(Bloomberg) -- 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 apiece, 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, according to analyst estimates compiled by Bloomberg, and Cessna owner Textron Inc. today said first-quarter profit from continuing operations fell 81 percent.
“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 percent 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.
Detroit Three
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?”
GM terminated its leases for two Gulfstream V planes and five Gulfstream IIIs. Royal Bank of Scotland Group Plc Chairman Philip Hampton told shareholders April 3 that keeping its Dassault Falcon 7X jet would be an embarrassment following the company’s rescue by the U.K. government.
The outlook for business-jet manufacturers is bleak. Deliveries, which rose 28 percent 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 percent of the workforce. The unit last year generated about 40 percent 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 percent operating profit margin compared with an average 11 percent at marine, weapons and information-systems divisions.
Textron today said first-quarter profit from continuing operations dropped to $43 million, or 18 cents a share. Excluding some costs, profit was 26 cents a share. Analysts had predicted 1 cent a share. General Dynamics may say profit growth slowed to 3 percent, dropping below 10 percent 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 percent in the quarter. The company said April 2 it will deliver 25 percent fewer business jets this year and declined to comment further yesterday.
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