Large jets bolster Gulfstream backlog

 - May 4, 2010, 4:33 AM

Gulfstream Aerospace president Joe Lombardo started his career in aerospace at Douglas Aircraft in 1975, where he held leadership positions in production and material control, planning and manufacturing, and was general manager of twinjet production. He joined Gulfstream in 1996 as vice president of co-production, where he was responsible for the ramp-up and dual production of the Gulfstream IV-SP and V. Prior to his appointment as president on April 9, 2007, Lombardo served as chief operating officer. Since 2001 he has also served as a vice president of General Dynamics Corp. and is now executive vice president of its Aerospace Group. Lombardo holds a bachelor’s degree in sociology from San Diego State University and a master’s degree in business administration from Long Beach State University. Ahead of this week’s EBACE show he talked to AIN about Gulfstream’s perspective on the business aviation industry.

What did Gulfstream do last year in response to the economic downturn?

We started with an assessment of the production rates and demand, and then reduced production rates. Deliveries of green aircraft for 2009 [at 95] were down from 2008 [156]. Mid-cabin saw the most dramatic reduction in the production rate, more the 50 percent [from 69 in 2008 to 19 in 2009]. It was less for the large-cabin aircraft [from 87 in 2008 to 75 in 2009].
When you size the production rate, then there’s a direct impact on those employees who are responsible for building and designing those aircraft, and also indirect support people. We lost about 1,200 people out of total employment of about 11,800. In addition, we began sizing expenditures–travel, marketing expenses and so on.

One thing we didn’t do, as long as we’re talking about this, is reduce the investment we had planned for research and development. We kept that steady.

In its 2009 annual report General Dynamics states that the Gulfstream backlog decreased due to customer defaults. How did the company handle these?

We still have a $19.3 billion backlog, but even so there were near-term order holders who for various reasons, probably financial, couldn’t take their airplanes. We had more orders than defaults last year but we still had enough defaults to put pressure on our backlog and force us to make the production-rate decrease.

What do you do with the deposits made on orders that default?

There are liquidation damages associated with any order and we held firm on our contract terms.

The annual report also mentions a $1.4 billion long-term backlog for fractional aircraft, which is not included in the $19.3 billion backlog. Why?

We elected some years ago to take NetJets out of our backlog. There were questions about how many of these are options, how many have deposits, and so we decided to take them out until they are firmed up and close to delivery. We have long-term contracts and I cannot talk about them specifically. Obviously, NetJets has been going through some changes this year.

General Dynamics bought Switzerland-based Jet Aviation in 2008, making it a sister company of Gulfstream and coming under your responsibility as GD’s vice president of aerospace. How did Jet Aviation do last year?

It was bit of a tough year for Jet Aviation, as it was impacted by the economy. Of the company’s five lines of business–maintenance, completions, aircraft management, charter and FBOs–the biggest two–maintenance and completions–were certainly effected. Jet Aviation needs to do like Gulfstream and the rest of the OEMs need to do: build up its backlog again.

How do the next few years look for business aviation?

We started seeing some favorable signs in the second half of last year, especially for the large-cabin airplanes. At the end of the year we had no more order cancellations, no “white tails” [unsold completed aircraft, so-called because they don’t have a company’s colors or logo painted on the tail]. This year we’re off to a decent start, but it’s still slow. The low and medium aircraft are struggling the most now. The large cabin, especially the 550, has done relatively well. Last year, 60 percent of our sales were international, and most of those were large cabin. There are countries in several areas–in the Asia Pacific, somewhat in Europe and the Middle East and in South America–where the demand has picked up nicely.

What do you think will be the industry’s biggest challenge in the longer term?

I think our environmental commitment is going to be very significant. I say that because general aviation is going to play an active and vital role in reducing carbon dioxide emissions, nitrous oxide, noise and all the other things that will be problematic 10 to 15 years from now. The industry is not going to sit back and be defensive about it. We’re going to make sure we do our part. It’s going to become more challenging and we need to be proactive.

Gulfstream’s new G650 will have a max speed about as close to supersonic as an airplane can get. What’s happening with the company’s supersonic program?

We’re going down our path and will make a decision one day about building a supersonic aircraft. It’s a product we’d love to market and we’re continuing to invest in it and try to prove the technology, but we’re not committed to making an airplane yet.