TD: Q1 Takeaways from Business Jet OEM ReportingTD Investment Conclusion
Three Bombardier business jet competitors reported Q1/21 results and provided outlook commentary last week. Business jet indicators are most relevant for Bombardier (100% of revenue) followed by CAE, Magellan, and Hroux-Devtek. Combined deliveries were up 25% y/y and book-to-bills were above 1x. Commentary suggests that corporate demand is beginning to return and that the U.S. market is seeing a particularly strong level of interest in new jets. We believe that these developments have encouraging read-throughs for exposed companies, and continue to support our more positive view of the business jet cycle relative to the commercial passenger aircraft cycle.
Q1 Revenue Metrics: General Dynamics (GD) Aerospace segment revenue growth of 12% was the first positive y/y change since Q4/19. 28 aircraft were delivered, up 22% y/y. While Textron's Aviation segment revenue declined 1% y/y, business jet deliveries specifically were up 22% y/y and overall pricing was higher. Embraer Executive Aviation (bus jet) revenue growth was 18% y/y, due to 13 deliveries in the quarter, up 44% y/y.
Book-to-bill and order outlook: GD Aerospace b:b in Q1 was strong at 1.1x (1.3x gross), the first quarter above 1x since Q4/19 when the company launched the G700 (competitor to BBD's Global 7500). According to management, the strong order momentum that began in mid-February appears to be continuing into Q2, with a high level of interest and activity. Embraer business jet b:b was above 1.75x. The small and mid-sized business jet segment continued a robust recovery, which includes firsttime buyers. Textron Aviation b:b was very strong at 1.6x. Management noted more across-the-board interest than seen in some time, and highlighted the low number of young used aircraft available in the market as a contributor to the strong interest.
Demand Characteristics: Gulfstream is beginning to see demand coming from Fortune 500 companies re-entering the market on improved economic clarity in the U.S. Demand in the U.S. accounted for more than half of Q1 orders. Global demand is expected to improve further when travel restrictions are lifted. Embraer anticipates 2021 delivery growth of just below 10%, implying deliveries of approximately 95 aircraft. Production is sold out until Q4/21. Cessna is seeing a strong price rebound particularly in aftermarket parts. They believe that the company could outperform their last delivery guidance for approximately 165 aircraft in 2021. Cessna is seeing corporate aviation departments "starting to come alive". Domestic utilization of their aircraft was up in March vs. 2019. They believe some on-demand business jet use may revert back to commercial once the pandemic subsides, but that the fractional and whole aircraft buyers are likely to stay in the market.