Transcript of CFO StudioLIVE Interview with Claude Draillard, VP Finance at Honda Aircraft Company
Andrew Zezas:
I’d like to introduce you to today’s interviewee Claude Draillard. Claude is the Vice President of Finance of Honda Aircraft Company and joined the company in 2017 and currently serves as Vice President of Finance based in Greensboro, North Carolina. In this role Claude oversees all financial matters at the company. Prior to joining Honda Aircraft Company, Claude served as Dassault Falcon Jet corporation’s Chief Financial Officer, where he managed the accounting, treasury and information technology departments at the company’s, Teterboro, New Jersey headquarters.
Clause also oversaw financial matters at Dassault Falcon Jet’s subsidiaries and the Little Rock Completion Center, where the majority of Falcon business jets are customized and delivered to worldwide customers. Claude worked for the Dassault Aviation Group for over two decades, in several progressively responsible accounting and cost control positions.
As financial manager for the Falcon programs, he actively participated in the implementation of European Union value added tax regulations and the international financial reporting standard for Dassault Aviation SA. He supervised the implementation of changes in the reporting and consolidation packages of Dassault Aviation Group’s US companies.
A certified quality auditor quote, earned an MBA accredited diploma from ESSEC Business School in France and a postgraduate diploma in Marketing and Strategy from the University Paris, Dauphine France. A little bit about Claude’s company, Honda Aircraft Company. Honda Aircraft Company is a wholly owned subsidiary of American Honda Motor Company, Inc. Founded in 2006, Honda Aircraft is responsible for the design manufacturing, sales, service and support of the HondaJet. The company’s world headquarters is located in North Carolina, the birthplace of aviation.
The challenging spirit upon which Mr. Soichiro Honda founded Honda Motor Company limited is alive today as Honda aircraft fulfills one of Honda’s longstanding dreams to advance human mobility, skyward. Today, Claude will share his insights as to the effects of the current global business shutdown on the business and private aviation industry, supply chain logistics, employment, global business economics and more.
Our discussion today entitled Global Aviation and Business, Future Challenges and Opportunities. Ladies and gentlemen, it gives me great pleasure to introduce you to my good friend, today’s CFO Studio Live interviewee, Claude Draillard, Vice President of Finance at Honda Aircraft Company. Good morning, good afternoon, Claude. How are you, my friend?
Claude Draillard:
Good, Andy.
Andrew Zezas:
So nice to have you here. I’m so grateful that you’re willing to take your time out of your busy day to participate with us and share your thoughts. It’s always nice to see your face. Before we get started, I want to congratulate you because I understand that today the issue of CFO Studio Magazine came out with a cover story on our good friend Claude Draillard. The story itself was excellent. So I want to congratulate you, I’m looking forward to seeing it again.
Claude Draillard:
Thank you. Before we start I’d like just a quick word. These are challenging times. And in those times of crisis we must remain positive. The CFO is sometimes the CF-No, but in this case, we should be the contrary. We should be the force that says, “We need to keep the business going. We need to keep the wheel of commerce turn. And we can go through this. We can go through this.” Obviously, we need to get through this together, even if that means by staying apart. At least for a while.
Andrew Zezas:
At least for a while. Hopefully, not a very long while. I appreciate your comments, Claude. So let’s talk. Let’s talk about business, let’s talk about Honda Aircraft Company. Let’s talk about the global economy. Share with me and with our audience today, the steps that Honda Aircraft Company has taken thus far. Let’s just talk about up to today. During the crisis, specifically in supporting its employees and serving customers and clients.
Claude Draillard:
Well, the first thing is the safety of our personnel. And specifically the people that work on the production line. The HondaJets is a great little aircraft, but it’s a little aircraft. SO staying six feet apart in a small cabin is difficult. This, and on top of that, we would have very early on some uncertainties about what the level of demand would be for the coming two months. That led us to suspend production for about four weeks. Actually production restarted this week.
We have been supportive of and really understanding of what that means to our employees or personnel and to their families. We have kept everybody on their benefits package. We have allowed people to use their time off if they had any that was still accrued and we have compensated most of our employees for almost the entire period of time. Not quite, but almost.
The Greensboro community, Greensboro, North Carolina, where the plant is has been really good to us. And we felt that it was important for us to give back when times are bad. And supporting the families, supporting, as much as we could, the local economy and working diligently with the airport authority. Obviously we are on an airport. We kind of need a runway at some point. We’ve been working really with the airport authority to see what we could do and how we can support everybody. We also supported financially, some of the local health and food bank services as well.
Andrew Zezas:
Oh, wow.
Claude Draillard:
And I think that was across Honda North America. I think all of the, in Japanese or they call them the [Japanese 00:07:01], the business units by product line, have been supportive of their respective communities. Whether in Alabama, Indiana, Ohio, California, Connecticut. Everywhere that Honda has presence.
Andrew Zezas:
Wow. That’s impressive. And not surprising, actually. So it’s apparent that the company takes its employees very seriously. Up to this point, what has the company done? What steps are taken to continuing to serve customers and clients?
Claude Draillard:
That’s a good question. And there are many stories around that. We have 160 airplanes flying throughout the world. Not only in the US. So needless to say, we have to keep our customer service organization up and running. We’ve quickly beefed up our IT infrastructure to allow people to work remotely, even when they need to access large amounts of data. We’re an avid user of of [inaudible 00:08:04] and other software that goes around them. And they’re highly consuming in terms of bandwidth. So we really had to beef up our IT infrastructure just to support the fleet in service.
We also reached out very quickly to all of our customer base, whether the aircraft had been delivered or not. So people that were waiting for their aircraft, as well as people that were already equipped. Just to see how they’re doing, why can they do for them? Are they planning to fly or not? What they are planning to do with the airplane. A lot of our customers are, I would say small to mid size companies, for whom the aircraft is highly embedded in the way they run the business. So it’s important for us to understand how this affects the business, because that affects how they’re going to use the airplane.
We’ve been very fortunate in the sense that most of our customers are really engaged. Even the ones that I’m thinking of, one of our US-based customers, he runs a network of small high end hotels throughout the United States. So obviously right now his level of revenue is close to zero. So it’s like, “I’m going to have to let people go, how do I justify keeping the airplane?” So we had that kind of discussion and trying to create the scenario of, “What happens if you don’t have the airplane? How are you going to run your business, once everything starts to reopen, if you don’t have the airplane?”
So we had a lot of those stories. Surprisingly, our dealer in Europe had a fantastic month of April in demo flights. Go figure. On the other hand, we have our dealer [inaudible 00:10:07] in China. Well, when it’s closed in China, we had an airplane on route to China, refueling on the West Coast. That was a problem because the crew had timed out, so they had to stay overnight. Their visas were about to time out as well. So they need to leave the country, but they can’t leave the country because there’s no air service. And then they’ll have to file a flight plan with the FAA to fly to China.
We had to be creative a little bit and jump through hoops and get their visas extended. Today the aircraft is still on the West Coast, the crew is still on the West Coast. Right now, our problem is not the US, it’s not China. Our problem is to stop the refueling and the crew timing out in Russia. So, we’re trying to find a solution with the Russian Aviation Certification Authorities to see how a Chinese crew could overnight in Eastern Siberia for one night, the time that they get there. They actually rest, and then continue flying on to China.
Andrew Zezas:
Talk about a logistical challenge.
Claude Draillard:
We see a lot of those right now.
Andrew Zezas:
I can only imagine. I’m still thinking about one of your earlier comments, where you mentioned about six foot social distancing in a small cabin airplane. I remember just trying to get on the airplane. I’m not a small human being. And I remember walking up and a bunch of people… If you remember, we had the event in Morristown where you were kind enough to fly up a couple of jets. They’re beautiful, they’re sexy, they’re incredible machines. And I remember walking up the stairs and just looking inside and saying, “Boy, it’s gorgeous. And there’s no way I’m going to fit into that airplane.” And it was more a comment about me and less a comment about the airplane.
So let’s talk about the future. Obviously you guys are on top of what’s been happening. What do you see the challenges that Honda Aircraft may face in recovery? A lot of people have experienced heartbreak from a health perspective and having lost loved ones. And we all hope that that’s going to subside and hopefully go away. But the pain and difficulties on a personal level will remain. We all understand that.
And not to diminish the importance of that, but as the health situation begins to recover, business will begin to recover. One may lead the other. What kind of challenges given the specifics of your industry, but Honda Aircraft in particular, what challenges do you think the company will face as the recovery starts to take hold?
Claude Draillard:
I would say the number one difficulty is going to gauge how solid demand is and what is the exact level of demand. The early signs that we’re seeing is that there are very few aircraft owners, whether cooperates or high net worth individuals that have put their airplanes for sale on the market. It’s still early, might still happen. But so far we haven’t seen a significant uptick since the end of March of customers. That’s a very big difference compared to the 2008 situation. Because in 2008, within six weeks, we had a doubling of the number of airplanes that were up for sale. Not happening in this scenario. So that’s encouraging.
The other thing that is encouraging is, as I said earlier, our customers have remained very much engaged with us. Even prospects. I was on the phone earlier this week with a prospect in Europe and we’re talking about starting a new business for them. So that’s very encouraging and we see a lot of those stories. And a lot of the stories are driven by companies that say, “We need to change the way we travel.” Non essential travel, where maybe we can do Zoom or WebEx or whatever platform you’re using.
But essential travels, if you think about big pharma. When they have a problem in the plant, they need to send their top level engineers in that plant. That guy or that woman is extremely valuable to them. And there’s no way in hell they’re going to take the risk of putting that person on a commercial flight or on a train or on subway. So for long distance or mid distance flying, we can probably see an uptick in chartered operations. And the fleet that’s right now available to charter operators is doing that.
So we think there’s an uptick in that world. How long will that uptick last? That’s the question. But we’re very positive on this. We see a lot of financial institutions also thinking, “My top private bankers or my top investment bankers, I’m not going to put them on a United flight out of Newark.” But if I have a charter operation out of Teterboro, that can take them directly where they need to be, re-clean the airplane while it’s on the ground, waiting for that individual to come back. And then at night, put that guy back on the plane, send him home, that’s a big upside.
In security, safety, sanitizing the airplane from a health standpoint, but also in quality of life for the people who fly. We see all this. The other thing we’re seeing also, which is, “Can bring it for us?” It’s always something we had in mind for a long time. We see demand for medical evacuation configured airplanes.
Andrew Zezas:
Can you say that again. You see demand for what?
Claude Draillard:
Medical evacuation configuration.
Andrew Zezas:
Wow.
Claude Draillard:
Typically the ability to put the stretcher, minimum life support equipment and still keep one or two seats for medical personnel. That activity is growing, it’s growing fast. We already have two airplanes in that configuration that was done by your third party but with our support, operating in Hawaii, doing medical evacuation in Hawaii. There’s only one big hospital in Hawaii in Honolulu.
So if you have a new situation when you were in Maui on Big Island, or in Kawai, the only way to get treated is to fly you ASAP to Honolulu. And we see the demand for that type of mission growing throughout the world. It’s in the US, it’s in Asia, it’s in Europe. And there is an existing fleet of airplanes that do that kind of mission but it’s a fairly aging fleet. It’s time for them to rethink the economics of their operations.
Andrew Zezas:
Interesting. Very interesting. Let’s talk a little bit about supply chain logistics. What kind of impact has Honda Aircraft seen, either on the inbound side, it’s ability to acquire parts and products, components, and on the downstream side.
Claude Draillard:
So on the two different topics, on the inbound side the good news is we’re a 90 plus US content product. It really depends on our tier one suppliers. And our tier one suppliers are big tier one aviation specialized suppliers. They work for Airbus, they work for Lockheed Martin, they were for Northrop Grumman, they work for Airbus, they were for Boeing. They are strong, good credit companies that have been operating in the aviation industry for ages.
So they’re used to those cycles that we experienced on a fairly regular basis. Just that cycle, the up cycle had been a little longer than usual. The down cycle can be a little faster than usual. But it’s something that they’re kind of used to. Where I’m more concerned is on the tier two, three, four suppliers. Because now you get into niche markets, highly specialized usually. And that are small companies they produce two or three different widgets, pretty sure tons of them, but that doesn’t give them a lot of flexibility on the cash side.
So, we’re working with our tier one suppliers to have a better visibility on their own supply chain and saying, what do we need to do to make sure that the critical component suppliers are going to survive? So that’s the biggest item we have. We have a few issues with things with imports. Like I said, it’s a small part of the of the build up of the airplane. But so far it hasn’t been too, too bad. I would say it was really, really bad early on like the last two weeks of March, 1st week of April. That was really the critical time when everything really came to a stop, very abruptly. And that was a challenge and a challenge nobody was ready to face. We went to, I would say more stable situation since then. And I haven’t seen anything critical in that regard in the last two or three weeks.
Outbound, well 50 plus percent of our deliveries are us Canada, Mexico. That part is fairly uneventful. The international market is a totally different ball game. I can’t ferry an airplane to Europe right now. I can’t ferry an airplane to China. We’re trying to find solutions. Actually, the airplane I was talking about earlier was on the West Coast, on his way to China, we finally found this week, a solution, to maybe be able to finish ferrying the airplane to China at the end of the month. So it’s going to stay another two or three weeks here on the West coast.
So it’s all of our international transactions. And frankly, the international markets before this whole pandemic happened, were very strong for us. Really, really strong. And a lot of our growth was relying on those international markets. So that’s the big question mark. But there are glimmers of hope. If you look at commercial airline traffic in Vietnam, it has increased 6% per week for the last three weeks.
So those parts of the world that were hit earlier by the pandemic are also reopening earlier. So we’re monitoring that and seeing how we can use those opportunities that are opening up at different times in a different rhythms, in different parts of the world.
Andrew Zezas:
Interesting. How have the experiences for Honda Aircraft Company differed from its competitors from a perspective of what’s happened thus far, and what you expect will occur in the industry going forward?
Claude Draillard:
Well, I can’t talk for my counterparts and a lot of them are friends so it’s complicated. But typically business aviation is the first industry hits by an economic slow down. And we’re typically one of the last industries coming out of that coming out of an economic slow down. To be honest as a total industry, we had not fully recovered from the 2008, 2009 crisis yet. You look at the total volume of business jets delivered in 2019 versus 2008. We’re still below. We’re still below those levels.
I think all of us are suffering in different ways. It’s also in the culture of the different companies to react differently. Some companies have started right away by laying off a bunch of people and adjusting production, very harshly. Some just had fairly new products that come up fairly recently. So they’re just living on the order book and saying, “Okay, that buys us time to see what we need to do.”
So I think the industry as a whole, it’s going to be hard to gauge what’s going to happen. Most of the analysts that are really taking a hard look at business aviation are thinking of anywhere between -15% to -40% of deliveries for the industry as a whole, in 2020 versus 2019. We’ll see. I think there are glimmers of hope. I think there are some strong markets. High net worth individuals are still high net worth individuals. And I think that’s a good sign for all of us. Not only for the business issue industry.
Andrew Zezas:
That’s exciting. That’s very exciting. When it comes to the future of the industry, given what’s before us all, prior to our current circumstance, the United States was at full employment. Beyond full employment. Negative availability. We know that’s changed. Tens of millions of people who are on the unemployment roll at this point.
But we know that a certain percentage of those will return to their jobs or to other jobs. From the perspective of the overall economy, how do you expect recent events will affect longterm availability of quality employees relative to your industry?
Claude Draillard:
There are two things to think about here? Probably three ,actually. The first one is there were some specialties that already had a shortage of labor in the aviation industry as a whole. If you think predominantly, aircraft maintenance, we don’t have enough mechanics in the world to maintain all the airplanes that are flying.
Andrew Zezas:
In the world?
Claude Draillard:
In the world. Pilots we have, all the baby boomers, whether they started their career as pilots in the military, or went directly into the civil world. We are short in pilots in a lot of places. A few months ago there was literally a, a BT more on experienced pilots for business jets. I think there would be a temporary slowdown of this, but the longterm trend is still there because people are still going to go back to flying. Maybe with different patterns, maybe flying differently. But the longterm demand is still here. So when you talk mechanics, when you talk pilots, all those high-skilled positions, are still going to be in need.
And to go back to what I was saying about pilots and baby boomers, this is true I think, for many, many industries. Where we start to seeing the waves of retirements coming up. Those opportunities exist. And they’re gonna bloom. If you think that some of the, here I’m talking mostly for the aviation world, but airlines, aircraft manufacturers, aircraft operators, have all announced that part of their adjustment programs was to provide an early retirement option. That’s just going to accelerate this issue.
I’m having a hard time being negative on longterm employment, frankly. Because everything I’m seeing from my small business aviation window is, I see more opportunities than real downsides being created. Yes, short term, very, very short term, six months, six to 12 months. Yeah, it’s a concerning situation for many families. And I’m not taking that lightly. I understand the hardship that as employers and as executives, we’re creating for some families. But if you start looking at 24, 36 months and beyond, I think there are way more opportunities than risks.
Andrew Zezas:
Now you talk about the portion of the industry retiring. Not just in aviation, but in all industries. I mean, that’s what’s going on in the world these days, whereby the older components of every employment base are retiring, leaving their companies, going to heaven or going to Florida as they say. But the question I guess, in the aviation industry, is there enough of a skilled or a future skill junior class that’s coming in to fill in that void?
Claude Draillard:
Yes and no. Yes, in some activities, if you’re looking at engineering, manufacturing engineering or people coming to at what is called the programs in community colleges, those programs are full. Really, really full. There’s one really good one here in Greensboro with the Guilford County Community College. They haven’t seen anybody dropping off. That’s encouraging.
Where we see issues is, like I said earlier, it’s not so much for the air framers. It’s mostly for the operators of aircraft. They’re gonna fall short of that activity, especially on the pilot side. It’s funny, we haven’t seen as many pilots as we did in the past, coming out of the military and going into the civilian world. Mostly because even the armed forces are short of pilots so they’re trying to keep them all.
Great opportunity for anybody who can put the capital down to create a training activity. Actually, one of our HondaJet customers the one who operates the two medical evacuation aircraft in Hawaii, is starting a flying school. With programs for pilots, for flight attendants, for mechanics. Even talking about going into airport management training, things of that nature. These are going to be really, really interesting jobs and growing jobs.
If you think that in the long run with the development of technology we’re going to need people who are capable, not only of piloting an airplane, but managing multiple airplanes at the same time, whether they’re manned or unmanned airplanes. These competencies are going to be in high need. Today the infrastructure to create those competencies and bring them to market is limited.
Andrew Zezas:
Well, the idea of flight school sounds intriguing. And while we all know the technology is coming, I have a hard enough time thinking about getting into a car that’s unmanned, let alone an airplane. Like I said, it’s coming, right?
Claude Draillard:
I’m thinking of our audience here, if you’ve got teenagers that are not quite sure what they want to do, and if they’ve got a really good, they’re really good baseball players or football players, good hand foot coordination, think about becoming a pilot.
Andrew Zezas:
Oh, very interesting. Very interesting. Hand, foot coordination. Sure, that makes sense. Let’s step out of the the aircraft industry, aviation industry for a moment. And let’s think North America, globally in your capacity at Honda Aircraft Company, you touch a lot of other industries. And I know you have insight as to what many other industries are doing. With that as the backdrop, which industries do you expect will struggle to regain growth and employment levels, post pandemic? And which industries do you think will have an easier time?
Claude Draillard:
I think a lot of habits will change in terms of traveling patterns and in terms of work patterns. I’m thinking that the next 12 to 24 months are really going to be complicated for people that are in the hospitality business. Airlines, I mean, I’ve been very vocal about the fact that they don’t see them coming to where they were before the pandemic in less than three years.
I was reading an article this morning, Lufthansa is trying to negotiate the €9 billion package, combined between the Germans, Swiss and Austrian government. So when you’re looking at that kind of money, it’s significant. It’s a lot of airlines, before they started negotiating with the US governments, here in the US, were saying, “We’re out of cash by July.” I think the industries that have high capital requirements are going to suffer for a while.
There’s a question, and we touched on that a little earlier, but there’s also a question about commercial real estate. With people having taken the habit of working from home, and companies thinking, “Hey, wait a second, this is working. I’ve just made the demonstration that I can operate without having everybody on site. Well, maybe I need to rethink my footprint. Maybe I need to rethink the way my teams are going to work.”
I mean, I’m asking myself the question for my accounting team. Our annual close is at the end of March. So we had to close in the middle of the pandemic. And we already closed?
Andrew Zezas:
How did it go?
Claude Draillard:
We did the close with barely a third of our group being in the office and with very little of the time, way less than usual. So I’m like, “Okay. So we demonstrate that that works. So why do I need everybody in the office? Even, do I need to be every day in the office?” That’s what I’m questioning, how I’m going to adjust, how I’m going to work differently to provide the same level of service or better, without being physically in the office.
It’s changing the way we communicate. It changes a lot of things. The one thing personally I’m missing is those moments where you see somebody in the corridor and say, “Oh, wait, I had a second for you. I had the question, I just need two minutes.”
Andrew Zezas:
That’s exactly right.
Claude Draillard:
And get that done, get that resolved, move on. That is no longer happening if you’re working from home. There is a balance to be found between the regular work that can be done away and the things that I’m more project or new ideas in nature, where do you need to meet people to get things done?
Andrew Zezas:
You’re spot on. As it relates to this current circumstance and the future of this circumstance, having an impact, not only on corporate real estate, that’s held by corporate corporations for their own occupancy, but the commercial landlord industry is holding its breath. Because you’re right, prudent CFOs are saying, “We didn’t expect to send all of our employees home and surprise, surprise, it worked. The technology supported it.” And prudent CFOs are saying, “We need to rethink our footprint requirements going forward.”
And there will be a components of most companies that will remain at home permanently. And that’ll have a positive impact over time on a footprint in terms of footprint reduction and occupancy cost. But the other side of the equation is unless you’re the kind of company where you can send all of your employees home, and companies of any real size can’t do that, then those employees who come back will demand a different environment and prudent employers are already gearing up for that.
Within the workplace, employees will require social distancing. So the shoulder to shoulder benching that has just become more common as an alternative to cubicles, that may go away for many companies. Hoteling and hot desking, an employee who sits down at a desk that was previously occupied by someone else only moments ago will demand that that facility is completely sanitized. Workspace, telephone, chair, computer, and sneeze guards around and a host of other issues.
So on one side of the equation, there will be a positive reduction in costs. On the other side of the equation, there will be a marked increase, not only in rental costs because of more space being required for some units, but reconfiguration. So there’ll be at least holding capital cost upfront and then ongoing sanitation costs. And that’s not only true of office facilities, but manufacturing facilities as well.
And then you’ve got to deal with the fact that many employers are asking if people don’t want to be packed into elevators, then they also don’t want to be packed into subways and buses and trains. So maybe we should rethink our city centralization strategy and consider diversifying and creating more suburban environments where people can commute in the safety of their own cars.
Claude Draillard:
Or if you want to be a little bit futuristic, you’re thinking electric, single person flying, unmanned vehicles. That’s something too. There’s a ton, I could probably name 10 projects from the top of my head that are working on this. Everybody and their grandmother has a project on that.
Andrew Zezas:
Yes. The Jetsons have arrived.
Claude Draillard:
Finally.
Andrew Zezas:
Yeah, finally. Claude, tell me, do you think the us economy will bounce back quickly?
Claude Draillard:
It will be bounced back. Quickly? I don’t think so. I think the US and the European Union, Europe in general, including Central Europe are going to have a little bit of rethinking to do on their economies and their social organization. I think it’s going to take a little while. It will come back. I’m very positive and adamant that it will come back. But it’s going to take a little while to get back to where we were before the pandemic.
I think where I see pockets of quicker turnaround, Asia definitely. With maybe a caveat for India, because it seems to be lingering more than we thought. Middle East will depend really on what’s happening on the oil market. And right now it’s highly volatile and not really dependent on the economy. It’s more dependence on political muscle flexing. South America, well, South America was already in a ditch before the pandemic. So I think it just made things worse.
What I’m seeing though is, there are a few countries that seem to be capable of rebounding faster. Not to full extent, but probably, I would say, in line with the US economy.
Andrew Zezas:
Which countries do you think will bounce back faster, which do you think will struggle?
Claude Draillard:
In South America?
Andrew Zezas:
Globally.
Claude Draillard:
I think China would be in a good position. Probably some of the countries that have become the assembly lines for China are going to be in a good position. Thailand, Vietnam. I think Africa is going to be in a good position. If you’re looking at what’s happening in Ivory Coast, Senegal, Nigeria. South Africa is a little bit sketchier, but there are some pockets of wealth, incredible amounts of growth in the medical or pharmaceutical and biopharma sectors in the region called the big lakes or Rwanda and the countries around it are doing really well in those sectors.
South America, Brazil is going to be a hit or miss. Argentina is going to take a while. Chile is always the same. It depends on the price of copper. I would personally prefer it depends on the price of wine, but it really depends on the price of copper. I think Mexico is starting to come to a recognition that their political stance of the last year, year and a half is not sustainable. And things are going to change, I think, in Mexico for the better. No doubt.
Andrew Zezas:
Claude, great insights. I can’t thank you enough for sharing your thoughts with us today. We have some questions from the audience that I’d like to pose to you before we sign off. And before we do that, I’d like to thank everyone for joining us and remind you that Claude’s discussion today will be available at cfostudio.com, both in video and in podcast. And please visit us to join us for other CFO Studio live interviews with folks, maybe as dynamic as our friend, Claude.
Claude, so we have some questions, one from our friend Sas Mukherjee. Hello, Sas, I hope you’re well. And Sas says, “The stimulus legislation known as the CARE Act suspended a 7.5% federal excise tax on commercial air transportation through year end. How is this impacting Honda Aircraft’s business and your customers specifically?”
Claude Draillard:
Us, directly, not much because we are not a commercial operator. There are different reasons for that, but basically the FAA has a very antiquated vision of national security. And being Japanese owned, we are not allowed to perform commercial flights in the US. This being said, a lot of our buyers are either directly commercial operators or they put their aircraft in a management company that is a commercial operator. So for them, it has actually been very, very positive and specifically a lot of activity at the end of March was [inaudible 00:42:59]. And those have all been FET free. It has helped significantly and definitely created additional interests for business decline. And if that measure can last a little longer than the CARES Act, that’d be great.
Andrew Zezas:
Good. Thank you. So our friend, Jeff Dale. Hello, Jeff. Hoping you are well. Jeff asks the following question, “What changes are you considering in the production line to protect workers in the current environment?” Yeah, that’s a good question.
Claude Draillard:
We’ve done a bunch of stuff already. We’ve instituted a fever screening at the entrance of our campus. That was probably the easiest one. We do a full sanitizing of the production line at least once a day. We’ve reduced a little bit the shifts to accommodate that. And we have actually redesigned, our manufacturing engineering group has worked hard over the last few weeks to rethink some parts of the installation, especially at the interior, the wiring the support of the wiring system, all the bracketry that you could find on an airplane. They’ve been rethinking where we do that on the production line, so as to minimize the number of times and play my guests within six feet of each other. That’s been a tremendous work on the manufacturing engineering side.
Andrew Zezas:
Wow, that’s substantial. And doing that efficiently is the name of the game, obviously. So you’re not shutting down the production line. I recently had the pleasure of having a discussion with the CFO of a company that manufacturers personal protection equipment, and other other products that go to hospitals. And they’re working at breakneck speed, as you can imagine. However as a means of protecting their own employees and ensuring that their products are sanitary before they ship them, they’re shutting down their manufacturing lines every two hours. Taking everybody out of the plant, sanitizing the plant, and then sending everyone back to work.
And they’re doing that with now two shifts and considering a third shift, given the demand of their products, but the CFO shared with me that the the implications of shutting down the line every two hours are substantial. And the cost of sanitization is immense. That was his word, immense. And not something that he expects is going to go away as the pandemics subsides.
Claude Draillard:
Absolutely. We’ve instituted a mandatory wearing of masks throughout the campus, not only on the production line. We have reconfigured all of our break rooms so that employees even on their breaks can not be more less than six feet away from each other. So all these took some, some rethinking of how we work, how we function. We have, as you can probably imagine, a strong protection of our IP. So all of our access to the different buildings is controlled.
We had to re sanitize, on a regular basis the different gates. Just because, you’re scanning your badge, what the hell is on that plastic piece. So we re sanitize them the on a regular basis throughout the day, actually.
Andrew Zezas:
Cool. Well, we have one more question from Sylvie [inaudible 00:46:39], I believe it was the pronunciation of the last name. Hello, Sylvie. Thank you for your question. Claude, Sylvie is asking, do you think that fuel prices will stay low?” And I guess that’s over time. “And how will that impact Honda aircraft business?”
Claude Draillard:
I’ll give a subjective and an objective answer. The subjective answer is I hope not because we’re producing the most fuel efficient business jets in our segment, so a high price of oil, is actually in our favor from differentiation standpoint. So I hope not. That’s for the sarcastic part of my answer. Truthfully, I think with a lower oil demand for a few months, I don’t see how the production can stay at the level it is at today. It’s a big draw on the economy and the wealth creation of a lot of countries. I think betting that over time, oil prices are going to stay at this level, doesn’t make any sense. Plus at some point we all know that at some point the reserves of oil are going to deplete. It’s not going to happen, staying at an artificially low cost as we are today, it’s a blip on the radar.
Andrew Zezas:
I would tend to agree with you. Claude, this has been wonderful. I can’t thank you enough. Congratulations to you on all the good work you’re doing at Honda Aircraft Company. I’m sure the company will continue to do well. As I said, the airplane is sexy as hell and it’s a beautiful machine. I just wish I could fit in it. And again, that’s my issue, not the aircraft’s issue. I truly thank you for your time today and for being so open and transparent with us about the company and the industry. Congratulations again on your cover story in CFO Studio magazine.
Ladies and gentlemen, thank you for joining us. You may send us additional questions after the discussion today, we’ll be happy to forward them to Claude. I look forward to having you join us again for future CFO Studio live interviews. If you’re traveling, get home safely. May you all remain healthy and safe. Thank you for joining us. God bless.
Claude Draillard:
Thank you, Andy.
Andrew Zezas:
Take care, Claude.