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Thursday, January 28, 2016

Textron Aviation Sees Dipping Revenues, Forecasts Flat 2016 Outlook

Juliet Van Wagenen

The Longitude and Hemisphere will join the Citation Latitude to complete a new, large-cabin, three-aircraft Citation family
The Longitude and Hemisphere will join the Citation Latitude to complete a new, large-cabin, three-aircraft Citation family. Photo: Business Wire

[Avionics Today 01-28-2016] Textron Aviation’s revenue dipped in 2015, and while the company is projecting flat revenue growth for 2016, they anticipate more jet deliveries and the introduction of new aircraft will bolster profits in the long run. The company saw a full year revenue of $13.4 billion in 2015, down 3.3 percent from a 2014, with fourth quarter revenues dipping by 4.2 percent compared to the same period in 2015.

“Revenues were down $32 million from this period last year, reflecting lower King Air and pre-owned aircraft volumes, partially offset by higher jet volume,” said Frank Connor, Textron’s executive vice president and chief financial officer, during a Jan. 28 conference call with analysts and reporters.

Despite reduced revenue, the company delivered more jets in 2015 than the previous year and recorded a higher profit, $138 million compared to $130 million a year ago. Textron delivered 60 Cessna Citation business jets and 33 Beechcraft King Airs in the fourth quarter, compared to 55 Citations and 41 King Airs during the same period last year. For the full-year, the company delivered 166 jets, up from last year's 159, including 16 Latitude deliveries.

Despite these increases in deliveries, the company is anticipating flat growth for the aviation segment in 2016.

“The market is what it is, I guess,” said Textron CEO Scott Donnelly during the call. “I think that we are in a position here where we, even in a pretty flat market, have been able to continue to eke out some growth on the top-line....just organically, we sold more King Airs this year than we sold last year. We sold more jets thoroughly this year than we sold last year and we continue to expand the margin rate.”

Textron Aviation ended 2015 with a backlog of $1.1 billion, down $308 million from the end of the third quarter, which prompted analysts to question whether the backlog would be enough to sustain the company during an economic downturn.

“Look, if I could pick-up someone would give me another $1 billion or so of backlog, I would take it, but the fact of the matter is, that is not where the market has been and it has been this way for ... at least six years. We have been kind of operating in this mode and that is just the nature of this industry right now,” said Donnelly. “You go out and you sell them pretty much one plane at a time and that is working for us. Our revenue keeps going up and our margins keep expanding and that’s what we are going to keep doing.”

When questioned as to whether the company should lower production on legacy products in order to maintain a sufficient backlog in coming years, Donnelly said they had no plans to lower production further.

“We have taken those numbers down quite a bit over the years and I think right now, you are not seeing order builds. I mean, we are not pumping out white tail. We are matched pretty well on our production today, which over the last few years, frankly, has been running to demand,” he said.

“We are not generating a big surplus of aircraft and we just do not do that,” he added.

While the company is forecasting flat profits in the aviation segment, it expects business to improve in the longer term, particularly with two new aircraft unveiled at the National Aviation Business Association (NBAA) conference in Las Vegas in November 2015. The re-launched Cessna Citation Longitude and the all-new Citation Hemisphere will join the Citation Latitude to complete a new, large-cabin, three-aircraft Citation family, which Donnelly believes will help bolster profits in the aviation segment going forward.

The Hemisphere, valued at $30 million to 35 million per aircraft and with a range of up to 4,500 nautical miles, is targeted for first flight in 2019, at which point Donnelly expects it will “accelerate the growth in aviation as we enter the next decade,” and open up the company to an “entirely new market opportunity.”

The Longitude, on track for a closer-term launch with first flight in mid-2016, features the Garmin G5000 integrated avionics flight deck, a fly-by-wire rudder and is powered by Full Authority Digital Engine Control (FADEC)-equipped Honeywell turbofan engines with fully integrated autothrottles. The company is on track to begin deliveries of the aircraft to customers in the second half of 2017, at which point Donnelly expects it will drive capital for the second half of the year.

“Customer reaction to both of these models has been very positive and we believe they will generate substantial growth opportunities,” said Donnelly of the two new aircraft.

Textron is forecasting 2016 revenues of approximately $14.3 billion, up six percent, and “expects solid growth in aviation” in the coming year, according to Donnelly.

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