Textron stands to gain from improved business-jet sales

Bombardier Inc., Embraer SA and Gulfstream are set to resume growth in business-jet sales as the economic turmoil that weighed on demand subsides. More

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Textron stands to gain from improved business-jet sales

COURTESY CESSNA AIRCRAFT CO.
TEXTRON'S Cessna Aircraft and other business-jet makers stand to benefit from stabilizing sales in 2014, with manufacturers expecting to deliver 6 percent more aircraft this year than in 2013.
Posted 2/4/14

LONDON – Bombardier Inc., Embraer SA and Gulfstream are set to resume growth in business-jet sales as the economic turmoil that weighed on demand subsides.

Manufacturers are poised to deliver 6 percent more aircraft this year than in 2013, with a combined book value of $21 billion, said Rolland Vincent, director of forecaster Jetnet iQ.

“There is a lot of pent up demand,” Vincent said today at the International Corporate Jet Finance conference in London. “2014 is going to be a good year.”

Makers of business jets that also include Textron Inc.’s Cessna unit and Dassault Aviation SA have suffered after the global economic contraction in 2008, with new orders drying up amid an oversupply of used jets. Plane makers are betting that a rise in corporate profit will drive a rebound in sales as buyers look beyond cost cuts to expand their activities.

Textron reported last month that its fourth-quarter profit rose 12.8 percent to $167 million, with the Cessna unit alone reporting profit of $33 million, an increase of 43.5 percent over the fourth quarter of 2012.

“We are entering the first phase of a period of stability,” Bradford von Weise, Citi Private Bank head of aircraft finance, said at the event. “The economy is in good shape to grow and sustain overall heavy asset purchases including business jets.”

The pace of sales may be affected by currency volatility in Turkey and other emerging markets. Data signaling a possible contraction in China’s factory output, the devaluation of Argentina’s peso and declines from the Turkish lira to the South African rand have weighed on investor confidence.

Promising market

“Turkey is a very promising market for us,” said Trevor Lambarth, the Bombardier business aircraft vice president for sales for Europe, the Middle East and Africa. “We are hoping this is short-term currency issue.”

The Canadian aircraft maker itself is seeing pressure on earnings margins on planes made in its home market as the country’s dollar falls against the U.S. currency, with Lambarth calling it a “challenge.”

The speed of completing plane purchases in countries hit by currency fluctuations may slow, Tom Perry, vice president for sales in Europe, the Middle East and Africa for Cessna.

“Volatility is clearly a barrier to doing business,” he said.

The Turkish lira has declined 5 percent this year, the third-worst performer in emerging markets, paring losses today after the country’s central bank cut funding to lenders.

Even so, Perry said the pipeline for deals in Turkey and South Africa remains strong and that some buyers may even see a benefit in investing in a dollar-denominated asset.

The global nature of business jet sales also provides some insulation from country-specific issues, Perry said.

“Optimism in the U.S. and European market will carry us through,” Perry said.

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