Analyst: Textron could consolidate its lineup of Cessna and Beechcraft models

05/23/2014 10:26 AM

08/08/2014 10:24 AM

Textron Aviation – which includes Cessna Aircraft and Beechcraft Corp. – could consolidate some of the products in its portfolio, writes aviation consultant Rolland Vincent of Rolland Vincent Associates.

Textron Aviation now has 10 models priced new at less than $10 million, with four priced from $6.1 million to $8.5 million, he notes.

“We would not be surprised to see some consolidation within this new company’s product portfolio,” Vincent writes.

Certain low-output product lines, most notably the Citation CJ2+ and the Mustang, look particularly vulnerable to being taken out of production, he said.

That’s barring any significant demand uptick or unannounced product upgrades to the models.

The consolidation of Beechcraft with Cessna into Textron Aviation is the most notable strategic development in the post-recession recovery in business jet manufacturing, Vincent said.

Textron, Cessna’s parent company, bought Beechcraft in March.

The acquisition gives Textron Aviation 52 percent of the world’s fixed-wing business turbine fleet, Vincent said.

The combined company is “exceptionally well positioned with widely admired core brands and thousands of satisfied customers to emerge as a stronger player in the years to come,” Vincent said.

In the near term, rebuilding the order backlog – which totals $1.5 billion including its defense backlog – across a 15-model business and general aviation turbine portfolio is a huge priority, he said.

Rebuilding the backlog will depend on the health of the light end of the business jet market.

In an informal survey by Cowen and Co., Cessna pre-owned dealers indicate that activity has picked up since the end of 2013, writes analyst Cai von Rumohr in a report to investors this month.

The total number of used aircraft for sale has declined, and prices seem to have stabilized, von Rumohr wrote.

Since the “good old days” up to 2007, light business jet orders and deliveries have cratered, manufacturing backlogs have evaporated, and used aircraft inventory has spiked while prices have plummeted, particularly for older and out-of-production models, Vincent wrote.

“On the other hand, similarly priced business turboprops have fared better, demonstrating less cyclicality and stronger market fundamentals,” he said.

Since 2000, the King Air 200 family – represented by the $6.1 million King Air 250, had 543 new deliveries, while the CJ2 family, with the $7.3 million CJ2+, reached 465 units through the first quarter of 2014, he said.

In the first quarter of 2014, one CJ2+ had been delivered, while there were seven deliveries of King Air 250s.

And in May, there were fewer King Air 200 used aircraft on the market compared to the CJ2.

So, “have light aircraft buying behaviors changed permanently?” Vincent asks. “We don’t think so. An oversupply of light jets, the proliferation of multiple models to choose from within a small price bandwidth, new competition from Embraer, stricter credit requirements in aircraft lending, and product life cycle realities look to be the primary headwinds.”

According to von Rumohr, dealers generally agree that Cessna is likely to switch all its jet models to Garmin avionics over time.

That way the aircraft would have common cockpits, and Cessna would receive volume price discounts, he said.

The next logical step would be the Citation XLS+, he said.

Textron’s purchase of Beechcraft, from a product standpoint, is complementary to Cessna, Robert Stallard, an analyst with RBC Capital Markets wrote recently in a note to investors.

The King Air gives the company a pressurized propeller offering, which fills a hole in Cessna’s product line.

The combined company will be able to leverage sales footprints to improve volumes on the King Air and the Cessna products, Stallard wrote.

In addition, Cessna will benefit because there is a natural progression for Beechcraft’s King Air customers to move up to Cessna jets and customers of Hawker jets can move into Cessna products as well, he wrote.

“Their product strategy is to offer enough differentiation and exciting product to steer customers away from used aircraft to new aircraft,” Stallard wrote.

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