Cirrus Aircraft News

MEMORANDUM

To:     All Employees
From: Brent Wouters, President & CEO
Date:  December 22, 2009
Re:     Happy Holidays

I want to personally wish all Cirrus employees a Merry Christmas and a very happy holiday season. Especially at this time of year I am well aware of the tremendous effort and sacrifices made by each of you and your families. We are truly thankful for your efforts. We will work diligently every day to achieve results that allow us to restore your sacrifices and reward our employees in the coming year. My thoughts are also with former Cirrus employees and their loved ones. Their presence and contributions are missed.

Because of your efforts, we have achieved an extraordinary turnaround at Cirrus. Late 2008 and 2009 involved many surprises and challenges yet our financial condition is strong today and continues to improve. More importantly, we have captured increased market share this year by improving our marketing and sales efforts both in the U.S. and around the world. Equally important, we have continued our investment in product innovation and our highest priority, the SF50 Vision Jet.

We are positioned well for 2010. While the coming year may not be easy and may present new challenges as the economy finds its foundation and strengthens, I know that our culture of innovation and resilience will help us adapt to any circumstance that we face. We have adjusted well to current lower airplane production, yet many large sales opportunities are in the works. I am optimistic about our prospects to win these sales opportunities, and I am confident with our current position if these take longer than expected to materialize.

You may have seen the stories about discussions we are having with the City of Grand Forks or Duluth. As is often the case, the media missed the most important reason for my recent visits to both: I was there to tell them personally that our business is strong and we are ready to work out a resolution to any past due amounts ‐ that's good news. You need not worry as Cirrus can and will meet all its obligations to our partners.

In closing, last week I received a note from a prospective airplane buyer after touring our plant, saying “The Cirrus factory was impressive to say the least. Both [my wife] and I have had the chance over the last 6 years to tour many manufacturing facilities and without a doubt the Cirrus facility shines above the rest. The friendly employees, the cleanliness and the overall energy throughout the building says quite a bit about your product and the way Cirrus conducts business.”

As you take a well deserved break, be reassured of our strength as we build on our great progress toward a very prosperous year in 2010.

Again, I wish you and yours peace and a very Merry Christmas.

A memo from Brent Wouters, Cirrus President & CEO to Cirrus Aircraft Employees.

In early October we held area meetings at Cirrus to update all employees on our progress and priorities moving forward.  We talked about the exceptional work everyone has done over the last year to adjust to the changing market conditions and increase focus on business process efficiency and effectiveness.  Thank you.

Since then we have had further opportunities to look forward into 2010 and evaluate market conditions that remain volatile by historical standards. While Cirrus leads the market in share and best-in-class aircraft, we are planning conservatively for a modest recovery toward greater delivery volume and even greater market share.  This pace of recovery will require more patience, perseverance and continued expense discipline.  

You are aware that Cirrus made a purposeful decision to retain higher-than-demand staffing levels in manufacturing and manufacturing overhead to deliver on pending institutional orders.  Although we continue to pursue these opportunities and feel very confident about favorable outcomes, we need to structure our manufacturing operations for the desired costs at today’s actual demand.  Expense levels in other areas also need to be refined further to achieve desired expense levels, but these changes will primarily focus on non-payroll expenses. 

We continue to make significant progress in achieving a sound business foundation, and having the courage to make such changes has dramatically improved our overall financial performance.  Sales of new airplanes have improved markedly from mid-year and the pre-flown demand remains strong.  In the past twelve months, revenue per delivery has increased as we introduced valuable features such as FIKI and Cirrus Perspective by Garmin™.  Our fixed costs have dropped 50%.  Further, our inventory levels have declined 58%, and our liabilities are 15% below the prior year.  Importantly, our earnings have improved by 65% from March 2009 on the same number of deliveries.  All these measures illustrate that our business continues to strengthen as we emphasize the customer and product innovation.   

We also continue to invest in the future with the Vision SF50 Jet program, and our team has recently achieved several SF50 milestones including validation of drag, cruise, and range goals as well as freezing the wing, fuselage, and empennage loft design.  Although we have fewer resources to invest today than we would like, our focused internal Product Development team continues forward progress on critical path items including completion of V1 flight test, avionics and autopilot integration, natural ice testing, and CAPS system development.  We will also continue our efforts to secure additional funding to accelerate the Jet program.

Our progress to date is part of a longer-term plan that will lead to renewed growth and prosperity.  Our plan focuses on:

• “Customer First, Airplane Second” – Grow & leverage our Cirrus partner network of Authorized Service Centers, Cirrus Training Centers, and regional centers to improve transparency with the customer, deliver better customer service, and renew our commitment to flight training;
• Improve Marketing & Sales Execution – Target aviation and non-aviation customer segments and achieve sales goals and consistency;
• Win Institutional Sales Opportunities – Emphasize domestic and international opportunities for institutional fleets to build the foundation for continued worldwide growth;
• Deliver Airplane Value Improvements & Innovation – Introduce certain improvements to the SR2x line and the Vision SF50 Jet that improve quality, safety, performance, and utility.
• Achieve Strong Financial Performance – Capture new revenue opportunities and maintain low materials costs, inventory and expenses to pave the way for new capital infusion and future growth. 
   

Many of you have noticed my more frequent visits to the plant floor, the lunch room, or your office area.  I will continue to visit with you to get your feedback and understand the activities taking place.  We are doing the right things to strengthen and grow Cirrus.  We are confident that we have the right operating and financial plans to achieve success in 2010.  Cirrus has the best airplanes, the best employees, and the best company in the industry. 

Now that the business climate has stabilized and begun to improve, let’s leave behind the challenges of 2009 and move forward into 2010 with a growing sense of optimism.  Thank you for all of your dedication and hard work.

This year for Labor Day weekend, I flew my wife and two boys in a Cirrus aircraft to our family reunion in southern Missouri (Bolivar/Lake Pomme de Terre). Just five days before the reunion was to start, the location was changed to here from Kansas City; an additional 150 miles further away for all the families. Of course we were traveling the furthest by a long shot, but it meant the least inconvenience to us. Because the additional 150 miles to us was less than an hour more in the Cirrus, and two hours or more to family members who were driving, despite their living much closer.

In fact, at a duration of three hours flying, it took us less time to get there than all other family members who were as close as Kansas City. On Monday, everyone left Bolivar at noon, but my family and I were the first to arrive home despite living over 700 nm away.

If it weren't for the Cirrus, my wife and I would have had to take more time enroute, and we'd have had to leave early to get my boys back in time for the first day of school. Instead, we were able to spend the extra time with family. A perfect Labor Day weekend!

Sunday, August 16, 2009, Cirrus CEO Brent Wouters took his two sons to the PGA Championship in Chaska, MN.  They arrived in time to watch Y.E. Yang and Tiger Woods finish their warm ups on the driving range and move to the practice tee just beside the first tee.  As it rained they watched the Yang/Woods pair tee off before proceeding to their bleacher seats on the 15th hole.

As you may know, Mr. Yang eagled hole #14, then hit his drive in the fairway on hole #15, and proceeded to par the hole.  After he holed out, he turned and threw his ball into the bleachers at #15.  “It went over my head - I never even stood up - but it bounced off of a couple people, over my shoulder and into my hands,” described Brent Wouters.  “The cameras were already there, and the camera man asked me to show him the ball.  My mug appeared on TV and then the phone started ringing.  I had 10 emails, 9 texts, and 5 voice mails before I got to the car, and since then I have had about 100 others contact me to let me know that they saw me.”

Congratulations Brent…for scoring such a cool souvenir!  WATCH the video here.

We are very happy to have this new and dynamic forum to communicate with you regarding company news, general aviation industry issues and others topics that the Cirrus Aircraft family will find of interest.  In addition, this new format will give us an opportunity to communicate important trends in the business as well as quickly address topics on the minds of our customers and interested friends alike.  We will look forward to your feedback about the new “Cirrus Aircraft News.”

Let me take this first post to address a topic that has been on the minds of many.  We have had inquiries in the last few months about the strength and stability of Cirrus as well as questions of how Cirrus is managing the headwinds of the current economy.  These are important issues so let me give you some details and correct some misconceptions that we have heard.

We feel very positive about 2009 and beyond for three key reasons:

• Cirrus acted very aggressively and quickly to eliminate indirect expenses early in 2008 … well before the full force of the economic downturn was felt and acted on by others;
• Cirrus continues to enjoy great support from its private equity partner, Arcapita, and equally, its customer base, and;
• Sales and delivery activity has increased significantly and that’s a trend we see continuing throughout the year.

Looking at some of the numbers, in just the five month period from September 2008 through January 2009, we extracted over $52 million of annual indirect expenses and reduced our production breakeven point by over 50%!  Make no mistake: achieving this goal was not without substantial personal sacrifice on the part of so many in Duluth and Grand Forks, and the very strong support of all our service, training and vendor partners.  But we took these actions when we saw the market begin to deteriorate in the Fall and then continue much deeper than anyone expected. As a result, Cirrus Aircraft was able to cash flow the business despite the significant market decline. And while economic conditions are still challenging, these expense reductions have put the company in a very attractive position to improve cash flow when the market rebounds even modestly. That gives us confidence that we are well positioned for strong results in the near term.

Our private equity partner, Arcapita, and our customers have given us confidence and tremendous support in these challenging times.  Arcapita provided specific financial support when a third-party debt provider to Cirrus encountered difficulty and the debt markets were closed to almost all companies.  This support has proved invaluable.  Our supply chain partners and customers have also showed tremendous patience in working with us while we effectively manage periodic cash flow constraints, and we appreciate their continued partnership while we focus on selling airplanes.

Finally and best of all, we now are seeing very encouraging trends in sales activity.  We are enjoying a steady improvement in sales order trends starting in early March and continuing very favorably to date.  These good results have helped us sell out near term production and build a new backlog.  Along with other sizable sales opportunities entering their final stages, Cirrus Aircraft is positioned for a solid and profitable 2009.

Again, we hope you enjoy the new website.  It’s an exciting time at Cirrus Aircraft and we will look forward to being able to communicate with you more personally and more often in the weeks and months ahead.

Safe Flying!
Brent