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| Gulfstream, Cessna sales to slide for 2 years as CEOs shun jets |
| Bloomberg / Toulouse Apr 29, 2009, 00:46 IST |
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Gulfstream and Cessna will need at least two years to revive sales of corporate Jets after the public shaming of executives like Elan Corp’s Kelly Martin.
The Dublin-based drug company chief helped run up a bill of as much as $6 million last year flying to a San Francisco research center in a Gulfstream V. Now he will be lining up at the airport with everyone else after investors campaigned for him to switch to standard airline flights costing $1,000.
With businesses shunning luxury planes costing up to $55 million a piece, manufacturers including Bombardier Inc, General Dynamics Corp and Dassault Aviation SA are slashing output and shedding 15,000 jobs. Gulfstream maker General Dynamics tomorrow will report the slowest profit growth in more than five years and Cessna owner Textron Inc may say earnings fell 90 per cent, according to analyst estimates compiled by Bloomberg.
“Corporate aircraft make commercial airliners look like a safe haven,” said Richard Aboulafia, vice president of the Teal Group aviation consultancy in Fairfax, Virginia. “It’s the market most exposed to the huge downturn in corporate profits and where the economy really hits the tarmac.”
Business-jet deliveries may fall 50 per cent this year and next, according to UBS AG. The $22 billion industry has been left reeling after companies and wealthy individuals began scrapping orders and selling business jets last year as the global economy started to contract.
Pressure to avoid the planes mounted after the CEOs of General Motors Corp, Chrysler LLC and Ford Motor Co used them to fly to Washington hearings on taxpayer bailouts, prompting Democratic Representative Gary Ackerman of New York to ask: “Couldn’t you all have downgraded to first class?”
Detroit three
GM terminated its leases for two Gulfstream V planes and five Gulfstream IIIs. Royal Bank of Scotland Group Plc Chairman Philip Hampton told shareholders on April 3 that keeping its Dassault Falcon 7X jet would be an embarrassment following the company’s rescue by the UK government.
The outlook for business-jet manufacturers is bleak. Deliveries, which rose 28 per cent last year to 1,138, may fall to less than 600 in 2010, according to New York-based UBS analyst David Strauss. That’s about the level of 2003, when 591 planes were built.
Wichita, Kansas-based Cessna, the largest maker of business jets by aircraft built, is eliminating almost 5,000 posts, or 30 per cent of the workforce. The unit generates 40 per cent of revenue at parent Textron.
Top performer
General Dynamics will scrap 1,200 jobs at Savannah, Georgia-based Gulfstream and cut production by one-fifth. The unit was previously the company’s top performer, with an 18.5 per cent operating profit margin compared with an average 11 per cent at marine, weapons and information-systems divisions.
Cessna may say tomorrow first-quarter earnings dropped to 6 cents a share from 91 cents, according to the average estimate of 10 analysts. General Dynamics may say profit growth slowed to 3 per cent, dropping below 10 per cent for the first time since 2003. It lowered the 2009 earnings goal to as little as $6 a share on March 5 from as much as $6.75. Neither company would comment yesterday prior to announcing their results.
Bombardier, the Montreal-based maker of the Learjet, is cutting almost 4,500 jobs after aerospace sales fell 4 per cent in the quarter. The company said April 2 it will deliver 25 per cent fewer business jets this year and declined to comment further yesterday.
Textron has fallen 11 per cent this year, General Dynamics is down 15 per cent and Bombardier has lost 18 per cent.
Questionable
Bertrand Grabowski, the board member responsible for aviation clients at Germany’s DVB Bank SE in London, said the move away from private planes is questionable when aircraft are eliminated because of a general mood of austerity and otherwise make good business sense.
“People are abandoning jets for corporate-communications purposes,” Grabowski said.
Farm-equipment maker Deere & Co plans to keep its aircraft even after criticism by shareholder advisory group RiskMetrics, which said in a February report that CEO Robert Lane spent $400,000 on private flights in 2008, four times the norm for industrial companies. Deere also flew directors and their spouses to India for a board meeting, RiskMetrics said.
The company, which has four Cessnas and a Gulfstream V, told Bloomberg that the difficulty of traveling from its base in Moline, Illinois, to the headquarters of its customers generally makes using airlines impractical.
Lane also employs private aircraft for safety and security reasons, spokesman Kenneth Golden said by an e-mail. He said Deere is more frank in disclosing costs than its peers.
NetJets cancelled
Dublin-based Elan, whose stock has lost 74 per cent in 12 months, hasn’t renewed a contract with NetJets Inc, the private-jet company owned by Warren Buffett, though that could change.
“We use commercial transport for the most part but would prudently consider the use of an independent plane if the scales balanced in terms of less overnights, associated expenses and executive time,” spokeswoman Niamh Lyons said in an e-mail.
Chairman Kyran McLaughlin has said in a letter to investors that Elan spent less than 1 per cent of its $618 million in operating expenses before one-time items on private jets last year, without providing an exact figure. Lyons said she couldn’t expand on that guidance.
Matt Strobeck, a partner at Boston-based Westfield Capital, which owns 17.5 million Elan shares, backed the campaign to force the unprofitable company to use scheduled flights.
“They don’t need private jets because you can get pretty much anywhere on commercial airlines,” he said in an interview.
Charles Edelstenne, CEO of Paris-based Dassault, said in an interview that “every day brings a fresh piece of bad news.” He blames the U.S. automakers’ Washington trips for making it ‘a scandal to own a business jet’.
Cessna President Jack Pelton says industry profits closely mirror those at major companies, just with an eight-quarter lag. Planemakers need to defend the products as time-saving business tools to access markets poorly served by airlines, he said. Pelton started an advertising campaign urging executives not to be intimidated into shunning corporate jets.
“That stigma is a factor we’ve never experienced in the past,” he said. “We need to make sure we show leadership for the industry and demonstrate the importance of our products and the jobs they create.”
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