While the inherently subjective market sentiment factor may have appeared to be somewhat ascendant during the first quarter of 2017, business aircraft delivery numbers for that period did little to boost expectations for the industry’s prospects this year. For the most part, manufacturers reported flat or declining delivery statistics.
On May 11, the General Aviation Manufacturers Association reported that worldwide business jet deliveries climbed 6.5 percent, rising from 122 last year to 130 in the first three months of 2017. Since Dassault reports deliveries only at half- and full-year intervals, the first-quarter business jet numbers do not include any Falcon shipments. The number of pressurized business turboprops handed over to customers in the quarter plunged 42.8 percent year-over-year, from 50 to 35 airplanes, almost entirely due to fewer King Air deliveries by Textron (see below).
First-quarter deliveries at Bombardier Business Aircraft slid by two units from a year ago, to 29 aircraft, while revenues plunged nearly 30 percent due to a more “unfavorable mix,” according to a financial report that the Canadian company released on May 11. The delivery mix included more of its entry-level Learjets and fewer higher-end Globals.
More specifically, the company shipped five Learjet 70/75s, nine Challenger 350s, six Challenger 650s, one Challenger 850 and eight Global 5000/6000s in the quarter versus one Learjet, 14 Challenger 350s, two Challenger 605s and 14 Globals in the first three months of last year. However, Bombardier Inc. president and CEO Alain Bellemare reconfirmed his company’s estimate of 135 business jet deliveries for this year.
Revenues at Bombardier Business Aircraft fell by nearly $300 million year-over-year in the quarter, to $1.007 billion, while earnings took an $8 million hit, settling in at $74 million. Book-to-bill was just shy of 1:1, as the business jet backlog eased by $200 million from late last year, ending the first quarter at $15.2 billion. Bellemare termed Global sales in the quarter as “soft,” but added that it’s midrange Challenger models are doing “extremely well.”
In its April 26 first-quarter results call, Gulfstream parent company General Dynamics announced a moderate increase in aircraft deliveries from 28 in the first quarter of 2016 (20 large-cabin and 8 midsized) to 30 in the first three months of this year (23 large-cabin, seven midsize). Thanks to the more favorable mix of aircraft models at Gulfstream, revenues at General Dynamics’ aerospace division, which also includes Jet Aviation, soared $293 million year-over-year, to $2.074 billion, while profits climbed $111 million, to $443 million, it said.
Even though the General Dynamics aerospace backlog slipped by more than $600 million from a year ago, to $12.579 billion, and book-to-bill was 0.7:1 in the quarter, chairman and CEO Phebe Novakovic was upbeat about sales prospects at Gulfstream. “The market has shifted back to large-cabin business jets, and we’ve seen nice demand for our products in this range,” she said. “We’ve also seen sharp increases in interest from buyers in Europe and China during the quarter.”
According to Novakovic, G650 production “will come down a touch” next year, as the company ramps up production of the G500 and G600, which are expected to enter service late this year and in late 2018, respectively. Meanwhile, she was optimistic about the aircraft completions and services businesses at both Jet Aviation and Gulfstream, saying that the completions side is “steady,” while the services business is “seeing nice growth.”
By contrast, Embraer Executive Jets sales plunged by about 44 percent in the first quarter as deliveries of its large jets fell by seven units and light jets by one, the company reported earlier this month. In a May 2 announcement, the Brazilian airframer said that its Executive Jets division brought in $226 million in the first quarter, compared with $401.8 million in the same period last year. Embraer earlier had reported that first-quarter business jet deliveries had fallen from 23 in 2016 to 15 in the most recent quarter.
Despite the light quarter, Embraer reaffirmed its guidance for the year for deliveries of 70 to 80 Phenom light jets and 35 to 45 of its Legacy and Lineage jets. This would keep the company close to, if not a little below, the 117 business jets delivered last year.
Company executives noted that the business unit maintained its activity in the first quarter, but the market “has not shown great growth.” The executives continue to see challenges, but not enough to revise its planned outlook for the year. They also reiterated that the first quarter tends to be among the weakest for the company and noted that several aircraft deliveries, including one for a Legacy, pushed into April, slipping out of first-quarter reporting.
The performance of the Executive Jets unit contributed to Embraer’s overall decline in revenues from $1.3 billion in first quarter a year ago to $1.026 billion in the most recent quarter. Also company-wide, earnings before income and taxes fell markedly from $85.7 million in the first three months of 2016 to $23.4 million this year. This year’s total reflects a $7.6 million reduction related to the company’s voluntary dismissal program.
At Textron Aviation, the backlog has remained relatively flat as business aircraft customers are able to purchase aircraft on the spot rather than booking further out, said Scott Donnelly, the chairman and CEO of parent company Textron. Asked during the April 19 quarterly analysts call whether the book-to-bill for Textron’s Cessna family of jets will move above one, Donnelly responded, “I don’t know that it will. I think that we’re really in a mode now where there’s no reason for people to book aircraft very far in advance.”
Cessna is working with business jet customers now as they are ready for delivery. “There’s no reason, given where the industry is, to be looking at deals that are a year out or even six months out,” he said. “I think that’s just the nature of where we are in the market….It’s different than the industry used to be, for sure. But we’ve been doing this for a lot of years now, so it’s just a bit of the nature of the beast.”
The collective backlog for Textron Aviation, including Cessna and its affiliate Beechcraft, remained at $1 billion at the end of the first quarter, roughly the same as it was at the end of 2016 and down slightly from $1.07 billion at the end of 2015.
Despite the spot market for aircraft sales, Textron Aviation is holding the line on pricing, Donnelly said, noting that the company has “reestablished” what it is willing to do in the marketplace. The company saw incremental improvement across models in the quarter. “We certainly had some customers who said, 'Look…give me a little better price, and I’ll do it this quarter. I’ll go ahead and book it now.' As I said, we can’t do that.”
Customers aren’t always happy with that approach, he said, but they realize “these aircraft are still a heck of a price compared to historicals, and it’s a good deal. And that’s why we still see deals closing.”
Demand remains U.S.-centric, Donnelly added. The company is seeing some activity in Europe and a few deals in Latin America, he said, but expects that the market will continue to weigh toward the U.S. over the next year. In the U.S., buyers are a little guarded as they wait to see what happens around the potential tax reform, but are still positive, Donnelly indicated. Textron Aviation is positive about the pipeline of potential customers in the U.S., he added.
Beechcraft King Air deliveries fell 54 percent year-over-year in the first quarter as the strong dollar weighed on international sales. During the first three months, Donnelly reported that Textron Aviation handed over 12 King Airs, down from 26 in that same time frame last year, and 35 Citations, one more compared with a year ago.
According to Donnelly, demand has not diminished for King Airs; instead, international buyers, who typically account for more than half of the sales of the turboprop twins, have deferred purchasing plans due to unfavorable currency exchange rates. “They’ve tried to beat us down on price, but we held the line. We know the aircraft is the right one for their mission, so they’ll be back,” he said. “I’d rather turn down a sale [at a discounted price] than sell at too low of a margin.” For the full year, Donnelly expects King Air deliveries to be on par with the 106 shipped in 2016.
First-quarter revenues at Textron Aviation skidded $121 million from a year ago, to $970 million, in part due to lower King Air volumes, while profits were halved, to $36 million, due to lower volume and mix. Backlog at the aviation unit was $1 billion as of March 31, largely unchanged from December 31.
