Top Raytheon Aircraft officials declined to comment directly on a recent Wall Street Journal article claiming the company has “suffered more setbacks than it has let on publicly, including rising costs, production problems and canceled orders” for its new Premier I. Since some of the Journal’s allegations also raised questions about the veracity of the information presented to AIN at a pre-NBAA briefing in late August (AIN, September, page 1), we sought a response from Raytheon Aircraft.

“I can reassure you that what we shared with you [in late August] is the information we are using to run the business,” according to COO Robert Horowitz. “The charts and data that we provided you at those times are the data we are using here. Maybe we weren’t clear enough on things like production rates. We adjust those things at regular sales and ops meetings firmly on a monthly basis and we discuss where we are on a weekly basis.”

The Journal reported that Premier I deliveries for the remainder of the year are expected to slip to between 32 and 38. At the pre-NBAA briefing AIN was told that 40 aircraft were on tap for delivery this year. Now, Raytheon concedes it is looking “in the range of 32 to 34.” Horowitz said, “The company chooses regularly to make adjustments [to production rates, for example] as a matter of course. The number 40 given at the pre-NBAA briefing was accurate at the time, but should in no way be assumed to be a static number that we set for the year. But it’s not indicative of some fundamental change either in the product or the product strategy.”

In the Premier I’s case, the adjustment is apparently a factor of a new quality-enhancement project. “We started looking at Service Bulletin experience,” explained Horowitz. “We thought we had stabilized completely, then in a relatively short period of time we had two or three [SBs]. Then we said, ‘Why don’t we stop and institute a program we call pursuit of excellence? Let’s take several production aircraft–I think we ended up with four–in various stages of completion and set up a team of crack engineering service people to go through them and do a quality audit.’” Officials said this was done between August 1 and September 1.

No surprises or major flaws were found, just a “lot of little things.” Horowitz said the company asked, “Would it be better to correct all these things now or let nature take its course, with the possibility that we could again [adversely] affect our customers with Service Bulletins?” Raytheon called its Premier I customers and told them, “Our preference would be to take every known problem, give ourselves a licensing hiatus for a while and then deliver the best aircraft that we could. What do you think?” The vast majority said that they had been waiting this long already for their Premier I (a reference to the delayed program), “another month or two would be fine,” Horowitz said.

Consequently, Raytheon Aircraft “restructured the [delivery] schedule.” At press time the company had not yet changed the estimated output as a result of the quality audit, customer-preference survey and related fixes. “We are now looking at numbers in the range of 32 to 34 for the year, but it’s not until our next sales and ops meeting that we will firm up the numbers,” Horowitz added.

“It’s not a big financial issue,” Horowitz contended. “It’s a customer-satisfaction issue. We are simply not driven to push these airplanes out the door to make some kind of artificial financial goal. No line rate [how many aircraft will be built per time period] changes will be made, just delivery rates. Nor are there any significant changes to where our Premier I backlog is since our last briefing.” Horowitz maintains it still extends into 2007 and that the backlog exceeds 200 aircraft.

One Man’s Squawk Is Another’s OK

In a round-about fashion, Raytheon Aircraft confirmed the WSJ quote attributed to company president Jim Schuster that “37 percent of the airplanes we have delivered [across the board] so far this year have been squawk free,” a 70-percent improvement over historical levels.

Premier squawks are within this range, Horowitz said. “Four of the 32 Premier Is delivered to date were squawk free.” Raytheon noted that virtually every customer concern corrected is marked down as a squawk.

Raytheon Aircraft contradicted the Journal’s remark that Premier I warranty costs
are up this year. “Warranty costs have gone down this year,” Horowitz said. On a weekly basis “we look at our warranty reserve to ensure that we are appropriately reserved and, more important, what is driving our warranty costs. Sometimes it is a supplier cost that raises warranty payouts.” Horowitz contended that the company paid out more in the beginning of the Premier I program, but it was to address issues that the company considers normal “early program costs.” According to Horowitz, “Premier I warranty costs and complaints are going down.”

Addressing our question about the Journal’s report of 38 cancellations, but again without mentioning numbers, Horowitz said, “Raytheon seems to be experiencing about the same cancellation rate as its competitors with high-backlogged products.” On the other hand it’s not a zero-order intake world either, so the company doesn’t think there are any “unusual factors” in the Premier I program.

“We launched the program in 1995,” recounted Premier I program director Bill Patterson. “It was a long time coming so a lot of people had a lot of changes of mind and changes of business plan, in addition to the changes in economic conditions, and a lot of people speculated.” Cancellations are typically picked up by a combination of move-ups, new people or the aircraft are used in demo until resold. “Cancellations in and of themselves are not necessarily bad,” said Patterson. “Bad cancellations–where a person doesn’t like the product–are what you want to avoid.”

The Wall Street Journal reported that “company officials have said publicly they expect to hit break-even on the Premier I once 200 airplanes are produced.” Once more, Raytheon Aircraft responded without verifying or denying this number. “The break-even point can move depending on how well the program performs,” Horowitz explained. “It’s up and down as labor rates change, as suppliers change, as the economy changes. There are many cost-cutting projects under way at the same time to ensure the yield is more than you need on a particular aircraft program” to make a profit.

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