Textron Aviation sees high jet deliveries, expects to see higher sales and profitability in 2016

Textron Aviation delivered more jets and recorded a higher profit in 2015, and it expects to see higher sales and profitability in 2016. That was despite a fourth-quarter revenue decline in 2015. On Wednesday, the Rhode Island-based conglomerate released its fourth-quarter and full-year 2015 earnings, as well as expectations for 2016. Textron Inc.’s revenue was $3.9 billion in the fourth quarter of 2015, down 4.2 percent compared with $4.1 billion in revenue in the fourth quarter of 2014. Textron Aviation delivered 60 Cessna Citation business jets and 33 Beechcraft King Airs in the three-month quarter ended Jan. 2. That compares with 55 Citation and 41 King Air deliveries in the fourth quarter of 2014.

Despite lower King Air deliveries, which Textron Inc. said partly contributed to a $32 million quarterly decrease in revenue at Textron Aviation, the Wichita-based aircraft maker increased its profit to $138 million in the fourth quarter of 2015, a 6.2 percent increase over the $130 million in the same quarter in 2014. Textron Inc. CEO Scott Donnelly said on a conference call with analysts that for the year, Textron Aviation delivered 166 jets — including 16 of Cessna’s new midsize Latitude — compared with 159 in 2014. Donnelly did not say how many King Airs were delivered in 2015. For all of 2015, Textron Aviation recorded $4.8 billion in revenue and $400 million in profit, compared with revenue of $4.5 billion and profit of $234 million in 2014. This year, Textron Aviation is expected to see 6 percent growth in revenue, to $5.1 billion, which largely reflects an increase in Latitude deliveries, Textron Inc. chief financial officer Frank Connor said. “We expect solid growth at aviation,” Donnelly said. Donnelly said in his opening remarks that customer reaction to Textron Aviation’s November announcement of the super midsize Longitude and the large-cabin Hemisphere has been “very positive.” “We believe they will generate substantial growth opportunities” in the future, he said. He added that new products such as the Latitude will largely lead the company’s jet sales this year. “I would say most legacy (Citation) models will be sort of flattish, but … new things like the Latitude coming out is really what’s driving growth in the business,” Donnelly said.

Last June, the Federal Aviation Administration awarded type certification on the Latitude, which is the first Citation with a flat floor, 6-foot-high cabin. It began deliveries of the jet in the third quarter of 2015. Analysts on Wednesday’s call wanted to know why Textron was forecasting moderate growth in aviation profit, as well as if Textron Aviation’s $1.1 billion backlog — down $308 million from the third quarter of 2015 — shouldn’t be bigger. In 2016, Donnelly said, Textron Aviation will have “a fairly high number of deliveries that will go into NetJets.” The fractional jet ownership company has a 2012 order for up to 150 Latitudes, which are priced at slightly more than $16 million. “Typically sales into fractional are at a lower margin than our retail sales,” Donnelly said, later adding that the price of an airplane sold to a fractional company rather than to a single customer can be about 2 to 3 percent lower. “It’s still good business for us, but lower margin,” he said. Textron Aviation’s lower backlog was also a focus for a couple of analysts, including Noah Poponak of Goldman Sachs, who questioned whether $1.1 billion was enough to sustain the company in an economic downturn.

Donnelly said that unlike the commercial airplane makers, business jet manufacturers don’t rack up backlogs with billions of dollars each time they announce a new airplane. “If someone would give me another billion or so in backlog, we’d take it,” Donnelly said. “But the fact of the matter is that’s not where the market has been, and it’s been this way for at least six years. “You go out and you sell them pretty much one plane at a time. And that’s working for us.”

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