Textron sees jet market gain with fewer used planes put on sale

TEXTRON'S Cessna Aircraft and other business-jet makers stand to benefit as the supply of secondhand small planes on sale returns to normal levels, Chief Executive Officer Scott Donnelly said
Posted 7/12/12

LONDON - Textron Inc.’s Cessna Aircraft and other business-jet makers stand to benefit as the supply of secondhand small planes on sale returns to normal levels, Chief Executive Officer Scott Donnelly said.

Used jets for sale that compete with new Cessnas now make up less than 10 percent of the inventory, Donnelly said. That compares with a low of less than 4 percent at the end of 2007 and a peak of more than 14 percent in 2009’s second half, according to JPMorgan Chase & Co.

“We see that down now to where it’s more in the normal range,” Donnelly said in an interview at this week’s Farnborough air show near London. “If you look at our current- production model aircraft, for the most part those models now are down in the single, mid-single digits available for sale.”

Fewer secondhand sales would take away one of the main drags on purchases of Cessna planes. Industrywide deliveries are still struggling back after drops of 39 percent in 2009 and 10 percent in 2010 as jet buyers, especially corporate purchasers, remain cautious amid the global economic slowdown.

Business-jet deliveries gained 5 percent in 2011 and may rise as much as 6 percent this year, Joseph Nadol, a New York- based analyst with JPMorgan, wrote in a July 9 report.

“I don’t think the issue right now is about used aircraft available for sale,” Donnelly said. “It’s really around ‘What’s people’s outlook for economic recovery?’ and how people feel about their businesses.”

Market slump

Textron, whose products include Bell helicopters, is rallying after a 74 percent plunge in the four years through 2011, the steepest decline in the Standard & Poor’s 500 Industrials Index. The Providence-based company rose 22 percent this year through yesterday. The shares dropped 0.3 percent to $22.42 at 10:59 a.m. in New York.

Cessna got a boost from its June agreement with NetJets, a unit of Warren Buffett’s Berkshire Hathaway Inc., to deliver as many as 150 Citation Latitude jets starting in 2016. The Latitude, which is scheduled to enter service in 2015 and lists for $14.9 million, will have a range of 2,300 nautical miles (4,260 kilometers) and carry as many as eight passengers.

To counter softer demand for the smallest jets, Wichita, Kansas-based Cessna is competing for sales of larger planes, a segment that has shown more strength, Donnelly said.

The company announced in May it will build the Citation Longitude, whose range of 4,000 nautical miles would be the most of any Cessna. The jet is set to go into service in 2017. It will carry eight passengers and will have a list price of $26 million.

“The right approach for Cessna is an offensive strategy, which is to go invest in things like Latitude, invest in things like Longitude,” Donnelly said.

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