The general aviation industry continued a strong recovery through third-quarter deliveries and billings, according to the General Aviation Manufacturers Association. New aircraft billings were up 19.7 percent, to $8.1 billion, in the first nine months of this year, while total deliveries of new GA airplanes increased 7.7 percent, to 1,928.
Shipments of business jets climbed by 10.4 percent, from 355 to 392, and deliveries of business turboprops were up 19 percent from 163 to 194. Most business jet OEMs, except Boeing, Embraer and Cessna, showed gains. Among turboprops, only the Socata TBM 700 declined in number of deliveries.
A record number of new designs and derivative aircraft have been certified this year.
In the past nine months alone, the FAA has typed the Gulfstream 450 and 350, Global 5000, Falcon 2000EX EASy, Learjet 45XR and three Citations–the CJ3, XLS and Sovereign. Before year- end, at least three more models are on tap to receive FAA certification: the Hawker Horizon, Falcon 900DX and Global Express XRS. While shipments of several of these new and derivative models are reflected in the delivery statistics for the first three quarters of this year, most will be reflected in delivery statistics starting next year.
Reporting on third-quarter results, Cessna parent Textron declared that the Wichita manufacturer “exceeded our plan again for new jet bookings. We added orders for 71 Citations,including 22 for the new CJ2+, and 13 more for CitationShares.” With these orders, Textron said Cessna is sold out for this year.
“We are off to a good start on orders in the fourth quarter,” the company declared. “With the introduction of the CJ1+ and CJ2+ and the benefit of a strong showing at the NBAA Convention [in October] we have [orders for] another 41 [Citations] so far in the fourth quarter, nine of which are for delivery next year.” At the convention, Cessna also booked orders for six Caravan turboprop singles and “pre-sold” orders for 22 copies of the newly announced CJ2+.
In addition, “We added new orders for 25 jets for delivery next year, bringing the total number of jets on order at this time to 185 for next year,” or about 82 percent of next year’s delivery plan of 225 jets, the figure that Cessna has been sticking to for some time now. During the third quarter, Cessna delivered 47 Citations, compared with 42 a year ago, but that brought the nine-month total only to 118 shipments, compared with 148 in the first nine months of last year.
Despite fewer deliveries in the year-over-year period, revenues and profits at Cessna were up $183 million and $51 million, respectively, in the third-quarter comparison. Cessna said the increase in revenues was “largely the result of higher volume across the board. Additionally, the consolidation of CitationShares [Cessna bought an additional 25 percent of the fractional aircraft program from partner TAG] contributed $38 million to revenues.” Profits increased at Cessna primarily due to “improved cost performance, the higher jet volume and a contribution from modestly higher pricing partially offset by inflation.”
Cessna: ‘Steady Path Upward’
The company also said it has orders in hand for 151 jets to be delivered in 2006. Textron said it was “way too early” to have a planned number of deliveries for 2006, but did estimate that it expects to deliver 40 each of the CJ3 and Sovereign. “I think we are on a steady path upward for the next five years,” said Textron chairman, president and CEO Lewis Campbell.
“You take the new CJ1+, the CJ2+, the CJ3, XLS, Sovereign, and now the Mustang and think about any other business jet manufacturer we sell against and put their new model lineup on the field,” Campbell said, “and I think you will see that we have darn strong models to sell into a growing market. I think the best is yet to come.”
While Cessna’s order recovery reflects the continuing strengthening in the overall business jet market, it’s also the direct result of “our unrelenting commitment to new product innovation,” Campbell claimed. “Even during the recent downturn Cessna continued to invest in model upgrades and new jets.” During the third quarter three of the projects reached fruition. Cessna delivered three Sovereigns and 13 new XLS models. Just after the NBAA Convention ended, Cessna announced it had received certification of the CJ3 and will begin delivering that aircraft later this quarter.
Said Campbell, “In my recollection, our percent sold-out for next year and the strong orders for 2006 are just about what we were seeing during the mid-1990s when we were seeing a solid expansion of the business jet market.”
Meanwhile, in response to an expected increase in Citation production, as well as the start of production of the Mustang in 2006, Cessna plans to hire 600 workers by the end of next year. The company this year already has recalled 400 laid-off employees.
Falcons Flying High
Falcon deliveries and orders were robust during the third quarter. Dassault delivered 16 new aircraft in the third quarter versus 12 in the second quarter and 11 aircraft in last year’s third quarter. Orders in North America were strong and international orders more than doubled versus the previous quarter, the company said.
“The demand for our aircraft has continuously increased worldwide since the market turnaround one year ago,” said Dassault Aviation chairman and CEO Charles Edelstenne.
Year-to-date, the Falcon 2000 line has shown to be the most popular Falcon. The fourth quarter will see an upswing in 2000EX EASy deliveries, including the first two to NetJets Europe. “With the exception of the Falcon 7X, which is in a very different market segment, we expect the Falcon 2000EX EASy to be our most popular aircraft for the next few years,” said Dassault Falcon Jet president and CEO John Rosanvallon.
Additionally, the first order for the Falcon 900DX was placed early in the quarter, and firm orders for the Falcon 7X have passed the 40 mark, with the new long-range trijet currently sold out through the third quarter of 2008. Certification and deliveries of the Falcon 900DX are expected to start before year-end. The Falcon 7X is on track for certification in late 2006.
Gulfstream on a High Note
Third-quarter results show that Gulfstream is on its way to end this year with significantly improved numbers in deliveries, earnings and sales. According to figures released by parent company General Dynamics, Gulfstream delivered 57 green aircraft in the first nine months of this year, compared with 53 in the same period last year. Earnings and margin rates more than doubled.
“Gulfstream, with a little bit of help from improving market conditions insofar as price is concerned, has on relatively stable sales more than doubled earnings and margin rates for the quarter and year to date,” said GD chairman and CEO Nicholas Chabraja. He attributed the increases to “improving market conditions, continuing cost improvement and tighter control of pre-owned activity.”
The manufacturer should easily deliver the 18 more aircraft needed to exceed last year’s total of 74, but not necessarily the 28 more needed to match 2002’s year-end total.
Chabraja said, “I am guardedly optimistic that new product offerings and a recovering economic environment can result in continued improvements. We are a little bit cautious about market demand, [even though] it has picked up considerably. From an order perspective, this is the best third quarter in Gulfstream’s history.”
Gulfstream plans to deliver between 58 and 60 large-body Gulfstreams next year (G350s through 550s), compared with about 55 this year. Chabraja said Gulfstream is about two-thirds sold out for next year, “ahead of where we were a year ago, and my suspicion is that we will be way ahead of it by the end of this year. Assuming fourth-quarter activity is in line with tradition [which is usually strong for the industry], we’ll be without risk on our production base next year.”
The General Aviation Manufacturers Association points to the accelerated depreciation bonus as “stimulating every segment of our industry.” It has been extended for business aircraft bought this year and placed in service next year, but it apparently will have minimum effect on some OEMs. For example, at Gulfstream, “I don’t know if it has much of an effect on us right now,” GD’s Chabraja said. “Since the legislation refers to final delivery to a customer, we are essentially sold out. Can one of our customers put the arm on us to deliver another airplane earlier? Maybe. It’s possible. But there are limits to what we can do there. We are not in any big hurry to superheat volume.”
Raytheon Slashing R&D Spending
Raytheon Aircraft’s third-quarter net sales were up 33 percent, to $624 million, and the company recorded operating income of $21 million in the quarter compared with an operating loss of $4 million in the comparable period last year. The company attributed these improvements to increased volume and “increased new aircraft sales combined with continued cost and productivity benefits.”
The company delivered 128 turboprops and jets in the first nine months, compared with 105 last year. Because of its improved performance, Raytheon is increasing Raytheon Aircraft’s earnings forecast from $30 to $35 million to $50 to $60 million for the full year. As for delivery plans for next year, “at the end of this year we expect to be about 50 percent sold out for next year,” according to Raytheon Aircraft chairman and CEO Jim Schuster. “In contrast to prior years that’s a healthy backlog.”
With the Beechcraft Premier I established in service and development of the Hawker Horizon winding down, Raytheon Aircraft will cut research and development spending levels by almost half over the next two years. “Over the past several years,” the company said, “Raytheon Aircraft has spent approximately $70 million per year on R&D,” primarily driven by the introduction of the Premier and Horizon. “We expect R&D spending to decrease approximately 20 percent next year and another 20 percent in 2006.
“When the Horizon is certified,” explained Schuster, “Raytheon Aircraft will be in a position for the first time since 1982 [beginning with the Starship] where we do not have a clean-sheet aircraft in development. Our strategy for the next couple of years is to really focus on upgrading and developing derivatives. The product line is complete.”
Development of the Hawker 450 light midsize jet, introduced at the NBAA Convention in 2000 and at the time tentatively scheduled to have entered service in 2006, remains on the shelf, where it has been since early last year. “We have no plans to act on it in the near term,” Schuster said.
The Horizon is scheduled to be “provisionally certified” and delivered to the first customer before year-end. Raytheon will lease the aircraft back from the customer for sales demonstration and operational evaluation purposes.
Meanwhile, sales of aircraft to fractional operators continue to be an important market for several manufacturers. For example, deliveries to fractional operators have been running at about 10 percent to 12 percent at Cessna and from 10 percent to 16 percent at Gulfstream. “I suspect it won’t be materially different next year,” GD’s Chabraja concluded.
Demand Strong for Used Aircraft
Pre-owned business jet transactions are also enjoying strong demand. For example, Gulfstream reports, “Going into the fourth quarter, we had 10 pre-owned aircraft in inventory. [Of those,] seven were on short-term lease, two were under contract for sale and only one was available for sale at that point.”
At the beginning of the fourth quarter, Dassault Falcon Jet reported no pre-owned Falcon 2000s on the market, compared with 16 at the beginning of the year. “Worldwide inventory of current production models has been more than halved since the beginning of the year,” the company said. “Also, pre-owned prices have continued an upward trend.”