Gulfstream revenues slide but 2018 outlook remains good

General Dynamics' aerospace division recorded a 12% slide in first-quarter revenues, thanks to lower-than-predicted delivery output at Gulfstream.

The unit – which also includes completions and fixed-base operation provider Jet Aviation – saw revenues tumble from $2.07 billion in the three months ended 31 March 2017, to $1.82 billion this year. Earnings slipped by 21% to $346 million, from $439 million in the same period a year earlier.

Gulfstream delivered 26 jets during the quarter: 19 large-cabin G550 and G650/ERs – four fewer than the same period in 2017 – while G280 shipments remained unchanged at seven.

During a 25 April earnings call, General Dynamics chief executive Phebe Novakovic played down the Gulfstream blip, calling it "consistent with our guidance, and pretty much as anticipated".

She notes that Gulfstream had planned to hand over two more units during the first quarter – a G280 and a special mission G550. However, their respective deliveries were pushed back to April and May "for the convenience of the customer".

"If we had managed those deliveries as planned, we would have been consistent with, or slightly ahead of revenue expectations," Novakovic says.

Gulfstream's order backlog fell by more than $400 million in the first quarter, to $12.5bn, and the book-to-bill ratio – or the number of orders against deliveries – stood at 0.8:1, slightly higher than the 0.7:1 figure that the company has recorded year on year since 2013.

New orders between January and March totalled $1.4 billion – also on a par with the previous five years, and what Novakovic describes as "part of the normal cycle after a very strong fourth quarter". She says activity picked up in April, with "strong interest" in North America and Europe.

The outlook for Gulfstream in 2018 is positive, she says, with scheduled service entry of the new super-large-cabin G500 in the third quarter, helping to "back-load" revenues to the latter half of the year.

Gulfstream has secured "well over 50 orders" for the 5,200nm (9,630km)-range twin, says Novakovic, adding that it will "come pretty quickly off the line", once certification has been secured.

The G500 is now in the final phase of its flight-test campaign, and is earmarked to gain US and European validation by July. "The 300h function and reliability testing will complete the flying portion of the programme," says Novakovic, with the five-strong flight-test fleet having logged over 4,000h to date. "[We] will then shift to final document approval by the FAA [Federal Aviation Administration]," she adds.

Certification of the larger and faster G600 – for which Gulfstream has an order backlog of "close to 50 units" – will be wrapped up in the second half of 2018, Novakovic notes, with deliveries set to begin in 2019.

General Dynamics also expects strong performance from Jet Aviation in 2018. Novakovic says the recent acquisition of Hawker Pacific – which is expected to be concluded in early May – will expand the division's service capacity and help support Gulfstream's growing fleet, particularly outside the USA.

"I like our services business," she says, describing the unit as "low risk, with very nice margins and [a] great cash flow".

(Evangle Luo of TTFLY shared with you)