NetJets order big for Cessna, but impact may be delayed
06/12/2012 4:09 PM
08/08/2014 10:10 AM
NetJets’ order for up to 150 mid-size Citation Latitude business jets from Cessna Aircraft is the company’s largest order for any single model of aircraft.
It’s also Cessna’s largest order since the downturn that began in late 2008.
NetJets is Cessna’s largest business jet customer, its largest fleet owner and its largest after-market customer, said Brad Thress, Cessna senior vice president for business jets.
“We’re very pleased for the vote of confidence that this order speaks to,” Thress said. “It’s a nice endorsement of the product; I think it’s also a nice endorsement of Cessna’s demonstrated performance with NetJets.”
In addition, “We think it’s a great thing for the community,” Thress said.
NetJets is a fractional ownership company that allows customers to buy a specific percentage of an aircraft and use a certain number of flight hours a year. Through a jet card, it also lets customers buy hours of flight time.
The order announced Monday includes a firm order for 25 new Citation Latitudes with options for 125 more.
Deliveries are to begin in 2016 and stretch over 10 years. The first 25 will be delivered in the earlier years, Thress said.
The contract includes flexibility for NetJets in how quickly planes are delivered, Thress said.
The order with options is valued at $2.3 billion at list prices. NetJets typically receives volume discounting from manufacturers.
The contract also includes an agreement for maintenance and support services for the planes.
The deal will mean employment for about 1,600 employees, said Cessna spokeswoman Sarah Monger. But it’s too soon to tell whether it will lead to new hiring.
The order is positive for Cessna, especially because NetJets canceled a large order for Cessna business jets during the recession, Cai von Rumohr, an aerospace analyst with Cowen & Co., noted in a report Tuesday.
But it will have little impact on Cessna’s financial results over the next 31/2 years.
That’s because only 25 of the orders are firm ones, commitments become fully binding only nine to 12 months before delivery and first delivery won’t begin until 2016, von Rumohr wrote.
“This is a nice plus, albeit one that won’t impact results for 2012-13,” he wrote.
Rama Bondada, an analyst with RBC Capital Markets, in a report Tuesday called the order for the Latitude an “important step for Cessna, getting a cornerstone customer for this jet into the backlog.”
However, Bondada noted that NetJets tends to receive aggressive pricing on jet orders and first delivery isn’t due for four years. Therefore, financial benefits for Cessna remain a ways off.
“Whether this marks a real turnaround in the (business jet) market remains to be seen,” Bondada wrote.
In the short term, Bondada said he does not expect Cessna’s second-quarter orders to be “anything special,” he said. “We still think there is risk to its 2012 forecast.”
Thress said customer interest and order activity continue to improve.
In fact, last month’s business jet show in Geneva, Switzerland, which is Europe’s largest show, was the most positive single show Thress has worked in the last couple of years, he said.
“We had a lot of orders and a lot of real active serious customers,” he said.
They were not just out “kicking tires,” Thress said. “They were serious buyers.”
Although Cessna always sells airplanes at business jet shows, “our booth was jammed all three days,” he said.
Part of that activity was buzz surrounding the unveiling of the new Citation Longitude at the show, he said.
“You hear a lot of bad news out of Europe,” Thress said. “But we’re still having good order activity out of Europe. We were encouraged.”
NetJets’ announcement on Monday also included a large order to Montreal-based Bombardier for up to 275 aircraft, including 100 firm orders for Challenger 300 series and 605 series airplanes, with options for 175 more. The planes, at list prices, are valued at $7.3 billion. Deliveries will begin in 2014.
When deciding where to place an order for jets, NetJets used an organized and skillful approach, Thress said.
On performance, NetJets had specific weather conditions and airports from which it wanted to make sure the planes could operate.
For example, one of the most challenging airports to fly into is London City in downtown London.
Surrounded by skyscrapers, the descent angle to the runway is twice as steep as a normal approach to landing. It also has a short runway.
The airport in Telluride, Colo., is at a high elevation and in hot weather, it’s difficult for many planes to take off and land there.
Airports in Aspen, Colo., Hilton Head, S.C., and the Ocean Reef Club in the Florida Keys are also challenging.
“They want to make sure the airplane they bought can get in and out,” Thress said. “That’s why the Latitude played quite strongly.”
Cessna announced the Latitude jet in October at the National Business Aviation Association’s annual convention.
The jet is positioned between the Citation XLS+ and the Citation Sovereign and holds a crew of two and up to eight passengers. Its retail price is $14.9 million.