China Airborne (18 page)

Rather than working strictly within the constraints of a boutique Chinese market, Cirrus decided to place more emphasis on trying to remove those constraints. In cooperation with other foreign aerospace firms, it attempted to speed China’s transformation into a society where more people could legally fly small airplanes, and thus in which more people and companies would have a rational incentive to buy them. Around the time of the Beijing Olympics the company’s public face in China changed from Peter Claeys—fluent Mandarin speaker, European cosmopolite, expert in Asian cultures, and scholar of Buddhism who happened to work for an airplane company—to
Paul Fiduccia, a lifelong aviation buff from America whose new assignment happened to be China.

Peter Claeys had been based in Shanghai and had concentrated mainly on the Chinese nouveau riche in the southern half of the country. Paul Fiduccia commuted between Cirrus’s headquarters in Duluth and Beijing, where for days on end he met with the bureaucrats and administrators who would eventually decide whether to open Chinese airspace to civilian small-airplane flight.

Fiduccia, in his late fifties, was a longtime friend of the Klapmeier brothers and, like them, he had been in and around airplanes since he was a teenager. Through the 1980s he was a consultant on projects for the FAA and NASA, mainly for changing their regulations to reflect technical advances in navigation systems, weather forecasting, and safety devices. He spent his days in China talking to government officials about why they should change their policies, and providing specific suggestions of how the new policies should look.

When he was in Beijing, Fiduccia explained to CAAC officials how they might coordinate their safety or inspection practices with international standards. When he visited Zhuhai or Xi’an or Badaling, he spoke with local airport authorities about the practicalities of setting up a flight school, or how airspace could be more efficiently configured, or how to develop an emergency-rescue service to airlift accident victims to hospitals. Cirrus was paying him for the same reason Ford or General Motors might have sent road-safety experts on tour in the 1920s to give advice on engineering better highways.

I often had dinner with Fiduccia during his stays in Beijing. “I like you fine, Jim,” he told me one time, “but no offense, the main reason I look forward to seeing you is to hear some English.” The rest of his days and weeks in China were spent
inside Chinese organizations, working through interpreters. At each of our meetings, he was disgruntled and frustrated, like most foreigners—and for that matter like most Chinese people—trying to pick their way through the country’s modern bureaucracy. “I figure the only reason we use the word ‘Byzantine’ is that at the time Western people didn’t have enough experience with Chinese bureaucracy,” he told me after one particularly frustrating siege. “If they had, we’d use ‘Chinese.’ ”

There were signs of change, particularly the three new “general aviation test zones.” The reliance on test zones was entirely consistent with the pattern of Chinese liberalization through the previous thirty years. Rules were lifted in a variety of ways at a variety of test sites. If all went well, the government would extend the new approach to another set of provinces or towns. That is how economic liberalization had spread from the original “Special Economic Zones” like Zhuhai and Xiamen to most of the country, and Fiduccia and his allies within the CAAC assumed it could work in similar fashion in aviation.

By the end of 2009, when CAAC officially promulgated its “Notice of Issuance of Relevant Measures for Accelerating the Development of General Aviation,” Fiduccia and other foreigners who had been working to transform China’s approach to airspace and aviation thought that their work was at last paying off. The deceptively dull-sounding “Relevant Measures” document contained a number of statements with potential. The ingredients were all there: An emphasis on taking a scientific approach to the development of general aviation, “scientific approach” being shorthand in Chinese communist officialese for “doing it the right way.” A promise of government funding of $25 million per year to build and maintain new airports. An emergency emphasis on new small airports that could be used to support disaster-relief efforts. The establishment of test zones
with relaxed flight rules. A profession of belief in the importance of private aviation to China’s emergence as a fully modern business culture and economy. A reminder that aerospace technology would be the arena for China’s next breakthroughs and successes.

Fiduccia was cheerier than normal at our dinner at a Thai restaurant in the Sanlitun district of Beijing just before the report came out, because he sensed the direction it was heading. “So far, everyone is saying the right thing,” he said. He reeled off a list of cities where officials seemed interested in Weinan-type projects. “There are lots of wealthy people all around,” he said. “With just a few of them, you can make this work.” The global aircraft industry was in another slump just then, because of the global financial crash of 2008, and Cirrus was confronting the worst sales downturn in its history. “It’s never easy here,” Fiduccia said, “but China can be what keeps our production lines open.”

He turned out to be right. Cirrus became more fully integrated into China’s aerospace ambitions in a way few would have foreseen when the optimistic young Klapmeier brothers were first bringing their revolutionary new designs to the market. As markets plunged and trillons of dollars’ worth of paper wealth disappeared in the economic collapse, orders for Cirrus airplanes “dropped off a cliff,” as one company official told me at the time. The company had produced 721 airplanes in 2007; by 2010, its output had fallen to 264. Something similar, though milder, had happened in the aftermath of the 2001 terror attacks. But back then Cirrus was still a small, very low-overhead, start-up-phase
company with only a few hundred of its planes in service around the world. Its relative handful of employees were accustomed to belt-tightening. The small size of the delivered fleet meant that it did not need an extensive network to stock spare parts or answer questions and complaints from customers.

Cirrus was in a very different position when sales collapsed again in early 2009. By then its design and manufacturing workforce was over a thousand. It had a large customer-service division to take care of the thousands of airplanes flying on every continent but Antarctica. It was investing heavily in the Klapmeier brothers’ next dream project, a small, fast, safe, relatively inexpensive “personal jet.” As new orders disappeared, it could not lay off the service staff; they were “fixed overhead,” the long-term obligation created by its previous success in selling airplanes. Alan Klapmeier did not want to delay or cancel work on the jet, which the company had publicized heavily as the key to its commercial and technological future. Also, since announcing the jet project in 2007, the company had taken deposits of $100,000 apiece from customers eager to get an early place in the delivery line a few years hence. Those deposits provided some of the working capital for R & D on the jet, and they were spent as soon as they came in. But in a confident (or extravagant) gesture during the boom times of 2007, the company had made those deposits fully refundable. If word got out that the jet was being scrapped, depositors would inevitably rush to get their cash back, and Cirrus would be in even more serious trouble trying to cover this counterpart to a run on the bank.

At the request of the Klapmeiers, the managerial staff of Cirrus took a 10-percent pay cut in 2008 and again in 2009, but as sales continued to fall there was no alternative to laying off production staff. From its peak employment of fifteen hundred in
2007, Cirrus was down to six hundred employees by the beginning of 2009. That reflected the results of two big layoff waves, and a third was apparently in store.

At that point, everything about Cirrus’s story changed, when Alan Klapmeier was forced out of the company. In the aviation business, this was instantly likened to what had happened at Apple twenty-five years before, when Steve Jobs was ousted from the company he had helped found. Like Jobs before him, Alan Klapmeier lost the crucial struggle between his view of what the company “should” do and the financiers’ judgment of what it “had to” do to survive.

The majority owners from Crescent Capital, having invested in 2001 in hopes of a relatively quick payout, had started looking for purchasers during the flush times before the 2008 financial collapse. They had considered a range of private-equity offers but not nailed down a deal. They did not want to put in any more of their own money—but further investment was what Alan Klapmeier was asking for. He said it would be a costly error to postpone work on the jet. In the short term, the company had no way to cover the inevitable demand for refunded deposits, and in the longer run, without a jet it would have no way really to broaden its business whenever customers began buying again.

Crescent Capital was looking to cut its losses rather than deepen them. It had an ally in Brent Wouters, a consulting-firm veteran who had come to Cirrus a year earlier as its CFO. The contrast between him and Alan Klapmeier was stark. Klapmeier had pictures and models of airplanes not just at his office but all over his home; inside the front door of his house was a glass display case holding hundreds of small airplane models. Wouters had no apparent passion for aviation and in presentations referred to Cirrus aircraft as “our product” rather than as airplanes.
As an aviation enthusiast who had become a businessman, Klapmeier wanted to keep spending on future airplanes. Wouters, a financial-management expert who happened to work at an airplane company, wanted to hold down the payroll to let the company survive the tough times. In a family drama that became the talk of Duluth, but whose details none of the participants has fully disclosed, Dale Klapmeier—the younger, less extroverted and outspoken, operations-rather-than-vision member of the family—sided with Wouters and Crescent Capital. In February 2009 they voted Alan Klapmeier out as CEO, and Brent Wouters in.

Wouters had two crucial objectives, only one of which was publicly discussed. The first was to lower the company’s “burn rate,” or fixed operating costs, through whatever means it took, so that it could get by on its reduced sales levels in worldwide hard times. More layoffs ensued, bringing the workforce to four hundred fifty. The aviation press was full of grumbles from Cirrus suppliers who waited months for payment; two of them sued. The company said that jet work was proceeding at full speed, but many of the crucial engineers and designers on that project had left or been laid off. Jet depositors who asked for their money back waited six months or more before they saw the cash.

The company did survive, and long enough for Wouters to realize the other goal Crescent Capital had set: to sell the company to the only apparent source of ready cash during a crisis, the Chinese government. In the spring of 2009, soon after his ascent as CEO, Wouters began negotiations with China’s AVIC, working through an overseas middleman whose specialty was brokering this kind of deal. Despite their own problems in coping with the aftermath of the financial crisis in 2009, big Chinese corporations and state agencies recognized that their
relative position in the world economy continued to improve. Businesses and governments in the rest of the world needed cash. Chinese businesses and government interests had it. So their deliberations, as I heard in many interviews with Chinese officials at the time, concerned how to manage their international expansion deftly rather than clumsily. The businesspeople laying out this strategy had typically worked or studied extensively outside China. They understood—as the little-traveled leaders of China’s political hierarchy did not—why a sudden influx of Chinese cash, Chinese control, and Chinese faces might create resistance in countries that received this influx.

Many of the Chinese authorities also understood that the situation would be all the more delicate with an aerospace company like Cirrus. It was a prime example of American innovation and enterprise. Its takeover by the rising Chinese might be perceived as a symbol of American decline. The jobs it provided, though reduced in number, were high-paying factory jobs in the hard-pressed Midwest. Would they too be shipped to China? Even though Cirrus planes were in non-American hands all around the world, and even though Cirrus was actively bidding to sell its planes to the People’s Liberation Army Air Force as trainers (the U.S. Air Force Academy in Colorado Springs had already bought some for that purpose), a sale to “the Chinese” would require Federal clearance
¹
to be sure U.S. national security was not at risk.

For these reasons and others, negotiations remained secret through 2009 and 2010. When the deal was announced, at a press conference in Duluth on February 27, 2011, all involved in the transaction did what they could to assuage both local and national concerns about what this transaction might signify. The mayor of Duluth, Don Ness, said that the Chinese officials had assured him that they would keep jobs there rather than
transfer them to China. “They’ve made every indication that it is their intent not only to maintain their local operations but to grow jobs here in Duluth,” he said.

Promises, promises—but the city signed on as a party to the deal, offering forgiveness on rent paid for city property, if and only if Cirrus employment in Duluth went up rather than down under Chinese ownership. Two months later, Mayor Ness got what he considered a more tangible commitment. After Minnesota’s two senators, Al Franken and Amy Klobuchar, sent a letter to the new Chinese parent company of Cirrus, asking for more details about its employment plans, the head of that company came to Duluth for another signing ceremony. President Meng Xiangkai, an aerospace engineer who had risen to become head of the China Aviation Industry General Aircraft group, or CAIGA, invited Ness to the Cirrus plant. Ness presented him with a carefully negotiated one-page memorandum saying that CAIGA intended to keep the manufacturing plant in Duluth, and to maintain or increase employment levels, even as it expanded sales and eventually production elsewhere. Meng, with a smile on his face, signed.