Cirrus Design Corporation

views updated

Cirrus Design Corporation

4515 Taylor Circle
Duluth, Minnesota 55811
U.S.A.
Telephone: (218) 727-2737
Fax: (218) 727-2148
Web site: http://www.cirrusdesign.com

Private Company
Incorporated: 1984
Employees: 500
Sales: $65 million (2001 est.)
NAIC: 54171 Research and Development in the Physical, Engineering, and Life Sciences; 336411 Aircraft Manufacturing

Cirrus Design Corporation makes advanced piston engine aircraft for the general aviation market. Once a maker of kit planes for home assembly by hobbyists, the company now produces sleek, fast planes selling for as much as $280,000 each. Even at these prices, the company has a long waiting list for its SR20 and SR22 models. Delays in getting its production lines up to speed, however, have made profits elusive. Founders Alan and Dale Klapmeier inevitably draw comparisons to another pair of aerospace pioneers, the Wright brothers. Ever ambitious, from early on they planned to capture half the general aviation market and still are aiming to be the world’s largest producer of piston engine aircraft. The company’s SR20 was one of the first new designs since the 1950s; pilot enthusiasm for this line of planes suggests the possibility of Cirrus Design attaining its founders’ lofty goals.

Dreaming of Flight in the 1970s

The Klapmeier brothers grew up in DeKalb, Illinois. James Fallows writes in the New York Times Magazine that a prescription for glasses in the third grade crushed Alan’s dreams of becoming a military pilot. Nevertheless, the pair began flying as teenagers after buying a 1947 Cessna 140 for $5,000. In fact, younger brother Dale was flying before he could drive the family car.

The brothers’ thoughts soon turned to aircraft manufacture. As early as 1976, as a high school senior, Alan Klapmeier said he wanted to put Cessna out of business. While in college in Wisconsin, the two rebuilt a wrecked 1960 Champion 7GC and put together a kit plane (a Glasair) on the family farm. (Alan took physics and economics degrees at Ripon College; Dale got degrees in business administration and economics from the University of Wisconsin-Stevens Point.)

After this success in aircraft fabrication, they decided to design their own plane. An uncle’s Bluewater Marine boat factory in Mora, Minnesota provided a source of both technology and resin. Thus Cirrus Design Corporation was launched in 1984. “Cirrus are fair-weather clouds,” explained company president Alan Klapmeier of the name. “And they are the highest and fastest,” quoted the Minneapolis Star-Tribune. Yet the risks of aviation were always apparent. The same year, Alan Klapmeier survived a two-aircraft collision that killed another pilot.

The brothers borrowed money and started their own factory in Baraboo, Wisconsin. At first they created kit planes for hobbyists to assemble. Traditional general aviation aircraft were made of aluminum; their design had changed little since World War II. The Klapmeiers, however, used the advanced composite materials that had become popular among makers of experimental airplanes. (Experimental aircraft were generally homemade, sometimes from kits, which faced different sales restrictions from factory-built planes.) Cirrus also incorporated NASA-derived formulas for wing design into its planes.

Aloft in 1987

The brothers had begun drafting designs for the VK-30 in 1980. The plane debuted in 1987 and was well received at the annual experimental plane expo at Oshkosh, Wisconsin. They eventually sold 40 VK-30 kits priced between $120,000 and $200,000. The market was limited, though, to people who could afford not only this money but the hundreds or thousands of hours required to assemble the kits. Unlike other kits, the VK-30 could seat four passengers. Sleekly styled, its pusher propeller was located at the rear of the plane. Its fiberglass construction allowed for a more aerodynamic shape than conventional planes.

At the time, the rest of the general aviation industry in the United States was dying, crippled chiefly by product liability lawsuits. Piper was bankrupt and Cessna had stopped building single-engine aircraft. The United States, which had produced 17,000 private planes in 1979, only made 899 in 1992. It was estimated that liability insurance added more than $40,000 to the price of new small planes.

Cirrus began to branch out beyond the kit plane business. Alliant TechSystems, Inc. subcontracted the company to engineer and produce airframe components for the U.S. Army’s Outrider reconnaissance drone. The firm also won a $13.4 million contract to develop a prototype of a five-seat turboprop business aircraft for Israviation, an Israeli-government sponsored project. This plane would become known as the ST50 and was similar in design to the VK-30.

Deadlines in the Israviation contract put pressure on Cirrus to find a new plant. The University of North Dakota’s Center for Aerospace Science helped attract the company to Grand Forks. The Bank of North Dakota agreed to finance part of the company’s equipment and building costs. Various state agencies contributed incentives, eager to bring high-paying, high-tech jobs to the area. Initial plans called for the Grand Forks plant to employ about 40 workers, rising to several hundred within a few years. Delays in raising financing, however, caused the company to miss the 1992 building season, which stopped in the winter. The fact that the board of one state development fund failed to raise a quorum at a critical meeting with Cirrus further frustrated the company’s plans to open a plant quickly.

Another town under consideration was Oshkosh, Wisconsin, generally considered the Mecca of the experimental aviation community. Ultimately, though, in May 1997 Duluth, Minnesota won out over both Grand Falls and Oshkosh. Cirrus leaders praised its quality of life; government officials, local banks, and private concerns had also assembled a considerable financial package, worth about $3.5 million. Cirrus built a $20 million plant in Duluth and also located its headquarters there. The company brought 35 employees with them and hired another 15 at once.

Liability Reform in 1994

The company first test flew the Cirrus ST-50 in December 1994. It could reach 300 m.p.h. and was to be priced at $1 million each, 60 percent less than its closest competitor.

In the same year, legislation was being passed that would help rescue the small plane industry in the United States. The General Aviation Revitalization Act, which prevented awards for alleged defects in planes or equipment more than 18 years old, passed Congress in 1994. Cessna immediately announced plans to resume manufacture of piston engine planes for the first time in eight years.

At the time, Cirrus also was developing the SR20, a more conventional plane with a projected sale price of about $130,000. It was designed to be stable and forgiving. The landing gear was not retractable. It did have one especially revolutionary feature: a big Kevlar parachute designed to rescue the whole plane in the event of certain emergencies. Ballistic Recovery Systems, a tiny company in St. Paul, Minnesota, supplied the chutes. Avionics were also state-of-the-art, featuring an LCD “moving map” indicating terrain, obstacles, and airports.

Cirrus benchmarked the BMW 500 series of luxury sedans in designing the SR20’s spacious interior. Powered by a 200-horse-power Teledyne/Continental engine, the fuel-efficient plane burned about ten gallons an hour, averaging 18 miles per gallon.

In August 1996, Cirrus announced plans to build a plant in Grand Forks after all. A new type under development, the SRX, was to be produced at a 67,500-square-foot facility at Grand Forks International Airport, which was projected to employ 250 people by 1998. North Dakota’s tighter product liability limits helped bring Cirrus back to the state. In addition, the city of Grand Forks took $1 million of stock in Cirrus.

Plans for a 106,000-square-foot plant in Duluth were announced in September 1996. The company expected to double its workforce of 100 there after construction of the $4 million plant, which was to fabricate wings for the SR20.

The Federal Aviation Administration approved type certification on the SR20 in October 1998, clearing the way for Cirrus to begin producing and selling the plane. By the end of the year, Cirrus had nonrefundable $15,000 deposits from 200 people for the $168,000 plane, set to begin deliveries in early 1999.

Tragically, Cirrus Design’s chief test pilot, Scott Anderson, was killed testing the first SR20 off the production line. The ballistic parachute recovery systems had not yet been shipped. Anderson had joined the company after his predecessor, Robert Overmyer, a former space shuttle astronaut, died testing a new wing for the VK-30 kit plane on March 22, 1996. Anderson also had flown F-16 fighter jets for the Minnesota Air National Guard. The National Transportation Safety Board (NTSB) determined that an aileron jammed in high-stress maneuvers likely caused the crash, and changes were incorporated into the SR20’s design.

First SR20 Delivered in 1999

Cirrus pressed ahead after Anderson’s death, claiming with justification that its plane was still the safest of its type in the sky. It delivered the first SR-20 on July 20, 1999 (as the U.S. Coast Guard was recovering the remains of John F. Kennedy, Jr.’s famous plane wreck, which occurred in a Piper Saratoga II). The SR20 then had a list price of $179,400; the company sold them only factory direct and had deposits from 324 customers.

Company Perspectives:

Cirrus Design consists of an experienced team of highly trained and motivated people whose main purpose is the development and production of leading edge aviation technology. Cirrus is committed to the revitalization of general aviation through the design, manufacture and marketing of high quality, innovative designs that provide the greatest value to customers and pilots.

The company had raised $60 million by the time of the SR20’s launch. Cirrus aimed to deliver 424 aircraft in 2000, thereby producing earnings of $5.2 million on revenue of $92.2 million. By the end of July 2001, however, the company had delivered a total of only 200 of the SR20/SR22 series planes, although the second hundred planes took only six months to produce, versus 12 months for the first hundred.

The cost of owning the plane was similar to that of owning a luxury RV or car, since airplanes tended to hold their value over 20 or 30 years. By Alan Klapmeier’s reckoning, most of the people who bought the 965,000 luxury cars that were sold in the United States in 1997 could have afforded a plane.

Customers were attracted to the planes as a way to opt out of the overcrowded hubs and inevitable delays of the airline industry. This idea had official support in NASA’s proposed Small Aircraft Transportation System. Most of the country’s air traffic went to only a fraction of the nation’s 4,600 airports.

Cirrus’s next design, the SR22, was FAA-certified in December 2000. This more powerful plane sold for $280,000, about $100,000 more than the SR20. Unfortunately, the company was not producing SR20s quickly enough to be profitable (it had managed less than half of its projected one-a-day delivery rate), and it laid off 127 of its 639 workers in January 2001. The production rate did continue to accelerate, however.

In August 2001 Cirrus Design announced $100 million in new financing from Crescent Capital, the Atlanta-based subsidiary of the First Islamic Investment Bank of Bahrain. The deal gave Crescent a 58 percent interest in Cirrus.