Amid Worries, Cirrus CEO Says Sale Will Save Jobs
Cirrus Aircraft's pending sale “will preserve thousands of jobs in Minnesota,” company President and CEO Brent Wouters said Monday.
In a letter to Minnesota's Republican Representative Chip Cravaack, Wouters defended the sale of his company to China Aviation Industry General Aircraft Company, Ltd. (CAIGA)-which is controlled by the Chinese government.
Cirrus is based in Duluth, which is part of the Eighth Congressional District that Cravaack serves.
Cirrus announced March 1 that it entered into an agreement to be acquired by CAIGA. Financial terms of the deal, which is expected to close in mid-2011, were not disclosed.
On Friday, Cravaack sent a letter to U.S. Treasury Secretary Timothy Geithner, asking him to examine the proposed deal with caution. He contends that the transaction would cause “hundreds of American families” to “lose their livelihood”-and said in the letter that in the midst of the recession, “American workers need to know that their government is not going to abandon them at this important time.”
“My main goal is to ensure the high-skilled jobs at Cirrus stay in Minnesota instead of being shipped overseas to one of our main competitors in the global market,” Cravaack said about his letter. “On top of that, I have serious concerns with the transfer of advanced aircraft technology from Cirrus to a company that is essentially owned and operated by a Chinese government-run defense contractor.”
Cravaack said in the letter that specific Cirrus technologies could be used to support China's military programs-which would compromise national security.
Geithner serves as head of the Committee on Foreign Investment in the United States-which reviews and approves transactions that could result in control of a U.S. business by a foreign entity.
Aiming to address the concerns Cravaack voiced to Geithner, Wouters said that the deal “provides the best means to preserve Cirrus jobs in Minnesota.” He said moving aircraft production from the United States to China would result in higher operating costs because of how much it would cost to deliver the finished planes back to U.S. customers-and that those increased costs “far outweigh any potential reduction in labor costs” that will result from the transaction.
“Cirrus has been looking for an investor that would provide Cirrus with much-needed working capital, support Cirrus' product line for the many loyal customers who have purchased Cirrus aircraft over the years, help to maintain its competitive advantage, and, importantly, to preserve jobs in Duluth, Minnesota,” Wouters wrote to Cravaack.
In addition to preserving “thousands of jobs in Minnesota at Cirrus and among Cirrus suppliers,” Wouters said, the deal will also “provide much-needed investment to increase the number of high-value production and aerospace R&D jobs at Cirrus through higher production volume and continued product development.”
Cirrus has struggled in recent years, forcing it to cut its work force at its two facilities. In 2009, the company rehired 55 employees who had been placed on furlough, which increased its employee base to about 700. At that time, a company spokesman said that the company used to employ 1,300 before restructuring that took place in fall 2008.
In February, the General Aviation Manufacturers Association announced that worldwide shipments of general aviation airplanes declined for the third consecutive year, with total shipments down 11 percent from 2009. Cirrus shipped 264 units in 2010, down 2 percent from 2009 and down 63 percent from 2006, when shipments peaked for the company. Despite the decrease in shipments, Wouters told the Star Tribune that sales increased about $20 million to about $200 million in 2010.
Last month, when Cirrus announced plans to be sold, the Star Tribune reported that the sale was largely motivated by Cirrus' need for cash to fund the development of its first jet for the personal aircraft market. Wouters told the Star Tribune that discussions with CAIGA began in 2009 because stockholders of the company-which had already invested $60 million to develop the new jets-wanted to find an additional source of capital. The Star Tribune said that about 430 customers had put down $100,000 deposits for the personal jets, which are expected to cost about $1.7 million and could hit the market by 2014.
Cirrus is majority owned by Arcapita, Inc., a private equity firm based in Atlanta.