Orders For Business Jets Rise

The world’s two largest makers of business jets said that demand continues to improve, with General Dynamics Corp. planning to boost output of its high-end Gulfstream planes as more U.S. companies place orders. Gulfstream and Textron Inc., maker of Cessna jets, are both introducing new aircraft but had trimmed production of existing models after global demand halved in the wake of the financial crisis. Orders and deliveries have improved in each of the past four years, and executives shrugged off any negative impact from falling oil prices, with demand improving in the Middle East and Asia, as well as North America, which accounts for more than half of the global market.

Phebe Novakovic, chief executive of General Dynamics, said demand was “quite handsome” in the final quarter of last year, and it plans to boost production of its midsize jets in 2015, while leaving output of larger planes at existing levels. Demand for larger jets costing between $25 million and $65 million has been more resilient than for smaller models. Bombardier Inc. this month said it was “pausing” development of a new Learjet, citing weak market conditions. Analysts said Bombardier’s decision reflected the company’s desire to save cash rather than weakness in market conditions.

Textron CEO Scott Donnelly said the company had yet to boost Cessna production, though had the capacity to increase output later in the year. Around 60% of new business jet sales are replacements for existing aircraft, and orders have climbed as a glut of used planes has diminished. The inventory of used Cessna jets has fallen to 5.5% of the global fleet, the lowest level since 2007, according to analysts at Jefferies.

Ms. Novakovic said Gulfstream had its best sales quarter in three years, with 60% of its backlog coming from public and private companies, including a number of Fortune 500 members. The number of business jet flights in the U.S. rose 4.5% in the 12 months ending in November, according to data from the Federal Aviation Administration. Gulfstream’s performance helped General Dynamics beat analysts’ expectations, with a fourth-quarter profit of $701 million, or $2.09 a share, up from $495 million, or $1.40 a share, a year earlier. Revenue increased 3.9% to $8.36 billion. Excluding discontinued operations, earnings from continuing operations were $2.19 a share for the latest period. Analysts polled by Thomson Reuters had expected per-share earnings of $2.13 on revenue of $8.04 billion. The company’s initial guidance for 2015 is for earnings of $8.05 to $8.10 a share, with sales of $31.3 billion to $31.5 billion. General Dynamics’ shares were recently up 0.7% at $138.17, with Textron 3.9% higher at $42.99.

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