Wall Street v FBO Drive

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Investors often worry about a disconnect between Main Street and Wall Street. Stocks on exchanges rising when the real economy is struggling or vice versa.

But they don’t normally focus on the same things as business aviation – let’s call it FBO Drive – where customers buy charter, fractional shares or aircraft. But now there is a big disconnect between FBO Drive and the others.

General Dynamics, the parent company of Gulfstream, and Textron Aviation both revealed strong financial results for the third quarter last week. Bombardier will do the same this week. But so did Amazon – a key company for both Wall Street and Main Street.

The Everything Store’s results were below Wall Street expectations but not awful. Whilst it may be good at next day delivery, its financial forecasting seems less precise. The online retailer had net income of $3.5bn in the last three months of 2021. It is now saying it could make anything between $4bn and $0 before this year end. Amazon says it saw demand fall towards the end of the quarter and its international revenues have been hit by the strong dollar.

So far, business jet manufacturers – on FBO Drive – have not seen this.

“Despite apparent macroeconomic headwinds, we continue to experience a strong level of interest, good activity and a replenishing pipeline. Certainly, demand in the quarter was not as super-heated as prior quarters, but still the book-to-bill was very good against a significant increase in deliveries,” said Phebe Novakovic, CEO and chair, General Dynamics. “Only time will tell about the macroeconomic impact, but we continue to see strong interest.”

Gulfstream had a book-to-bill of 1.3 to 1 for the quarter. The aerospace backlog grew to $19.1bn, up 1.4% in three months, and 29.7% from the same quarter in 2021.

Textron has not seen a drop in demand either. It saw a 1.2% drop in revenue due to supply chain issues. But still had strong figures. Textron delivered 39 jets during the three months, down from 49 last year, and 33 turboprops, down from 35.

It still made a $139m profit – up $41m compared with the same three months of 2021. Some $31m of this was because it was able to raise prices. Its backlog at the end of the third quarter was $6.4bn, compared with $3.5bn last year.

All of the manufacturer CEOs we met with at NBAA-BACE, do expect FBO Drive to catch up with the Main Street slowdown. But they are all confident that they will be able to manage this. This is largely because production levels are still a long way below industry averages.

“We’ve been ramping up our production volumes through the course of the year, we continue to do that. But we have been hit by a number of supply chain challenges that have resulted in aircraft pushing out to the right, our guys are managing through that,” said Scott Donnelly, chair, president and CEO of Textron.

These supply chain issues have stopped all manufacturers from rapidly increasing production. They are all only looking to ramp up cautiously and it easier to do this when all your competitors are doing the same.

“We’ll continue to watch demand in the marketplace. As long as we see a growing backlog in a strong environment, then we’ll continue that ramp, but it’s going to be a slow steady ramp,” said Donnelly.

Aircraft manufacturers can rightly feel annoyed that their strong performance is not being rewarded by a nervous Wall Street as it should. But just like Amazon, they are continuing to deliver well.

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