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Gulfstream orders suggest recovery in business jets
November 5, 2010
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  • By Christopher Drew

    October 27, 2010

    General Dynamics said Wednesday that its Gulfstream unitreceived orders for more business jets in the third quarter than in anycomparable period since mid-2008, another indication of recovery in the marketfor corporate planes.

    Jay L. Johnson, the General Dynamics chief executive,told analysts that one-third of the orders came from Latin America and Asia,and the increase reflected demand for two high-speed models being tested.

    General Dynamics, based in Falls Church, Va., does notrelease quarterly order numbers.

    But in another measure of how its business is starting tobounce back, the company said it delivered 23 Gulfstream planes in the thirdquarter, up from 17 in the year-earlier period. Its deliveries had peaked at 41just as the economy collapsed in the last three months of 2008.

    Buoyed by the improvement in its aerospace business,General Dynamics, which is also a large military contractor, said its overallprofit rose by 13.6 percent in the third quarter.

    It also raised its forecast for full-year earnings.Northrop Grumman, another military contractor, also reported a gain inthird-quarter profit on Wednesday and increased its forecast.

    Analysts watch the sales of business jets as an indicatorof how willing corporations are to spend money as the economy rises and falls.

    Heidi Wood, an analyst at Morgan Stanley, said in aresearch note on Wednesday that business jet flights had increased since latelast year, and that a recovery “appears under way.

    She said earlier this week that there was consistentdemand for large planes, while the market for midsize and smaller ones remained”painfully quiet.”

    She added that the consensus at a trade show last weekwas that 2012 would be the start of a new sales cycle for new planes, after aglut of used jets was purchased next year.

    General Dynamics said its deliveries in the third quarterincluded 17 large planes and six midsize ones. Mr. Johnson said Gulfstream nowexpected to deliver 75 large jets and nearly 30 midsize aircraft this year,compared with 156 planes in 2008.

    Textron, the owner of the Cessna Aircraft Company, saidlast week that its orders had picked up somewhat in September, though Cessnashipped only 26 business jets in the third quarter, compared with 68 a yearearlier. Cessna cut 700 jobs in September and slowed production.

    But Scott C. Donnelly, Textron’s chief executive, toldanalysts last week that Cessna expected a significant increase in deliveries inthe fourth quarter.

    Cessna also unveiled plans last week for a larger andmore advanced version of its Citation X plane, which can seat nine passengers.It expects the first delivery in 2013.

    Mr. Johnson, the General Dynamics chief executive, saidhis company’s new and faster large jet, the G650, which seats eight people,should be ready for delivery in 2012. He said it had already attracted 200orders.

    Mr. Johnson said orders were also coming in forGulfstream’s new G250 jet, which has a midsize cabin, and should be ready bylate next year. “Our timing relative to the recovery in the midcabin marketlooks pretty good,” he said.

    And as tighter military budgets slow the company’s growthin combat systems and warships, “our aerospace business will be the growthengine through the near and intermediate time frames,” Mr. Johnson said.

    General Dynamics said its net income increased to $650million, or $1.70 a share, in the third quarter, from $572 million, or $1.47 ashare, a year earlier. Revenue rose 3.8 percent, to $8.01 billion.

    The company also increased its earnings forecast for thefull year to $6.70 to $6.75 a share, from $6.60 to $6.65 a share.

    Northrop Grumman, based in Los Angeles, said its netincome edged up to $497 million, or $1.67 a share, in the third quarter, from$490 million, or $1.53 a share, a year earlier. Sales increased 4 percent, to$8.71 billion.

    Northrop raised its full-year earnings guidance to $6.85to $7 a share, from $6.60 to $6.80 a share.

    Northrop is exploring the sale of its $6 billionshipbuilding unit. It also might spin off the business to shareholders. WesleyG. Bush, Northrop’s chief executive, said the company was focused on improvingits profit margins.

    Date: 2010-10-27