“This was a strong quarter overall, as reflected by solid growth in all key measures from a year ago. Our businesses continue to focus on disciplined execution of their programs, cost and schedule,” said Phebe N. Novakovic, chairman and chief executive officer.

“In the Aerospace segment, we are continuing to ramp up the pace of our G700 deliveries and our defense businesses continued to grow, reflecting increased demand in response to the threat environment.”

Despite sharp revenue growth, the aerospace segment’s operating margins slipped to 10.9% of the revenue from 12.1% in the preceding quarter of last year.

In absolute terms, the second quarter operating margin of the segment rose 35.2% YoY to $319m from $236m last year.

While the company secured $2.7bn in new orders during the quarter, its overall order backlog slightly dipped from $20.5bn in the first quarter of 2024 to $20bn during the period under review, resulting in a book-to-bill ratio of 0.9x.

Aircraft deliveries also increased, with 31 large-cabin and six mid-cabin aircraft delivered, compared to 18 and six respectively in the previous year.

On a cumulative basis, the company’s aerospace segment revenues during the six months ended June 30 grew by 30.7% YoY to $5bn from $3.8bn in the same period last year.

This translated in operating margin growth of 23.4%YoY in absolute terms to $574m from $465m last year while operating margin as a percentage of revenue declined 70 basis points to 11.4% of the revenue.

General Dynamics manufactures business jets through its subsidiary Gulfstream Aerospace.

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“In the Aerospace segment, the recent Federal Aviation Administration (FAA) certification of the Gulfstream G700 has enabled us to begin customer deliveries. This is a strong start to 2024 and we remain confident in our outlook,” said Phebe N. Novakovic, chairman and chief executive officer, General Dynamics.

On the book-to-bill, in the Aerospace segment, the company received $2.4bn worth of orders in the quarter under review, growing the segment’s backlog to $20.5bn, up 6.2% from the same quarter last year. Aerospace book-to-bill was 1.2-to-1 for the quarter.

In terms of deliveries, the aerospace manufacturer delivered 21 large-cabin and three mid-cabin aircraft in the first quarter of 2024.

Overall, General Dynamics posted diluted earnings per share of $2.88, an improvement of 9.1% from $2.64 a year ago. This came on the back of 8.6% growth in revenue to $10.7bn and healthy operating margin of $1.03bn (9.65% of revenue). On the bottom line, the company’s net earnings during the quarter stood at $799m.

“Our businesses delivered solid operating results in the quarter, growing revenue and backlog, while expanding margins, even as we awaited G700 certification,” added Novakovic.

General Dynamics’ consolidated book-to-bill ratio was 1-to-1 for the quarter. Company-wide backlog clocked in at $93.7bn, up 4.4% from the same period last year.

On April 23, one day before the announcement of first quarter results, the company announced that it has delivered first two G700 aircraft to customers.

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Business jet deliveries made by the Gulfstream-manufacturer inched up to 39, of which 32 were large-cabin aircraft and seven were mid-cabin ones, from 38 in the previous year. 

“We had a solid fourth quarter, capping off a year that saw growth in all four segments and continued strong cash flow,” said Phebe N. Novakovic, chairman and chief executive officer, General Dynamics.

“Our aerospace segment in particular saw solid execution and continued demand in the quarter and is well positioned for a surge in deliveries upon the Federal Aviation Authority (FAA) certification of the G700.”

On a full-year basis, General Dynamics aerospace segment revenues remained flat at $8.6bn in 2023 compared to $8.5bn in 2022 while operating earnings grew by 4.6% year-on-year to $1.2bn, respectively.  This was despite a significant decline in 2023 Gulfstream aircraft deliveries at 111 (89 large-cabin and 22 mid-cabin aircraft) compared to 120 in 2022.   

On the book to bill, the company’s aerospace division came in at 1.2x for the quarter and the year (though this was helped by the lack of G700 deliveries).

The company’s aerospace segment ended the year with a backlog of $20.4bn.

Overall, General Dynamics reported earnings per share of $3.64 for the fourth quarter (Q4), as the company’s top line jumped 7.5% year-on-year to $11.7bn. The company’s fourth quarter earnings were slightly below the consensus estimates of $3.68, partly due to delays in the certification of Gulfstream’s new G700 bizjet.

“We imagine that investors will look through the headline EPS ‘miss’ for 4Q, as some estimates that fed into consensus were clearly stale given the G700 slippage. Aside from this we view 4Q as a clean operating result, with particularly strong cashflow,” said Robert Stallard of Vertical Research Partners in his earnings commentary.

Headquartered in Reston, Virginia, General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services.

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Jeremie Caillet will replace David Paddock as president of Jet Aviation in April.

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Q3 earnings surpassed market estimates of $2.97 for the quarter under review.

Aerospace revenues fell by 17% year-on-year to $2bn. Gulfstream business jet deliveries declined to 27, of which 22 were large-cabin aircraft and five were mid-cabin ones, from 38 in the previous year.

Gulfstream is still awaiting certification from the Federal Aviation Administration (FAA) for its jets. The company is targeting to deliver 139-140 jets in 2023. It is likely to meet the target as it already has 40 G700s built up whereas the company is still awaiting guidance and certification for 19 G700s from the FAA.

The company reported a total record backlog of $96bn in Q3, up 1% on a quarter-on-quarter basis. “Aerospace received $2.9bn in new orders during the quarter, growing backlog to $20.1bn,” the company said in the earnings report.

Net cash provided by operating activities in the quarter totalled $1.3bn. After $227m in capital expenditures, the company generated free cash flow from operations of $1.1bn.

During the quarter, the company repaid $500m in fixed-rate notes, paid $363m in dividends, and used $56m to repurchase shares.

“Still no sign of that bizjet downturn – in fact the aerospace book to bill expanded in the quarter to 1.4x, though the dip in deliveries partially helped,” said Robert Stallard, partner at Vertical Research Partners.

Headquartered in Reston, Virginia, General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services.

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There are two reasons for this. First, corporate buyers are ordering aircraft. Second, many of the new entrants that discovered business aviation are happy. OEMs did see a brief pause in sales when several US banks had issues, but demand has bounced back since.

Demand in the second quarter was at the same level as the demand in the first quarter. It felt very similar,” said Phebe Novakovic, chair and chief exec of Gulfstream parent General Dynamics on an analyst call this week. “As we enter Q3, we have a very strong pipeline.”

 General Dynamic’s Aerospace division (which includes Jet Aviation) had a book-to-bill ratio of 1.3 in the second quarter of this year. This is down from 1.96x in the second quarter of 2022 (and 2.03x in 2021). A 1.3x ratio shows the market may be down but is far from out. Gulfstream delivered 24 aircraft in this quarter versus 22 in 2022.

 “It’s really the Fortune 500 that are really driving the demand. These are long-established customers as well as new Fortune 500 customers,” said Novakovic. She says that ultra-high net worth buyer demand is still strong. Gulfstream is also seeing strong demand from the Middle East and Asia.

Dassault saw a slowdown in the last quarter of 2022 which has continued for the first half of this year. The French manufacturer booked 12 new Falcon orders in the first half of 2023 compared with 41 in the first six months of 2022. This gave the company a book-to-bill of 1.33.

Dassault delivered nine Falcon business jets in the first half of the year against 14 in the first half of 2022. It expects to deliver 35 aircraft – including Falcon 6X. While orders are down, it has a backlog of 90 aircraft compared to 87 at the end of June 2022.

Textron Aviation had a book-to-bill of 1.2x. “The market is still quite strong and we’ve posted a strong book-to-bill again in the quarter,” said Scott Donnelly, chair, president and CEO of Textron (we hope he gets three salaries for doing all these jobs). “We continue to be really happy with how the market is behaving in terms of demand and pricing.”

Textron Aviation’s backlog at the end of the second quarter was $6.8 billion – up from $6.4 billion at the end of 2022. Textron had hoped to deliver around 200 jets this year, it expects to deliver fewer now (in 2022 it delivered 178) because of issues with getting parts from suppliers.

Gulfstream had planned to deliver about 145 aircraft in 2023, it is now expecting to be closer to 140 jets. Some of these are likely to be its new G700.

Supply chain problems are easing but manufacturers will not rush to increase production when things improve. This prudence and the new customers who have entered the market mean that the industry is well placed for a soft economic landing – and in a better position for a hard one.

“The demand environment is driven by the fact that people – in particular people who have come into this market and started using aircraft and experienced what private aviation is all about – have had a great experience,” said Donnelly. “They are time machines, right? It allows you to do things that you just can’t do if you’re using commercial transportation. The productivity, the efficiency, the ability to get from anywhere to anywhere on your time and in an expeditious way is something that more and more people have been exposed to.”

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The manufacturer expects to deliver 27 aircraft in the third quarter, followed by “a rapid increase” in the fourth quarter deliveries. G700 deliveries planned for the third and fourth quarters would now take place in the fourth quarter, due to certification delays. Gulfstream plans to make 19 G700 deliveries in the fourth quarter, said Novakovic. The five to six aircraft shortfall in total deliveries this year does not involve G700s, she added.

Gulfstream delivered 45 aircraft – including 35 large-cabin airplanes and 10 mid-cabin models in the first six months of this year compared with 47 in the first half of last year. Deliveries in the second quarter reached 24 aircraft – two up on the same level last year. The book-to-bill ratio was 1.09x in the first half of this year compared with 1.83x in the same period of last year.

Supply chain challenges are easing but continuing to impact deliveries. “Supply chain issues and past Covid labour issues have impacted operating margins, but there is relief in sight,” said Novakovic. “We expect improvement as we progress.” Novakovic added: “We have reliable, increasingly reliable, schedules. That said, they’re more likely to anticipate more catch-up in the fourth quarter, which will allow us to complete a number of those airplanes, but they’re still impacting the third quarter deliveries.”

In the first quarter of this year, deliveries dropped to 21 aircraft compared with the 25 jets it delivered in Q1 2022.

Meanwhile, Gulfstream’s parent company General Dynamics posted Q2 2023 net earnings of $744m on revenue of $10.2bn. Diluted earnings per share (EPS) were $2.70. The company reported a record backlog of $91.4bn and a book-to-bill ratio of 1.2-to-1.

During the first half of this year, revenue of $20bn was up $1.45bn or 7.8% on the same period of last year. Operating earnings of $1.9bn were up less than 1% and net earnings were down $22m, mainly due to below-the-line items, including a higher provision for income taxes.

“Our businesses demonstrated solid momentum despite continued supply chain headwinds in several units, achieving the highest-ever revenue for a mid-year quarter, record-high backlog and very strong cash flow,” said Novakovic. “We are well positioned to continue to perform for the remainder of the year.”

Gulfstream results – at a glance

 Aerospace HI

• Revenue: $3,845m (up 2% yoy)
• Operating earnings: $465m (down 3.3%)

Aerospace Q2

• Revenue: $1,953 (up 4.6% yoy)
• Operating earnings: $236m (down 0.8%)

General Dynamics Q2

• Revenue of $10.2bn: up 10.5% year-over-year, with growth in all four segments of
• Net earnings $744m: Diluted EPS $2.70
• Record backlog of $91.4bn, 1.2-to-1 book-to-bill.

Source: General Dynamics.

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The company’s midsize jet deliveries remained level with last year, having delivered four in both Q1 2023 and Q1 2022, but it delivered only 17 large cabin jets compared with the 21 this time last year, according to parent company General Dynamics’ (GD) financial results.

The drop in deliveries was due to supply chain disruptions which also impacted on manufacturing efficiency, according to GE. Its book-to-bill ratio was 0.9:1 for the quarter.

Revenue for the aerospace division, which also includes services provider Jet Aviation, decreased from $1.9bn in Q1 last year to $1.89bn, with operating earnings also dropping from $243m to $229m.

GD’s backlog for its aerospace division rose from $17.6bn in Q1 last year to $19.3bn, with the total estimated contract value increasing to $20.1bn, up from $19.4bn.

“Aerospace held its own in a very difficult operating environment,” said Phebe Novakovic, chairwoman and CEO, GD. “Importantly, this is the first quarter in which we have missed an airplane delivery as a result of supply chain issues.”

In an investors call, Novakovic said the company expects supply chain issues to be resolved in the final half of the year

She added that certification of the G700 is still expected to happen in late summer this year.

GD Aerospace Q1 financial results – at a glance

• Revenue down to $1.9bn
• Operating earnings down to $229m
• Operating margin 12.1%
• Backlog up to $19.3bn
• Estimated backlog value up to $20.1bn

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Since 2019, nine of the 20 largest Part 135 US operators have been acquired by competitors. Five were bought by Vista Global – which also acquired Air Hamburg in Europe last year. Jet Edge went from being an acquirer to being acquired.

Wheels Up bought four of the top 20 operators. It also acquired Air Partner for $110m less than a year ago. Wheels Up reported its figures for 2022 yesterday. While it grew last year, the company’s key focus is on becoming profitable next year. It is much more focused on integrating its past acquisitions than looking for new ones. While Thomas Flohr likes surprising the market, the same appears true at Vista Group.

“In the last few years operators have been focused on securing supply to meet the increased demand from both new and existing customers. Now that they have secured additional lift, they will be focused on optimizing their fleets and infrastructure to make operations as efficient as possible,” says Bobby Femia, aviation investment banker at Jefferies, the investment bank that has worked on the most business aviation mergers. “We are likely to see more acquisitions where operators are investing in technology, maintenance or software enhancements.”

Flexjet’s acquisition of sister Directional Aviation company Constant Aviation is a clear example of this. Constant Aviation, a well-regarded independent maintenance shop, will now focus on supporting the Flexjet fleet.

In a statement announcing the deal, Jay Heublein, senior vice president maintenance Flexjet, described the acquisition as “one of the most significant infrastructure investments in the history of our industry”.

This might sound like an exaggeration – especially for a deal involving two sister companies – but it is a fair comment. There are two big reasons why Flexjet wants Constant.

First, every operator has faced challenges keeping aircraft flying in the past few years. Flexjet, which now plans to list on the NYSE American exchange as part of a SPAC, believes that having its own maintenance division – which includes 28 mobile aircraft on ground teams – is an advantage.

The second, most significant reason, is that in recent years only manufacturers (and their subsidiaries like Jet Aviation) have made big maintenance investments as they try to grow their services businesses. While it makes sense for OEMs to do this, not all customers want them to have this power.

Directional could easily have sold Constant to a manufacturer. But instead, as one of the largest operators in the world, Flexjet can continue to push back against manufacturer dominance just as airlines with large MROs – such as Delta TechOps or Lufthansa Technik – do. Like these airline divisions, Constant Aviation says it intends to stay in the retail market space and keep its brand.

The last three years have been dominated by operators looking for supply with 2023 focused on efficiencies. You will know that demand for charter falls when they start buying demand – as Directional did with Sentient Jet in 2012. One major broker that was in talks to buy competitors, says they are holding back on any acquisition for the first half of the year until they can judge customer demand.

It is not always a mistake to buy at the top of the cycle. General Dynamics’ acquisition of Jet Aviation in 2008 was a good one. But like aircraft owners, sellers of operators in 2022 can be happy with their timing.

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The General Aviation Manufacturers Association (GAMA) says that business jet manufacturers delivered 712 jets in 2021 aircraft compared with: 710 in 2021, 644 in 2020, and 809 in 2019. 

Manufacturers are looking to speed up production this year, but they are doing it gradually. Gulfstream delivered 120 aircraft in 2022, up one from 2021. It plans to increase production by 20% and build around 145 jets in 2023. (Gulfstream delivered 147 in 2019).

“It’s really important to remember that our 2023 and 2024 estimates about production levels and delivery levels are independent of current demand,” said Phebe Novakovic, CEO of Gulfstream’s parent General Dynamics speaking at investment bank Cowen’s Aerospace and Industrial Conference this week. “They are based entirely and solely on our strong durable backlog. So even if there was a macroeconomic permutation, the next few years are solid for us.”

The Savannah manufacturer is – perhaps conservatively – expecting to sell about one jet for each one it delivers this year. If this happens, it will still have a decent backlog in 2025. (It had a book-to-build of 1.47 in 2021.)       

Bombardier delivered 123 aircraft in 2022 (some 49 of these in the last quarter). It is also not looking to speed up production rapidly. The Canadian manufacturer is planning to deliver at least 138 aircraft this year – a 12% rise. “As we see the market stabilising, we are not going to over-tweak our rates. We are going to stick to the plan and ensure our production remains de-risked. I talked last quarter about reaching a book-to-bill cruising altitude of one. That’s where we are at today,” said Éric Martel, president and CEO, Bombardier, on an analyst call this month. “The demand itself is stable to the level of full year production and further padded by our healthy backlog.”

Intriguingly, Martel said that Bombardier could produce 200 aircraft a year without increasing its facilities. But do not expect this to happen in the next few years.

In 2013, equity analysts at Citi dubbed the years after the Global Financial Crisis as “the lost decade” for business aviation. They argued that too many aircraft deliveries in the run up to 2008 had created an overhang, preventing new orders. This is not happening now.

We are now four years into the “Prudence decade.” Where manufacturers have put prudence and future profits ahead of short-term wins. A new cohort of customers has discovered the benefits of business aviation through charter, jet cards or fractional shares, but are having to wait before they can own a whole new aircraft.

Being prudent may not be as much fun as going crazy, but it is worth it if it stops the industry from being lost for another 10 years.

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