jet Program vs Shutdown?"

The Analysis provided the following responses: 

  • Desire to preserve Jet deposits
    • While we believe depositors will continue to cancel due to affordability, and continuing The Jet program will extend this time frame
    • Gives Cirrus the opportunity to convert depositors to turbo prop and other products
    • Avoids need to fund $25+ MM quickly to refund deposits
  • Provides an opportunity to spin The Jet off separately
    • Value in work completed to date – only way to be realized in near term is to keep the program alive
    • Allows Cirrus to transfer deposit liability
  • Jet offers an attractive product for a potential acquirer buying Cirrus for its strong financial results and future product potential
  • Allows Cirrus flexibility and time to pursue a potential acquirer or optimize timing of any future decision to accelerate or eliminate the program

Reading the above leaves one little room but to conclude that Cirrus was playing a delaying action (and one that would never have been necessary if they had sold the program when they had the chance). And there also appeared to be a growing movement to substitute a possible Turbo-Prop into the mix... making it possible to delay refunds even further. But, Cirrus' future was still very much in doubt... leaving observers to ask... what is the future of Cirrus and all those who would be harmed even further by any other negative consequences? With the company reportedly teetering on the brink of insolvency, along with on-again/off-again rumors of an imminent sale to a Chinese concern, the Cirrus saga may turn out to end as a GA heartbreaker.

More info to follow...

ANN E-I-C Note: Please note that ANN has been attempting to research this and other aspects of the Cirrus situation for many months and run into considerable difficulty in doing so. ANN has been threatened by several officials at Cirrus over the matter in terms of withholding payment for services rendered or contracted services for our own SR22 G3 Turbo -- even to the point where the current Cirrus CEO has threatened severe economic actions against this company. Most recently, Cirrus refused payment/access to an extended maintenance plan that was still 'approved' just the day before (until we were told that the funds would be withheld until we agreed to terms set by current Cirrus CEO Brent Wouters).

While the company has acted on its threats in a number of ways that have harmed the ANN mission, ANN remains committed to doing the right thing... even when it may be costly. In the nearly 40 years that I have been writing and reporting for the aviation industry, I have never bowed down to threats of personal or professional harm... and I will not do so now. -- Jim Campbell, ANN E-I-C

FMI: www.cirruspilots.org, www.cirrusaircraft.com 

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