Falling sales at Cessna means a $23m loss for third quarter

Cessna factory

Cessna's production facility in Wichita, Kansas.

No sign of upturn as Cessna makes a third quarter loss as it delivers and sells less aircraft.
Cessna's production facility in Wichita, Kansas.

Cessna’s production facility in Wichita, Kansas.

Cessna lost $23 million in the third quarter of 2013 compared to a profit of $30 million in the same period of last year. Its sales were down $185 million compared to the same quarter in 2012. It also delivered 25 less jets than in the same period of 2012.

The manufacturer’s backlog at the end of the third quarter was $1.07 billion, up $61 million from the second quarter of 2013 as salespeople sold new models – particularly Cessna Citation M2s and Citation Lattitudes – due for delivery in 2014.

However, the backlog was $1.3 billion at the same time in 2012 and an astonishing $15.6 billion for the same quarter in 2008.

In an analyst call, Scott Donnelly, chairman of Textron, Cessna’s parent company, was unable to say when the market would improve. He said: “There’s no question, we’ve been in a very, very deep down cycle. But as you know – and again, I don’t know either. Is it six months? Is it two years? That’s sort of the unknowable. But the cycle will come back around and you’ve got to make sure that you’re positioned to capitalize on that.”

In April, Cessna said it would cut production in an attempt to stop discounting and the reduced deliveries reflect that. Donnelly said that they had been able to hold prices. “I think, as a result, we’re just seeing what the normal market is out there- as opposed to dragging people into it that aren’t ready to do upgrades or trade-in activity,” said Donnelly. “And so that’s reflecting in lower volume, which again, I think, for the long term is healthy for the market.”

Donnelly said that two thirds of its sales in the quarter were to US customers with the rest split evenly between Latin America, Europe and Asia.

He said that sales of new aircraft are being hampered by the availability of pre-owned aircraft but that he does not expect that to happen when they start delivering new aircraft. “Obviously, as we look at new aircraft that we’re introducing for which there are either none or virtually no used aircraft that are like that kind of a product, we see a pretty strong uptake of the product,” said Donnelly. “In the cases where we’re still selling a product, where there’s a significant competition out there in terms of relatively new used aircraft, we still see sluggish behaviour in that marketplace.”

Cessna also wrote off $11 million from the value of pre-owned aircraft that it had taken in to help with new sales. It wrote-off $8 million in the second quarter.

“I’d say there’s still softness, a lot of activity and quite a lot of transactions but still softness in the pricing in the used market, but I would say stability in terms of pricing in the new market,” said Donnelly.

There have been reports that Credit Suisse has been mandated to sell Beechcraft and analysts asked Donnelly if there was any interest. He said: “With respect to Beechcraft, look, we see the things in the paper. I know there’s a lot of rumours and whatnot banging around. Look, our view of Beechcraft is the same as we’ve discussed in the past. There’s certainly interest that we would have in some of those assets in terms of the status of what’s going on. And all the rumours in the articles, I guess, at this point, I wouldn’t comment on any of that.”

For a full transcript of the call please go to Seeking Alpha.

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