Textron Aviation revenue flat as jet deliveries fall, factory inefficiencies bite
The company said it has formally initiated a sale process for its Industrial segment.
Textron Aviation reported second-quarter revenue of $1.5bn, up 1% from the prior year, as higher pricing and stronger aftermarket performance offset a decline in jet deliveries.
The business delivered 40 jets in the quarter, down from 49 in the same period last year, while commercial turboprop deliveries rose to 44 from 34 – a bright spot in an otherwise operationally challenging quarter.
Segment profit came in at $165m, down $5m or 3% year-on-year, primarily due to manufacturing inefficiencies and lower aircraft volume and mix, partially offset by reduced warranty costs. The aviation backlog held firm at $8bn, reflecting what management described as robust demand across jets and turboprops.
“Demand across jets and turboprops continued to be robust during the quarter,” said CEO Lisa Atherton. “We have very strong demand, and we have to continue to drive better operational efficiency.”
The management said the root cause behind the manufacturing inefficiencies is a workforce that remains significantly less experienced than pre-pandemic levels. Atherton told analysts that approximately 50% of the Aviation workforce now has fewer than five years of experience, compared to less than 30% in 2019.
“When you look at the overall productivity challenges we’re having, it’s not only impacting our overall cost, but also preventing us from delivering additional new aircraft,” added CFO David Rosenberg. “The opportunity set is probably worth about $150m of incremental profit or about 200bps, which would then tie to that 20% to 25% incremental margins. Obviously, we’re not going to achieve that tomorrow, but we believe over the medium term, we’re going to get there.”
On the supply chain front, Textron Aviation is expanding dual-sourcing of critical components – including spars and landing gear – to reduce dependency on single suppliers and eliminate the out-of-station work that has compounded inefficiencies.
The company has also set up a cross-company Supply Chain Council to leverage its scale across segments when negotiating with common suppliers.
Management guided for revenue in the third quarter to follow a similar profile to the second quarter, with margin improvement not expected until the fourth quarter.
The path to company’s goal of 200 jet deliveries per year is expected to hit in second half of 2027 with as productivity gains are expected to begin flowing through in the as the newer workforce gains adequate experience.
New products generating strong backlog momentum
Despite the headwinds, the company said its product pipeline is generating significant customer interest. The CJ4 Gen3 and M2 Gen3 are currently in-flight test, with the CJ3 Gen3 expected to achieve first flight in the third quarter. All three are on track to enter service next year. The Denali turboprop is also progressing through final flight testing and is expected to enter service in 2027.
The company reached a milestone with the rollout of the 500th Citation CJ4 during the quarter and continued ramping Ascend deliveries, with NetJets taking its first five aircraft.
Textron Aviation also signed a multi-aircraft fleet purchase agreement was signed with Platoon Aviation, positioning it to become the largest Citation Longitude fleet in Europe, while SD Aviation signed for two M2 Gen3 jets and a CJ3 Gen2 with options for three additional light jets.
“There’s a lot of energy, and that’s reflected in the backlog,” Atherton said. “We are very specific with how we book backlog – it’s deposits and guarantees of when we would deliver those aircraft. So that is firm backlog.”
Textron formally initiates industrial segment separate process
The company said it has formally initiated a sale process for its Industrial segment, which comprises Kautex – a fuel systems and battery components manufacturer – and Textron Specialized Vehicles, maker of E-Z-GO golf carts and utility vehicles.
The move is in line with CEO Atherton’s ambition to transform Textron into a pure-play aerospace and defence company.
“We recently launched the process to pursue a sale of Industrial and are proceeding according to plan,” Atherton told analysts during the second quarter earnings call. “The interest has been very encouraging. We are actually quite pleased with how that sale process is going.”
The company is running a dual-track process, simultaneously preparing for a potential spin-off while also pursuing a sale. Atherton said the company has received a significant interest and NDAs are being signed with prospective buyers.
She said further announcements are expected in the coming weeks.
The Industrial segment reported second-quarter revenue of $848m, up 1% year-on-year, with segment profit of $59m, up 9%, partly aided by $18m net recovery of IEEPA tariffs at Textron Specialized Vehicles. Kautex also secured a new business award for its Pentatonic battery systems during the quarter, strengthening its electrification credentials ahead of a potential sale.
