How concerned are you, in light of the turmoil on Wall Street, that what started with a housing bubble could snowball and become a business jet bubble?Obviously we’re concerned, and we’re carefully monitoring the situation. Historically, when the aircraft industry has gone into a downturn there has always been something in the world that caused it. Before this it was 9/11 and the tech bubble. This latest turmoil has got the makings of that same sort of impetus for a downturn. But right now we’re not seeing the overall impact.
The real leading indicator that we look at is the bookings we receive. Our new-order intake is at the same level, basically, as it was through 2007, which was a record year for us, being driven primarily, though, by the international market. The U.S. market has been slow for most of this year. Clearly there are lots of concerns, and I think what you’re starting to see is the uncertainty, and that causes people to do nothing. And you’re right, it’s been primarily a credit issue, but will that roll over and cause corporate profits to decrease? Time’s going to tell, and we’re certainly monitoring it.
Have you had U.S. buyers who have started to cancel orders or postpone deliveries?
We have, yeah. A couple of people have postponed deliveries, but really what you’re seeing are people not making decisions to purchase. So the people who had orders with us, it was only one or two who have requested to move an aircraft delivery position out. So it hasn’t been that big of an issue, but I think what you’re going to see is the order intake slowing, with people not doing anything right now.
That inaction on the part of buyers, is that also extending to markets outside North America?
It hasn’t to date, but I think there’s a potential for that after what we’ve seen in the last couple of weeks. Prior to that there really hadn’t been, but the events we’ve seen in the last couple of weeks shook the world. Time is going to tell. Right now we haven’t seen it, but we’re anticipating some slowdown.
What sort of backlog do you have at the moment?
We’re in pretty good shape, as is the rest of the industry. Our backlog supplying the numbers through the second quarter of this year is $7.4 billion. And then as far as when the next available delivery positions are, that varies across our product lines, all the way from the Hawker 4000 down through our Bonanza, but I would say that in general on an average basis you’re probably looking at a year to two years out depending on the product. We’ve got a sufficient backlog, but if the market does turn we’ll end up slowing down our production rate.
Do you think there is a chance that a sizable portion of the orders on the books could evaporate if things really deteriorate?
No, I don’t really see that. We look at all of that; we don’t ignore it. But we’ve evaluated it, we’re pretty close to our customer base on those orders, and the fact is they’re all firm contracts with sizable deposits. People aren’t going to willingly walk away from million-dollar deposits.
So the percentage of your backlog that could possibly be at risk is a very small portion?
I’d say it’s a small risk, based on my assessment of it.
Can you talk a little about the King Air 350i and Hawker 450 you introduced here?
Our latest King Air is a derivative improvement that is really focused on the back end of the airplane with a pretty revolutionary change in the interior, both in terms of overall design and the quality of the material and then also focused on the cabin management system. Especially in the King Air 350, the versatility of having a double-club seating arrangement and the ability to operate out of short fields makes it an airplane that meets business needs and also the personal needs. We’re adding the new Rockwell Collins Venue cabin system, which give you access to iPhones, to iPods, and for taking music and movies and being able to play whatever you want in the back of the aircraft. The technology is just phenomenal.
The Hawker 450XP is an improved version of the Hawker 400XP that incorporates some significant changes. We’re upgrading from the Pratt & Whintey JT15D engine to the Pratt & Whitney 535 engine, as well as adding a complete new avionics suite from Collins with the Pro Line 21 system. We’re also doing a completely new interior redesign that will include many of the same features that I described on the King Air 350, so it really brings a midsize-Hawker-quality interior to our light jet product family.
How about the Hawker 4000 entry into service? It’s been a painful process. What’s the latest on deliveries?
We’re in that ramp-up process. We have delivered three airplanes, and we’ll continue to ramp that up to where we’ll deliver somewhere up through the mid 20s probably by the end of this year. That’s still a little nebulous because this is our flagship product and we’re making sure that the delivery process and the quality of the product going out is fitting for a $20 million-plus airplane.
When does NetJets get its first airplane?
NetJets is targeted to get their first airplanes at the end of December of this year. After that their airplanes go down the same production line, based on where their serial numbers are, they’re stacked up with everybody else as far as deliveries. We work very closely with NetJets. They usually specify that they want one in March or one in June or whatever and we spread them through the course of the year.