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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“I have to say, that was one heck of a quarter we just had. When I take a step back and look at what we accomplished, our business is firing on all cylinders,” said Bart Demosky, chief finance officier, Bombardier on the earnings call. The company outperformed on all metrics: revenue, cashflow, EBIDTA and business jet deliveries.

The Quebec-based jet manufacturer said the fourth quarter is already well underway. “Overall, we have a good line of sight for the fourth quarter and everything is in place to deliver greater than 56 aircraft with some already behind us,” said CEO Eric Matel. This will take the company’s full-year jet deliveries to 138, with 82 delivered already in first nine months.

Bombardier is set to achieve nearly one-fourth of the global business jet market share if it is successful in delivering 138 jets by the year end.

“It’s a very strong quarter, typically, because we tend to have a lot of deliveries in the fourth quarter. This quarter is even higher than some quarters in the past, and so that’s setting us up very well too,” said Demosky.

This should drive strong cash flow in the fourth quarter at $639m. “Our cash usage over the past nine months, was largely driven by inventory ramp up for, which we expect to see a significant release in the fourth quarter, as we deliver more than 56 aircraft,” he added. 

The company’s backlog also remains strong at $14.7bn in line with the average in past four quarters. This essentially means the company has an orderbook averaging 18-24 months.

‘No slowdown’

High interest rates, rising costs and negative sentiment remain top risks for business jets market. But Martel says he sees no signs of a slowdown in demand including the fleet operators. “We’ve seen no impact whatsoever in terms of fleet operators being able to raise capital. Whether that be through equity, through cash flow generation, or through access to the debt markets, we continue to see very strong fleet activity.”

“In fact, it’s more of a growth story for the fleet operators and we’re very pleased to be partnering with them. No signs of pulling back. In fact … a group … said that they’re deploying more capital into business aviation, because it’s been high performing for them.”

However, Robert Stallard at Vertical Research says: “All the bizjet OEMs have now confirmed that new bizjet demand remained resilient in Q3, even with concerns over the impact of the ‘higher for longer’ interest rate environment.”

“The interesting tussle between negative investor sentiment and bizjet fundamentals has been won by the bizjet OEMs this quarter, but we’d be wary of declaring any victory yet.”

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The increase in segment’s revenue came on the back of from higher volumes and favourable pricing.

“At Aviation, we saw our strongest order quarter of the year with a 12% increase over the third quarter of 2022,” said Scott C Donnelly, chairman and CEO, Textron.

The aviation segment’s profit clocked in at $160m in Q3, up $29m from a year ago, largely due to favourable pricing.

Meanwhile, a $23m favourable impact from higher volume and mix was partially offset by supply chain and labour inefficiencies.

The company’s aviation segment delivered 39 jets and 38 commercial turboprops. Textron Aviation’s backlog at the end of the Q3 was $7.4bn.

“The much-watched aviation backlog expanded by $600m sequentially and we calculate a book to bill of about1.4x,” said Robert Stallard, global aerospace & defence partner at Vertical Research Partners. “The book to bill at aviation has actually improved versus deteriorating, which bodes well for bizjet demand.”

Overall, Textron group’s revenue reported earnings per share (EPS) of $1.35 for Q3, up 27% year-over-year from the same period last year. The company’s revenue grew by 8.6% year-over-year to $3.4bn compared with $3.1bn during the Q3 2022.

“In the quarter, we saw higher overall revenues and net operating profit driven by growth at aviation, industrial and systems,” said Donnelly.

Meanwhile, Bell revenues remained flat at $754m compared to $754m in the same period last year on account of lower commercial helicopter volume, largely reflecting supply chain constraints.

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Business jet manufacturers did significantly better.

Textron Aviation achieved a book-to-bill of 1.55x (it booked 1.55 aircraft orders for every aircraft it delivered); Bombardier 1.8x; Gulfstream 1.96x and Embraer 2.5x.

These ratios mean that backlogs continue to rise. Gulfstream’s hit $18.786bn (up $5.3bn in 12 months), Bombardier $14.7bn (up $1.2bn), Textron’s hit $5.8bn (up $2.7bn).

These are fantastic results showing two things: first, increasing production is still hard and second, demand is still strong.

It is hard to see OEMs speeding up production significantly. “We do face, what I would call a crosswind on supply chain,” said Éric Martel, chief executive, Bombardier on his analyst call.

Jefferies says that Bombardier, Textron Aviation, Gulfstream, Embraer and Dassault Aviation delivered 126 jets in the second quarter. This is up from 117 jets last year. But this is still down 14% compared to the 147 jets they delivered in the second quarter of 2019.

“We are seeing all the OEMs practicing commendable restraint on supply, and even if they did try to make more aircraft than currently planned, we doubt if the supply chain could accommodate anything before 2024,” said Robert Stallard, partner, Vertical Research Partners.

Whether demand stays is the biggest question. The number of pre-owned aircraft for sale is slowly rising (see dashboard below), but there are still few recently delivered jets available.

“There’s a lot of talk out in the market about interest rates, inflation, the stock market recession potential and so on,” said Jason Aiken, CFO of General Dynamics (and former CFO of Gulfstream) during an earning call.  “But to be completely frank, we have not yet seen any impact of that in terms of our order pipeline and the resulting order activity that we’ve seen. There continues to be a very strong customer demand.”

Scott Donnelly, CEO, Textron, had a similar view on the Textron analyst call. “The market feels about the same. Demand is strong and there continues to be a strong business jet market in North America. In the quarter we saw a significant pickup in international activity, particularly in our turboprop business. We see some more of the corporates, coming back in as corporate flight activity picks up, but still seeing a lot of new entrants into the market as well. The beginning of Q3 is indicative of really strong demand across the entire portfolio of products.”

Bears may say that OEMs were saying the same thing in 2008. But the market was very different. In the second quarter of 2008, OEMs delivered 270 jets – more than twice this quarter’s 126 aircraft. In 2008 Cessna alone delivered an astonishing 117 business jets. Hawker Beechcraft built 38.

With a global downturn now expected, it would be no surprise to see some drop in orders. OEMs, however, stress that backlogs are much stronger now than they were in 2008. Some of this is true as manufacturers have worked hard to stop speculators. But you only discover how strong backlogs are after a downturn.

Gates, a keen business jet user and a major investor in Signature Aviation, is also warning of a global slowdown. Last week in an interview with CNN (to publicise his book) he said: “You can only be optimistic in the long term if you are pessimistic enough to survive in the short term.”

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