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Cloudy skies: Piper again is seen struggling

STORY BY IAN M. LOVE - STAFF WRITER (Week of August 19, 2010)

While Piper officials tout the continued development of the PiperJet and a 75 percent increase in airplane deliveries this year, there are ominous signs that one of Indian River County’s biggest employers is struggling.

Company officials have backed off the rosy projection provided  just a few weeks ago of delivering 67 more planes in the 2010-2011 fiscal year than the 90 they sold the year before. And just last week, Piper put everyone except the engineers working on the PiperJet on a one-week unpaid furlough, a clear signal plane sales were falling short of expectations.

Then there are the front office shakeups since Singapore-based Imprimis took ownership of the company in May of 2009. The new owners have gone through two CEOs, a company president, chief financial officer, vice president of sales and marketing, and director of sales.  It acrimoniously fired its long-time public relations firm as well.

Most of the now departed senior management are barred from talking publicly about the company as part of their severance packages, but former Chief Spokesman Mark Miller has filed suit against Piper, charging breach of contract. Among  other things, Miller claims that the company had him misrepresent facts to the media, presumably about the financial health of the company.

The suit does not go into detail about when or what misstatements Miller made to the media.

“As to specific misstatements, on the advice of my attorney, I’m not at liberty to elaborate, but it will all come out in the appropriate venue,” Miller said.

The company has vehemently denied the allegations in Miller’s suit, which asks for $140,000 in unpaid income Miller says is owed him through the end of the year.

“Those reported allegations are false and completely without merit,” Vice President of Human Resources Steve Johnston said. “If they are, in fact, part of a legal action against Piper, we will vigorously contest those allegations.”

Miller has also claimed he was told by company officials that Piper was experiencing financial difficulties and that is why it could no longer retain him through his public relations company, the Carlisle Group.

The suit contends that on June 7, Miller was contacted by then-CEO Kevin Gould by phone and told that the contract was being terminated.

“The only reason given was that Piper could no longer afford to pay Carlisle’s agreed-to monthly fee due to financial difficulties Piper was again experiencing and, consequently, was forced to bring the public relations and marketing work being done by Carlisle in-house,” according to the complaint.

The lawsuit, though not unusual coming from a now-disgruntled representative, nevertheless raises questions about whether Piper, the beneficiary of a $32 million deal in state and local incentives to stay in Indian River County, has been forthcoming about its ability to maintain operations here.

While employment is up considerably from the low it hit during the recession, it remains far under the level specified in the incentive package — a factor that led Piper to invoke a clause suspending the package, meaning they didn’t have to reach the agreed-upon employment figures and the government didn’t have to pay out much of the agreed money.

There has been no indication to date of any plan to seek an early reinstatement of incentive payments. Piper thus far has received $10.6 million from the state and county, money that was used — as stipulated — to refurbish factory facilities. The company had reached a low of about 550 full-time employees in 2009, but had begun hiring workers back late last year as the sales outlook began to improve.

Still, to meet the requirements for a second payout from the government incentive package, Piper, among other things, needs to have 1,166 full time employees and to have made a public commitment to spend $10.6 million in tooling, equipment or facilities and infrastructure improvements.

Piper officials say the company remains focused on continued development of the PiperJet, which with a projected price tag of $2.2  million when it hopefully goes on sale in 2013, would put the company at the low end of the very light jet market.

The company meantime is shifting strategy to brand itself as an international operation and is focusing on fleet sales of its line of propeller planes to flight training schools in emerging markets around the world.

That effort has led to mixed success and the fluctuations in projected deliveries.  Through the first half of this year, Piper has delivered 75 planes and would need to more than double that in the next two quarters to increase sales by the projected 75 percent . 

That would appear to be a tall order as the fourth quarter is generally slow for aircraft sales. However, if the company increases year-over-year sales in 2010 by 50 percent, that would still have to be considered  positive in comparison to its peers.

Aviation consultant Brian Foley says that Piper is doing the right thing by focusing its attention beyond North America.

“We have seen a trend that the general aviation industry is turning more global,” he said. “Six or seven years ago the market was predominantly North American. Don’t forget too, that most planes are valued in dollars and as the dollar weakened there were some pretty good deals. Going forward I think half the planes sold will be outside North America, where before it was more like 30 percent.”

But breaking into burgeoning worldwide markets remains a constant challenge. The company was working on a big order of trainer aircraft in Asia, but that deal for as many as 40 planes is now on hold.

“That is more about timing than losing,” said Randy Groom, who came on in April as Executive Vice President. “Asia is a very high growth region for us right now, our owners are from Asia and there is a lot of activity and there is a lot of demand. But then there is the time it takes from when you first start talking to a potential customer to the time you actually close the sale on 10, 20 or 40 airplanes, it takes a while. 

“So you might have heard that there were some fleet sales that we thought would materialize this year that have not been cancelled, they are still in the pipeline,” Groom said, “but they may not happen until next year.”

Groom cautions that the company closely monitors demand against its labor force which right now numbers around 900 employees. He is unable to say with certainty that there will not be more layoffs or a reduction in hours in the months ahead.

“Nobody has a crystal ball, our management team meets every week to review sales and production targets and prospects and we try to do the best that we can to anticipate, but the fact is it is impossible to ultimately predict buyer behavior,” he said.

Company officials also say the PiperJet remains on schedule for delivery in 2013.  Generally, getting a new aircraft certified and bringing it to market is a five-step profcess. First is the concept ,  then proof of concept (building an actual test plane),  next comes detail engineering and design,  then flight tests (by Piper and  the Federal Aviation Administration),  and last the actual manufacturing of the plane for sale on the open market.

The jet program is currently in the third step in the process, using (and hiring) engineers to build detailed computer diagrams and analysis of every single part of the plane, including nuts, bolts and rivets. This past spring Imprimis signed off on providing the backing to move the project forward from concept to design.

“Basically the engineering, manufacturing and sales and marketing teams present all their evidence and information and say, this is the airplane we are going to put into production, and present that to our executive team and to our board of directors,” said Vice President of Engineering Dennis Olcott.  “We successfully passed that milestone to move into the detail design stage from our board of directors on March 31.”

 Imprimis Managing Partner Stephen Berger has said that his financial company would not have considered purchasing Piper if it were not for the PiperJet, and Imprimis has already sunk millions into its development.

What is not as clear is ownership’s commitment to the rest of Piper’s aircraft. Groom says they see a flat domestic market, but opportunities overseas. He has spent much of his first months at Piper putting together an international sales team to expand Piper’s brand overseas.

Piper has built a strong and loyal network of domestic dealers, but none would speak about the company’s international plans.

The abrupt resignation of former CEO Gould last month offered evidence that problems remain. The company is currently being run out of Brunei on an interim basis by Stephen Berger’s brother, Geoffrey, who is Managing Director of Imprimis’ Brunei operations.

The company has shown a natural inclination to beef up its operations in that tiny island nation.  The Brunei government supplied the money to fuel Imprimis’ purchase of Piper, as it looks to diversify its economic base.

Though some might see signs to the contrary, Richard Aboulafia, vice president of analysis at Teal Group, an aviation consultancy and research group, says he wouldn’t expect Piper to be pulling up stakes in Vero Beach.

“Nobody ever really does that,” he said. “I am hard pressed to think of anyone who has successfully moved aircraft production lines in a seamless way. “

Olcott says anything that Imprimis can do to spur sales in whatever arena is a net gain for the workforce in Indian River County.

“Stephen Berger, our chairman of the board, has said numerous times that the activities in Asia should only benefit what is going on in Vero Beach,” he said.

“What we are going to do over there is to continue to expand, but it should all be in a way that benefits what is going on here.”
Groom, who has stated publicly that he may “throw his hat into the ring” for the vacant CEO job, says that expansion in the owners’ backyard is inevitable — especially given the Asian economic climate.

“They certainly want to build up their Asian business,” Groom said of the owners.

“We are going one step at a time. We have people based in Brunei and are selling our planes out of there. I am moving a regional sales director and we are looking at putting in a flight training school in Brunei as well. We will see from there what makes business sense. “

But he adds: “Vero Beach is the home of this company, we love it here.”