Cessna luxury jet on drawing boards signals Textron rebound

TEXTRON INC. is betting that the U.S. luxury aviation market is finally emerging from a recession-era collapse.
TEXTRON INC. is betting that the U.S. luxury aviation market is finally emerging from a recession-era collapse.

CHICAGO – Development teams are hard at work on a new, under-the-wraps Cessna jet as parent Textron Inc. bets the U.S. luxury aviation market is finally emerging from a recession-era collapse.

Growth is back in focus at Textron, which makes Cessnas, Bell helicopters and E-Z-Go golf carts. Scott Donnelly, CEO of the $12.6 billion manufacturer, is investing in new products and making acquisitions to boost profit.

After years of sporadic product releases, Cessna is planning a steady tempo of jet roll outs. A team is drafting an aircraft to follow the Cessna Citation Latitude, a $16.5 million model set to debut this year, and the larger Longitude slated for late 2017, Donnelly said.

“We really have been through the worst of this,” Donnelly said in an interview May 7 in Textron’s headquarters in Providence. “Things have stabilized. We have to think about the future.”

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Textron’s top priority is boosting organic growth, said Donnelly, 53. His second-biggest concern: deal making.

A General Electric Co. veteran, Donnelly quieted breakup rumors and jolted sales by acquiring Beechcraft Corp. for $1.4 billion in 2014. Textron revenue increased 15 percent last year to $13.9 billion, after five years of modest or negative gains.

The company is seeking smaller, bolt-on acquisitions but isn’t averse to bolder moves, Donnelly said. He wouldn’t discuss if the deals under consideration include United Technologies Corp.’s Sikorsky unit, the largest military helicopter manufacturer, which may be sold or spun off into an independent company.

Jets vs. copters

“It’s in our space, so of course we’ll pay attention to it,” Donnelly said. “In terms of how that plays out, obviously at this stage of the game it is very much directed and managed by what UTC wants to do.”

Textron shares have more than doubled since Donnelly became CEO on Dec. 1, 2009. The stock rose 0.5 percent to $45.40 at the close in New York Monday, bringing its increase for the year to 7.8 percent.

After recently meeting with Donnelly, analyst Julian Mitchell of Credit Suisse Group AG said he “came away reassured on the outlook for 2015 in terms of Bell and Aviation profitability, and also with a sense that the balance sheet will not sit idle, with buybacks and M&A deals both constituting potential options,” in a May 10 note to investors.

Textron Aviation, the new unit that combines Cessna with Beechcraft’s turboprop planes, has overtaken Bell Helicopter as the company’s largest sales generator.

New products

“It all comes down to new product development, rejuvenating an old brand,” said Richard Aboulafia, aerospace and defense analyst with Teal Group, a Fairfax, Va.-based consultant. “Cessna needs a lot of work,” he said.

With Cessna sales still recovering from the industry slump, Textron has benefited from Beechcraft’s King Air twin-engine plane, “a revered brand that has a commanding market share,” with about 70 percent of sales in its category, Brian Foley, an aviation market analyst, said in a phone interview.

Cessna’s toughest competition has been used aircraft, sold at depressed prices, Donnelly said. Investors who bought business jets during flush times unloaded them as the charter market collapsed and political backlash grew.

As sales nosedived, Donnelly scrapped plans for an ambitious large-cabin jet, the Columbus, and focused on more modest Citation upgrades. He also recruited Scott Ernest, from GE in 2011 to run Cessna.

What’s next

After releasing just three jet models from 2006 to 2012, Cessna has introduced four upgraded small and medium versions over the last two years. Donnelly, who headed research and development efforts at GE before running its aviation business, says a team is already “looking at what’s next” after the Longitude in 2017, without elaborating.

Textron needs to bolster the middle of Cessna’s product line-up, Credit Suisse’s Mitchell said, pointing to a “fairly wide ’gap’ between the Latitude and the CJ-4,” a jet with a $9.4 million list price that was introduced in 2010. Developing a large-cabin jet to compete with Gulfstream or Falcon jets isn’t as high a priority since that market segment “is now losing steam” in countries such as Russia and China, he said in a May 10 note to investors.

Textron is continuing a less-conventional program, its Scorpion light attack surveillance or trainer military aircraft, Donnelly said.

Business case

Almost two years after building the first plane, Textron has yet to notch a sale. The company funded development itself, unusual for a military program, and is targeting the $20 million fighters to countries that don’t need and can’t afford state-of- the-art weapons systems such as the F-35.

“It’s a risky proposition to build a military plane on spec,” without guaranteed government funding, Foley said. Textron is anticipating a market that may not emerge, he said.

The company is close to proving the business case for the plane, Donnelly said.

“I would be hopeful that either this year or sometime in the next year we’d get to the point where we have launch customers to where we feel comfortable pulling the trigger on full-rate production,” he said.

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