Despite the delivery of two fewer business jets in the first quarter of 2015, Textron Aviation recorded higher revenue and profit compared to the same period a year ago.
And the chief of its parent company, Textron Inc., said deliveries of Textron Aviation’s newest jet, the Cessna Citation Latitude, are expected to begin in the third quarter of 2015.
Textron Inc. on Tuesday said its first-quarter earnings for 2015 totaled $253 million on revenue of $3.1 billion. That was up from earnings of $215 million on revenue of $2.8 billion in the first quarter of 2014.
The Providence, R.I.-based company attributed its improved results partly to Wichita-based Textron Aviation, which saw revenue and profit gains in the three-month quarter that ended March 31.
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Textron Aviation’s revenue was $1.05 billion in the first quarter of 2015, up from $785 million in the same quarter in 2014. Profit also was up in the period, from $14 million in the first quarter of 2014 to $67 million in the first quarter of 2015.
The Wichita-based company delivered 33 Citation business jets in the first quarter, down from 35 in the same quarter a year ago. The Beechcraft unit delivered 25 King Air turboprops in the first quarter of 2015.
Its aircraft backlog at the end of the first quarter was $1.3 billion, down $99 million from the end of the fourth quarter of 2014.
Textron Inc. CEO Scott Donnelly said on a conference call with analysts Tuesday morning that Federal Aviation Administration certification of the midsize Latitude jet remains on track for the second quarter of 2015 – which ends June 30 – with the flight test program and ground testing complete.
“At this point, we’re in paperwork exercise of getting through that (certification),” Donnelly said.
Two completed Latitudes are making stops across the country for demonstration flights to customers who are deciding whether to place orders.
“We do have a number of orders for the Latitude, so I think we’re in a pretty good place,” Donnelly said. He was optimistic that FAA certification and the demonstration flights would lead to additional orders.
Fractional ownership company NetJets is among those with orders for the jet. NetJets has a firm order for 25 Latitudes and options for 125 more, which was a deal first announced in the fall of 2012.
“NetJets is a very powerful player,” Donnelly said. “The fact that they chose the Latitude as their midsize platform is a big boost for us.”
Donnelly thinks Latitude certification is “the thing that will most likely impact backlog” positively, he said. “I think we’re at the point in the program where that (Latitude orders) will increase.”
Textron Aviation should begin delivering Latitudes in the third quarter of 2015, he said.
Cowen and Co. analyst Cai von Rumohr wrote in an investor note that he expects Textron Aviation to continue to have a strong year, with deliveries of between 10 and 15 Latitudes, flat to increased deliveries of other Citation jets and profit margin “well above” Textron Inc.’s guidance of between 6.5 and 7.5 percent.
Donnelly said the North American market is the strongest market for Cessna business jets, estimating it accounts for two-thirds of the company’s order intake. But for the King Air, international demand is stronger than in North America.
Demand for Textron Aviation’s other business jets is being affected by the used-aircraft market, Donnelly said.
While the inventory of used jets continues to decline, the pricing of them has not caught up with the shrinking inventory. That’s causing potential buyers of new jets to hang on to their used jets longer instead of trading them in for new jets, Donnelly said.
It’s “a drag on customers’ trade-in premium,” he said. “They still have a relatively higher spread” between the trade-in price they can get for their used jets to offset the purchase of new.
But Donnelly said Textron Aviation is “finally … starting to see” the spread narrow slightly this year as used-jet inventory falls to its lowest level in several years.
Aerospace analyst Robert Stallard of RBC Capital Markets said in a note to investors on Tuesday that Textron Aviation’s profit margin was better than he expected, even with the typical slowdown in business jet deliveries in the first quarter of the year.
Stallard wrote: “Perhaps the most important development was some improvement in used pricing, which has helped close the spread between used and new planes. If this continues, coupled with the Latitude EIS (entry into service) in 3Q, it should help stimulate new orders.”