SVB hits sales, but OEMs calm
You do not get to become CEO of Gulfstream parent General Dynamics, Textron or Bombardier without being able to sound calm on an analyst call.
So it is no surprise that Phebe Novakovic, CEO of Gulfstream parent General Dynamics; Éric Martel, CEO, Bombardier; and Scott Donnelly, CEO of Textron all appeared relaxed during each of their first-quarter results calls this week.
The overall message was that demand is cooling from last year, but still firm. But the collapse of Silicon Valley Bank showed how quickly things can change.
“The quarter was looking quite good until the two regional bank failures in early March,” said Novakovic. “This created a pause in the market for about three weeks. I am pleased to report that normal activity has resumed. Strong sales activity and customer interest are evident in this quarter.”
Bombardier’s Martel agreed: “Usually not much is happening in January, then things starting to ramp up in February and March, which gives us about eight weeks to execute the order book and then we really saw a slowdown in the last two weeks coming from the regional banking crisis. But this lasted about two to three weeks maximum and then we saw the level of activity coming back to normal.”
This delay hit the book (or order) to bill (or delivery) ratio for each manufacturer in the first quarter.
Gulfstream had a 0.9:1 book-to-bill in dollar terms and a unit book-to-bill of 1.1. Although this was also helped by a few aircraft deliveries being delayed because of supply chain challenges (after none last year) and one registration issue. The company is also building G700s ready to be delivered as soon as the aircraft is certificated.
“Before March 10th we had anticipated a full book-to-bill of 1:1 on, at that point, higher deliveries,” said Novakovic. “It’s our working assumption that we will continue to see 1:1 going forward. And at the moment, we see no reason why that can’t be achieved.”
Textron kept its book-to-bill above 1. Bombardier’s fell to 0.9. These are all good and mean that backlogs are staying strong. And backlogs are why OEMs are confident.
Bombardier’s backlog was stable at $14.8bn the same as at the end of 2022. Gulfstream ended the first quarter with a $19.37bn backlog, a slight drop from $19.5bn at year end (its backlog grew 19.8% in 2022). Textron’s backlog at the end of March was $6.5bn – up $100m from December.
“Anytime you have financial disruption or adverse events out there in the economy in general, it’s certainly easy for people to say, let me think about it or wait a little bit,” said Donnelly. “The good position we have right now is we have enough backlog out there that even if you have a quarter where you’re down below one-to-one, that’s not the end of the world. If somebody defers out there for a few months, that’s not a problem. That’s the beauty you have in the backlog.”
Bombardier’s Martel also highlighted that backlogs are much stronger – with fewer speculators and tighter contracts than in 2008.
They are all continuing to increase production gradually and all say that they are still seeing demand for new aircraft. “I have spoken personally to a lot of clients in North America, Europe, and most importantly, Asia Pacific recently,” said Martel. “Mobility is still a key need for them regardless of any macroeconomic prediction or sentiment.”
As long as we do not see any more bank failures.