Highlight from the RBC today's conferenceHighlights from the discussion with Mr. Demosky were around multilayered demand for the company's products, potential upside to aftermarket services guidance, and cyclicality in the business. We highlight key themes from our discussion below.
Business jet demand trends
We started the conversation with management on the demand environment, where they noted several indicators of demand strength for its products. Key was that demand was not stemming from one source but was broad-based across different segments, geographies, and customer types. Management highlighted low used inventory levels coupled with demand which has picked back up after a slight blip during the banking crisis, is contributing to a book-to-bill outlook of 1x for the year on a higher overall delivery level. Further, the company noted higher flight hours, which have slowed in NA and Europe, only to be offset by record flight hours in the Middle East, APAC (strong Chinese demand via Singapore), and Africa. Separately, growth in wealth creation has resulted in more “concept buyers” and fleet customers, with management noting 50% growth in fleet hours. Additionally, the company highlighted VistaJet announced 50% Y/Y growth in annual program subscriptions with its quarter report last night. Key is that fleet operators VistaJet and NetJets are big customers for midsize and large cabin business jets, with BBD’s aircraft making up 100% and 30% of their installed base, respectively.
Potential upside to aftermarket objectives
BBD’s recently raised long-term objectives were a discussion point today, and Mr. Demosky indicated an upside to the company’s 2025 aftermarket revenue target of $2B. BBD elected to hold its guidance in the aftermarket segment, as there was a management change during the update. That said, the company believes the segment can achieve margins greater than 20% under Paul Sislian, through operationalization, new services, and expansion in service centers to areas such as the UAE. Key is that this highlights further upside to 2025 and beyond as the company leverages opportunities in CPO and MRO/service in the defense segment, neither of which is sreflected in share prices currently, in our view.
Cyclicality of the industry
Management discussed that the mid and large aircraft are more resistant to cyclicality as 60% of customers are HNW individuals who are less sensitive to macro concerns. Also, management pointed out that the company is more event-sensitive than cyclically sensitive. For example, they highlighted that the GFC and pandemic impacted sales for a few months to a trough of 120 deliveries, only to fully rebound in nine to 12 months. Finally, on our question on increases in cancellations into a recession, the company noted they are unlikely, and they employ a KYC policy which reduces risk – in addition to requiring a 20% upfront deposit and liquidity damages for non-delivery. Finally, management has heard of no late or missed payments to-date, suggesting demand is still strong for its products