INDIAN RIVER COUNTY — Piper Aircraft’s plan to enter the small jet business crashed this week – and with it, Vero Beach’s hopes for an early strengthening of the area economy – when officials pulled the plug on the Altaire jet, a venture the company tried to launch at a time when demand for small jets tanked.
The company said this week it was suspending the program, will lay off 150 employees, and jettison another 55 contract personnel. The 55 contract workers – most of them engineers – were let go Monday and the rest of those targeted will be laid off through the end of the year.
That will drop Piper employment to about 700 workers, likely triggering the requirement the company repay some of the millions of dollars it received from Indian River County and the state.
One engineer said employees were told Monday the company would try and keep as many people as it could but the reality was not as rosy.
“You cannot absorb that many people,” said the woman who asked not to be identified. “It’s hard to be focused when you don’t know what your future is. Once they tell you that your project is indefinitely suspended, what are you supposed to work on? It’s all up in the air now. It’s hard to focus.”
The company poured millions into the jet’s development and hired hundreds of workers in anticipation of producing the six-passenger, $2.8 million single-engine aircraft, its first foray into jet aviation.
As recently as this month, the company continued to recruit aviation workers.
Piper hoped to launch the Altaire in 2014 if it received Federal Aviation Administration certification.
The company was trying to enter the market as the recession caused sales to plummet and the finance market tightened.
Sales of small business jets fell 26 percent, dropping from 355 in 2010 to an estimated 261 this year, according to the General Aviation Manufacturers Association in Washington, D.C.
Russ Niles, editor-in-chief of AVweb, which tracks the aviation industry, predicted last week the Altaire was doomed when Piper said it would reassess the program and two top executives, including the CEO, left the company.
“The Altaire is dead,” Niles said following last week’s announcement. “You don’t make an announcement like that and then say later you’re keeping the program.
“They had been on a hiring binge,” said Niles, adding the company recruited in Wichita, Kansas, home of Cessna, as recently as three weeks ago.
Money is the big factor, Niles said. He said Piper would need to spend $100 million to $200 million to develop the Altaire and certify it for production.
“The profit on a $2.8 million jet might be a couple hundred thousand if they’re lucky,” he said. “It takes a long time to recoup that investment.”
Niles said Piper would need a huge number of orders to go ahead with the program.
Piper spokeswoman Jackie Carlon said the company had enough orders for two years of production. Asked about the company’s expected production rate of the Altaire, she declined to say.
Deposits on the jets will be returned, the company said in a prepared statement.
Based on Niles’ estimates and projected profit margins, Piper would have needed to sell between 500 and 1,000 Altaires to recover an investment ranging between $100 million and $200 million.
The company also faced another obstacle because it was developing a small jet that could fly at 35,000 feet, a product that currently doesn’t exist.
Niles said Piper was trying to break new ground with a single-engine jet to be certified for 35,000 feet.
That was a risky proposition, he said.
“If the engine quits at 35,000 feet, its pressurization and hydraulics are in big trouble. An awful lot can go wrong.”
Small single-engine jets produced by Cirrus and Diamond are certified to 22,000 to 25,000 feet, an altitude the FAA “is more comfortable with,” Niles said, adding the FAA “is not noted for being innovative” which is what its certification of the 35,000- foot ceiling would be.
Piper was marketing the Altaire as a light business jet and that implied a high-dispatch rate, range and performance all centered around the 35,000-foot ceiling, Niles said.
A number of other business jets that the Altaire would have competed against – such as the Embraer Phenom 100 and Cessna Mustang – are certified for 41,000 feet.
But both those aircraft are twin-engine vehicles. The small light jet market is the weakest segment in the jet aviation industry right now, Niles said.
He said Piper wouldn’t crack the larger jet market dominated by Gulfstream or the Bombadier line of jets such as Lear, Challenger and Global.
Those aircraft are insulated from the economy because they’re sold to the super rich or monarchs, he said.
Since the start of the recession, the small jet business has been particularly hard hit with manufacturers laying off thousands of workers or lopping off CEOs, which is what Cessna did last year.
Other projections were just as bleak.
Honeywell International’s latest outlook on the jet market – released three weeks ago during the National Business Aviation Association show in Las Vegas – estimated the business jet market would hit bottom this year and start to turn up slightly in 2012.
That prognosis sees a minimal upswing next year, but projected no significant improvement for two more years.
Niles said some fringe players in the small jet market have already gone out of business and he suggested Arizona-based Cirrus might be the next one to go.
“The fact is in the biz jet market, it should have been dead long ago,” he said.
Niles questioned why Piper wanted to break into the jet market with a single-engine plane when it already makes “very capable” turbo prop aircraft.
Niles compared the allure of the jet aircraft business to California’s wine industry.
“Making it in the jet aircraft business is tough,” he said, noting that very capable, smart people seem to have their “brains turn to mush because they think they can do it better.”
He compared aviation executives jumping into the jet business to people who buy vineyards because they think they can do a better job than those already in the industry.
“Yet, people sink millions into the wine business,” he said.
The start of the layoffs this week likely will require Piper to repay the county and state for investments in company.
Indian River County and the state came up with $32 million for Piper to stay in Vero. The company has already drawn $4 million of that from the county and about $7 million from the state for expanding and renovating manufacturing facilities.
Jason Brown, Indian River County budget director, monitors the Piper loan program.
He said Piper increased employment to get a $4 million payment, but in recent years did not add enough new positions to tap into more development money.
Brown said the county and state investments aren’t tied to the Altaire program, but specific company hiring numbers.
The 200 layoffs could impact what it owes the county.
Brown was unavailable to discuss what the layoffs will require Piper repay to the county.
Piper last week appointed Simon Caldecott as its interim president.
He joined Piper in 2009 and is the former vice president of operations. He replaces Geoff Berger, who joined Piper as its previous interim CEO in mid- 2010.
“Unfortunately and regrettably, this will have serious consequences for many talented Piper employees and for our Piper Altaire customers,” Caldecott said in a prepared statement issued Monday.
He did say the company would try to market design and manufacturing expertise to other companies.
The company said it aggressively will work with aviation companies and other employers to place employees.
“Unquestionably, we will be losing some of the best and most professional talent in aviation to others in our industry and that is our loss and their gain,” Caldecott said.
Reporter Eileen Kelley contributed to this article.
