Backlog to the future

opinion

by Alasdair Whyte

January 30, 2023

A lot of people are waiting for signs the market is turning. But Gulfstream and Textron Aviation – whose parent companies General Dynamics and Textron both announced fourth quarter results this week – say they have not seen it yet.

Gulfstream had a book-to-bill (or new sales to aircraft deliveries) ratio of 1.4 in the fourth quarter of 2022. Orders were $3bn compared with $2.7bn in the third quarter. In 2021 and 2022 Gulfstream sold 400 more aircraft than it delivered. Which is why it now has a $19.5bn backlog, up 19.8% from the end of 2021, and 68% in the past few years.

Gulfstream – which continues to deliver an impressive 13.2% margin (up from the 12.9% it forecast) – delivered three fewer aircraft in the fourth quarter than it hoped. This was mainly due to customers wanting to change deliveries and not supply issues. Despite delivering just one more aircraft, its sales for 2023 were up $432m to $8.57bn from 2021, because of strong sales at Jet Aviation and Gulfstream services.

“Corporate America has been very active, both public and private companies and high net worth individuals. Europe remains slow but the Middle East has picked up. Southeast Asia – not China – has been increasingly active,” said Phebe Novakovic, CEO, General Dynamics. “We have got good demand across all of our offerings in all of our aircraft.”

Gulfstream is only using a book-to-bill of one for its 2023 cashflow forecast but says that it could beat this. It is planning to deliver 145 aircraft this year, up more than 20%.

Textron is similarly bullish. It delivered 178 jets in 2022 (up from 167 in 2021) and 146 commercial turboprops (up from 125).

“Obviously, the market has been very strong,” said Scott Donnelly, CEO, Textron. “But we haven’t seen a material change in terms of order activity.”

Textron Aviation ended the year with a $6.4bn backlog and Donnelly is optimistic that backlogs will stay. “This industry worked this way for a very, very, very long time. The aberration has been since 2008 to the last two years ago. This industry has been a backlog business and it should be a backlog business,” he said. “Where we are sitting today is what normal should look like.”

The Textron and Gulfstream figures follow on from preliminary results from Bombardier for 2022. It had a full-year book-to-bill of 1.4 – growing its backlog to $14.8bn (from $12.2bn at the end of 2021).

Donnelly is confident that while manufacturers will be affected, they are much better positioned for an economic slowdown than in 2008. “We have kind of factored in thinking that we will have a mild recession – but I don’t think it’s going to be dramatic. We are certainly not thinking about something in the scope of back in 2009-2010,” he said. “We are in a very different place than we have been in because we have a significant backlog. If you go into a modest recession, you’ll see a slowdown in booking. But you’ve got almost two years of backlog sitting there that you’ll continue to execute.”