Cessna market stabilizing

October 27, 2009

cessna citationIf you were waiting for used-aircraft pricing of business jets to bottom out, wait no longer. They are on the way back up, according to Textron officials. The comment came during a press conference Oct. 27 on third-quarter results.

Used business-jet sales turned a slight profit for Cessna Aircraft Company this past quarter, and industry-wide the prices for used aircraft are increasing. Indicators show a recovery beginning in the last half of 2010, but Textron officials weren’t ready to report what kind of year 2010 would be. The third-quarter report was filed with the Securities and Exchange Commission Oct. 30. 

“The wild card is Cessna and where that market goes,” said one Textron official, referring to overall Textron profits. It is likely that for the fourth quarter profits will continue to slide. Deliveries for 2009 are likely to be greater than 275 business jets, although Cessna is capable in good times of delivering 500 aircraft per year.

As expected, the rest of the world is recovering from the economic downturn ahead of the U.S. economy. Cessna has seen customers willing to accept deferred orders and placing new orders for 2009 and 2010 deliveries, but the bulk of them are from foreign markets. The U.S. market is expected to show those same signs of recovery but not until mid- to late 2010.

There is still a need to reduce costs even after an economic recovery is in place. Textron officials did not say what those measures might be, but industry analysts asking questions at the press conference focused on outsourcing. Cessna already has outsourced the production of the SkyCatcher to China.

Cessna’s revenues decreased $593 million from the same period last year, primarily reflecting the delivery of 68 Citation jets in the third quarter of 2009, compared to 124 jets last year and lower aftermarket volumes, partially offset by an increase in used aircraft volume.

Segment profit decreased $206 million primarily due to the lower sales volumes and related costs associated with idle capacity and temporary plant shutdowns. Cessna has laid off nearly half of its work force. The impact of the lower volume was partially offset by lower engineering, selling, and administrative expenses, which included the net impact of employee furloughs taken during the quarter and customer deposit forfeitures.

Cessna’s backlog at the end of the third quarter was $6.9 billion, a decline of $1.3 billion from the second quarter.

Bell Helicopter’s revenues decreased $74 million from last year’s third quarter largely due to lower commercial helicopter revenues.

Bell’s segment profit increased by $16 million due to lower selling and administrative expenses, a gain from the termination of a foreign exchange hedge contract, higher customer-funding of research and development costs, and pricing in excess of inflation. These increases were partially offset by lower volume and an unfavorable mix.

Bell backlog at the end of the third quarter was $5.6 billion, down $250 million from the end of last quarter.