Duluth airplane maker Cirrus Industries Inc. Monday announced plans to sell itself to a Chinese aviation company, a deal motivated in large part because it needs cash to fund development of its first jet for the personal aircraft market.
Cirrus and China Aviation Industry General Aircraft Co. (CAIGA) declined to disclose terms of the transaction expected to close in the middle of the year.
In an interview, Cirrus CEO Brent Wouters said discussions between the two companies began in 2009. Stockholders in privately held Cirrus who already had financed much of the more than $60 million spent to date to develop the new jet were interested in finding another source of capital, he said. The rest has come from about 430 customers that have put down $100,000 deposits for the new jet, whose pricetag is expected to be about $1.7 million. Total development costs are expected to be about $140 million, Wouters said.
Cirrus' majority stockholder is Arcapita Inc., a Bahraini investment bank that also is an investor in Caribou Coffee Inc.
CAIGA has been active in increasing its presence in the U.S. aircraft industry. Last year it acquired Epic Air, a bankrupt aircraft company based in Bend, Ore., and it's also a bidder for Emivest Aerospace of San Antonio.
Cirrus' new jet, which could be ready to hit the market in 2014, is an integral part of the company's strategy to broaden its base beyond piston-engine planes. Owners of Cirrus' piston-engine planes are expected to account for a large part of the business for the single-engine jet, which Wouters said could also help the company expand into other markets, like flight schools.
Cirrus hasn't decided yet whether it will make the jet in Duluth or its other facility in Grand Forks, N.D. Either city would welcome the news, because Cirrus has drastically cut its workforce at both plants in the last few years as the industry slumped. Since 2008, the company has cut its workforce in Duluth and Grand Forks from about 1,350 to about 500 people, with about 400 of those in Duluth, Wouters said.
Shipments by U.S. aircraft makers fell 48 percent in 2009, and about 11 percent in 2010, according to the General Aviation Manufacturers Association (GAMA). The decline in single-engine planes, such as those made by Cirrus, was even more severe, almost 55 percent in 2009 and 8 percent in 2010.
Cirrus' shipments, which peaked in 2006, fell by nearly 51 percent in 2009 and less than 2 percent last year, GAMA said. Even so, Wouters said sales last year increased about $20 million to about $200 million, and the firm broke even after posting losses in 2008 and 2009.
Beyond any jet-related employment, Wouters said the deal with CAIGA should have a positive impact on jobs for Cirrus in Duluth and Grand Forks. He declined to specify when and how many jobs would be added.
"This is not about importing jobs overseas to China," he said. "That might work with microwaves or widgets, but not our planes."
Former U.S. Rep. Jim Oberstar, who helped bring Cirrus to Duluth from its first home in Baraboo, Wis., agreed.
"We have nothing to fear from an investment such as this by the Chinese," Oberstar said. He said the Chinese are interested in developing their own aviation industry but want to do it by partnering with state-of-the-art firms like Cirrus.
Since moving to Minnesota in the mid-1990s, Cirrus has received about $3.6 million in loans and tax credits, some used to build and expand the Duluth facilities, according to the Minnesota Department of Employment and Economic Development, which said the company is current on repaying its outstanding loans.
Susan Feyder • 612-673-1723