Q2 Takeaways from Business Jet OEM ReportingJust out today.
TD Investment Conclusion
Two Bombardier business jet competitors reported Q2/21 results and provided outlook commentary last week, and Embraer released Q2 deliveries ahead of Q2 results expected on August 13. 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, support our more positive view of the business jet cycle relative to the commercial passenger aircraft cycle, and suggest a potential modest upward bias to our long-term business jet delivery assumptions for the group.
Q2 Revenue Metrics:
General Dynamics (GD) Aerospace segment revenue declined 18% y/y, driven by a 34% drop in deliveries to 21 aircraft that reflected planned production cuts. 2021 delivery guidance was increased to ~120 aircraft, from 112-117 previously, and revenue guidance increased to ~$8.2 billion, from $8.0 billion. Textron's Aviation (including Cessna business jets) segment revenue increased 55% y/y, with business jet deliveries up 91% y/y due in large part to the pandemic driven weakness in deliveries last year. Aftermarket services revenue was up over 30% y/y on increased aircraft utilization. Embraer Executive Aviation (business jet) deliveries increased 54% y/y to 20 deliveries.
Book-to-bill and order outlook:
GD Aerospace b:b in Q2 was very strong at 2.0x, a sharp increase from the 0.9-1.1x range over the prior three quarters. According to management, the strong order momentum that began in mid-February continued through Q2, with a high level of interest and activity. GD is increasing Gulfstream production throughout the remainder of the year, though production remains below 2019 levels. Textron Aviation b:b was very strong at 1.5x. Textron continues to see strong commercial demand and order activity. Management indicated that the company remains on track to hit 2019 levels of production in 2022, with 2021 recovering to approximately half of 2019 levels. The aviation backlog is currently 6-9 months.
Demand Characteristics:
Gulfstream is seeing broad-based demand, with a particularly strong quarter for demand from the U.S., some new customers and core Fortune 500 customers re-engaging. Textron is seeing a lot of new customers coming into the market, with a low level of used aircraft available for sale pushing customers towards new aircraft. Cessna demand is broad-based, including charter, club, fractional and whole ownership. Regionally, it appears to be largely U.S.-centric at this time. High net worth individuals are the primary driver of demand currently, with corporates just starting to return to the market. The pricing environment is stronger than it has been historically.
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