Textron Aviation profits plummet, but CEO remains optimistic

Wichita-based Textron Aviation went from being the most profitable business segment for its parent company to the least, according to year-over-year filings released Thursday.

Textron Inc. chairman and CEO Scott Donnelly said in a one-hour conference call that the company as a whole has been better off during the current pandemic-caused economic downtown than the 2008 recession because of its diversity in products. During the quarter, the company issued more than $1.25 billion in debt to make sure it could pay its obligations during the uncertain future caused by the novel coronavirus.

Three of Textron Inc.’ manufacturing businesses - Textron Aviation, Textron Systems and Industrial - were down $146 million, to $38 million, in year-over-year profits. The other manufacturing business, Bell, was up $11 million to $115 million during that same time, mainly due to sales of its military helicopters.

Donnelly was unsure about production estimates for the year across all businesses, pointing to furloughed sales forces that drive revenue.

“We just don’t have good visibility into what that production rate needs to be for the balance of the year,” Donnelly said. “We always gauge that looking at our sales teams and understanding, order flow and you know what’s going on in terms of the normal progression of customers moving from inquiry all the way through to taking an order and … we don’t have that right now. We’re basically doing the furloughs to buy time, you know, to see the economy start to pick back up for people to be able to travel and understand where they are so that we can gauge.”

Textron Aviation announced furloughs on March 18 for roughly 7,000 mostly U.S.-based employees. Textron Aviation makes Cessna, Beechcraft and Hawker airplanes. Employees should be returning to work the next couple of months.

Textron Aviation is the second-largest employer in Wichita, with roughly 9,500 employees, according to the Greater Wichita Partnership.

The Wichita-based company reported the grimmest outlook of the parent company’s businesses. Profits during the first quarter of 2019 were the highest in the company at $106 million and dropped in 2020 to the lowest at $3 million.

Despite the drop, Donnelly said there is reason to be optimistic.

“So again I think there is a lot of reasons to be optimistic around what this aviation role plays as you come out of this pandemic,” he said. “People do need to travel and they want to do it safely and from a health standpoint. And they don’t know what is going to go on on the commercial airline side about, you know, how quickly that comes back what are the routes availability and all that sort of stuff.”

Revenue was down $262 million to $872 million, mainly due to lower demands for the Citation jet, which attributed to $154 million of the drop, and commercial turboprop at $99 million.

“The decrease in Citation jet and turboprop volume reflected a decline in demand related to the pandemic, disruption in our composite manufacturing production due to a plant accident that occurred in December 2019, and delays in the acceptance of aircraft related to COVID-19 travel restrictions,” the company said in its report.

A building that housed the company’s composite manufacturing operations and experimental aircraft fabrication was damaged when a liquid nitrogen line ruptured in December 2019, sending at least 14 people to the hospital.

Donnelly said the production that stopped from the explosion is back to 100% but they are “still playing some catch up there.”

Textron Aviation delivered 23 jets, down from 44 last year, and 16 commercial turboprops, down from 44 last year.

The aviation company had a backlog of $1.4 billion at the end of the quarter, down $290 million from the fourth quarter of 2019 “primarily due to a revised demand outlook from a fractional jet customer,” Donnelly said.

Bell Aviation was the only business segment to see year-over-year growth in revenue and profits. The latter was up $11 million, to $115 million, “largely on higher military volume.”

Donnelly said Bell Aviation has done better than their “guidance for a number of years.”

During the quarter, the company has also issued more than $1.25 billion in debt and borrowed $377 million against corporate-owned life insurance policies. CFO Frank Connor said the company also borrowed money from its life insurance policies during the 2008-09 recession.

“We were seeing access to markets dry up and we just wanted to make sure we had plenty of liquidity in anticipation of a potential downside to frankly what we’ve seen so far,” Connor said. “It’s a bit of a insurance policy against our insurance policy.”