Q2 2020 Textron Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Textron.
Second quarter earnings call at this time all lines are in listen only mode.
Later, we will conduct a question and answer session. If you wish to ask a question [laughter] one than zero at any time during today's call.
As a reminder, today's conference is being recorded I.
I'd now like to turn the conference over to Vice President of Investor Relations Eric Selander. Please go ahead.
Yes, Ryan and good morning, everyone before we begin I'd like to mention we will be discussing future estimates and expectations. During our call. Today. These forward looking statements are subject to various risk factors, which are detailed in our SEC filings and also in today's press release on the call today, we have Scott Donnelley, Textron's, Chairman and CEO and Frank Carter, Our Chief Financial Officer.
Our earnings call presentation can be found in the Investor Relations section of our website.
Revenues in the quarter were 2.5 billion down from 3.2 billion last year second quarter. During this year second quarter, we recorded 78 million in pretax special charges related to the restructuring plan announced in June and a 55 million noncash inventory valuation charges, we ceased manufacturing at our Tru simulation and training for Montreal facility.
The net loss for the quarter was 40 cents per share. Excluding these charges. Adjusted net income was 13 cents per share down from 93 cents per share in last year's second quarter.
Segment profit in the quarter was 82 million down from 339 million in the second quarter 2019.
Manufacturing cash flow before pension contributions totaled 215 million up 113 million from last year's second quarter with that I'll turn the call over to Scott.
Thanks search and good morning, everybody.
Overall, given the difficult underlying market conditions second quarter results were solid strong cost performance positive adjusted earnings.
Fence businesses perform extremely well with revenue growth and strong operating performance, both bell and Textron systems.
Our commercial businesses implemented aggressive cost mitigation efforts, including employee furloughs temporary manufacturing shutdowns.
Reduced discretionary spending to offset the impact of revenue declines in the quarter.
Oh, we had a very strong quarter with higher revenues on a 14.4% operating margin driven by increased military volume.
On the commercial slide a bell with over 27 helicopters down from 53 in last year's second quarter, largely driven by lower demand for the Pago budget redirect model.
Lesser extent delivery delays due to corporate 19 travel restrictions.
During the quarter Richie the number of milestones would be 22 program, including delivery of the 400 322.
First delivery to the U.S. Navy of the C.M.B. variant carrier on board delivery mission.
The first international V 22 deliveries of Japan.
Textron systems revenues were primarily due to higher volume in our unmanned systems product line.
Cultural fit on man Textron systems was awarded to Fms contracts for total five aerospace systems, including initial spares NUKEM trading and logistics support totaling 44 million.
Together these and other words, along with physician for shipped a short connector production contract.
Resulted in an increase in backlog of 505 million in the second quarter.
The quarter Textron, Ryan Lance system successfully completed book builders acceptance trials for the next trip to shore conductor craft one to one we expect delivery of this unit you US Navy in Q3.
Also it systems are airborne touch will vanish company has recently selected for two task orders on the U.S.U.S. Airforce Caf cast program.
The $240 million covering appeared performance over the next 54 months.
So what is under these task orders are expected to commence the fall 2020.
Watching our fleet of off one Roger aircraft.
On the commercial sort of systems, we've seen a substantial decline in demand in order cancellations flight simulators and what did the expected long term impact of a pandemic on the commercial air transport business. As a result, we previously announced the second quarter restructuring plan, which impacts our simulation business by tissue manufacturing or commercial air transport simulator facility in Montreal.
In addition revenues were down in the quarter as expected due to the effects of Copel 19 on new aircraft deliveries and aftermarket demand.
We delivered 23 Jetstep for 46 last year.
15, commercial turboprops down 34 last year's second quarter.
Entering the second quarter would order began to temporarily shut down or manufacturing operations by Furloughing employees in response to the effect of a pandemic on demand.
In the quarter, we formalized our plans for water cost structure with the demand outlook.
Initiating direct and indirect workforce reductions as part of our restructuring plan and we assess restarted most manufacturing operations.
Looking to aftermarket revenues were down 31% compared to last year's second quarter due to lower overall aircraft utilization, which has steadily trended in a positive direction from a low point in April.
Our special mission is group remains very active in the quarter and closed several can your orders.
Moving to three Fiftys the worldwide Dr. service from Australia to three Fiftys to the Ministry of Health in Greece.
You through 50 yards to the U.S. customs and border patrol issues.
On the new product front, the social Skycar completed a significant milestone with its first flight test in May.
Testing of the aircrafts performance stability control you systems has gone well through 60 hours of flight testing today.
Moving to industrial revenues were down from last year's second quarter related to the temporary closures were manufacturing facilities across well.
A couple text, we exited the second quarter with the run rate of our global manufacturing operations at about 75% of plant performance levels as auto manufacturers reopen their factories.
Thanks, Ron specialized vehicles are announced restructuring plans to streamline operations consolidate facilities and reduced the overall cost structure across several product lines.
Golfing Ptv retail demand remained strong throughout the quarter.
In the outdoor power sports, we've seen the market rebound in the quarter with retail sales ahead of prior year for the month of June.
I'll turn the call refresh.
Thanks, Scott and good morning, everyone.
Let's review how each of the segments contributed starting with Textron aviation.
Revenues at Textron Aviation of 747 million were down 360 to 76 million from a year ago, largely due to lower citation jets volume of 178 million and lower aftermarket volume of 120 million.
The decrease in citation Jets volume largely reflected a decline in demand related to the pandemic and to a lesser extent delays in the acceptance of aircraft related to cover 19 travel restrictions.
Lower aftermarket volume are reflected lower aircraft utilization.
Segment loss was 66 million in the second quarter down from 102 million a profit last year, primarily due to lower volume and the unfavorable impact of 27 million for performance, which included 53 million idle facility costs recognized in the second quarter of 2020.
Backlog in the segment ended the quarter at 1.4 billion.
Moving to Bell revenues were 822 million up 51 million from last year, primarily on higher military volume offset by lower commercial volume.
Segment profit of 118 million was up 15 million largely on how air military volume, partially offset by an unfavorable impact from performance backlog in the segment ended the quarter at 5.8 billion.
At Textron systems revenues were 326 million up 18 million from a year ago, primarily due to higher volume in our unmanned systems product line, partially offset by lower volume in the marine and land systems product line.
Segment profit of 37 million was down 12 million, primarily due to an unfavorable impact from performance, which included a gain of 18 million recognized in last year's second quarter related to our contribution of assets to a training business formed with flight safety International.
Backlog in the segment ended the quarter at 1.9 billion.
Industrial revenues of $562 million or down 447 million from last year.
321 million at fuel systems, and functional components, and 126 million at Textron specialized vehicles, primarily due to lower volume related to temporary manufacturing closure.
Segment loss was 11 million down from $76 million property year ago, largely related to lower volume and mix, partially offset by 28 million a favorable performance a favorable performance in the quarter included the impact of cost reduction activities, partially offset by 8 million of idle facility costs in the quarter.
Finance segment revenues decreased 1 million and profit decreased 2 million.
Moving below segment profit corporate expenses were $30 million and interest expense was 37 million.
With respect to our restructuring plan announced in the quarter, we recorded pre tax charges of 78 million on the special charges line and a noncash inventory valuation charge of 55 million as we ceased manufacturing at our Tru simulation and training Montreal facility.
Throughout the second quarter, we continued to focus on cash preservation and working capital management working closely with our leadership teams across the businesses, we generated manufacturing cash flow before pension pension contributions of 215 million up $113 million from last year's second quarter.
From a liquidity perspective, we believe we have sufficient funds to meet our obligations and fund our operations. Despite the uncertain environment, our cash balance at the end of the second quarter was 2.3 billion after paying down about 300 million of long term debt and commercial paper, we continue to maintain an undrawn revolving credit facility of $1 billion that much.
Sure as in October of 2024 with that I'll hand, it back to Scott.
Thanks, Ryan as we begin to getting clarity around the restart of the economy I'd like to touch on each of the segments and their outlook.
Industrial or fuel system in functional components manufacturing operations are up and running and we expect production to continue to ramp up through the second half of the year in line with auto OEM demand.
And the specialized vehicle business, we're encouraged by what we're seeing in the Powersports market and we expect sequential growth from the Powersports revenue in the second half 2020.
In addition, the sales team is back to the field meeting with customers and arranging demonstration flights, we saw a pickup in business jet flight activity in the latter part of Q2.
We expect to see higher new aircraft deliveries and aftermarket revenue in the second half of the year on a sequential basis.
Well, we continue to invest in future vertical lift.
Where we are in the early stages of prototype development on far.
Floor, we continue flight testing with the V. 280, and we're actively working with US Army and responded information request related to the program.
At systems, we saw a number of awards in our unmanned air adversary businesses that will continue to drive growth these product lines.
We're in the soldier assessment phase of to you I guess with our arrows on hybrid Quad unmanned air vehicle.
And we are progressing on the RCB medium program with build out the initial vehicles.
That concludes our prepared remarks, so operator, we can open the line for questions.
Okay, ladies and gentlemen, once again, if you do have a question. Please press one than zero at this time.
Okay.
Our first question is going to come from the line of shoe the Kihei Glu with Jefferies. Please go ahead. Your line is open.
Hi, Good morning, guys and thank you for the time.
Got you just talked about what you're seeing in aerospace with.
Sales going back out in the field can you talk about what you expect to see in terms of aviation margins in a baseline for that you called out 27 million of unfavorable already 53 million of idle cost that were offset by 27 million of favorable benefit. So just like the puts and takes and when we get back to normal aviation margins in your view.
Well, so as you know show, where we had a pretty significant.
Expense in the quarter with respect to the on your underutilized facilities. Obviously, we do have most of our manufacturing operations.
All of our manufacturing operations backup in aviation. So we certainly expect to see sequential improvements with respect to that we did take out a fair bit of cost in the second quarter.
Actually through the furloughs and now as I said, we've set through the restructuring kind of what we believe as are our run rate through the balance will be year and for 2021. So.
Well, we give specific guidance on the margin rates, but suffice to say that we certainly expect to see them improve as we go through.
Q3 in Q4 lot of that obviously will depend on.
The level sales activity, we see right now we certainly have seen a pickup is particularly on the in the turboprops on the light jets, which is encouraging.
We're not seeing as much activity yet in terms of the latitude and longitude for instance, but theres a lot of dialog going on and you. Since those are primarily corporate oriented aircraft I think as people are coming back most businesses were about to enroll business is up and operating but.
Certainly the dialogues are there and as people go into.
We ended the year certainly beginning a 20 twond, we expect to see an uptick in the indirect over there as well so.
Again, we're we know we're going to be off considerably. This year given the fact that the factors were shut for several months and we've now re baseline the volume but.
We do certainly expect to see sequential improvements in margins through the balance of the year.
Great and then just another question on systems, you entered Aston is about five years ago, and I remember you're pretty excited about it but fairly quick eggs that seems pricing is tough in that environment. So.
A decision makes sense margins are really guide in that segment kind of what are the puts and takes how do you see the systems.
The future of systems from here I.
Well I think systems has has performed really well and yet we have certainly this issue in the in the.
Commercial transport business, which as you can understand given where the airlines are right now.
Isn't a very very tough spot and has been a top business. So I think it makes sense for us to test to scale back in that area balance of systems performance has been really strong our own man business continues to grow and.
And execute really well.
The land vehicle side now things like RCB.
Medium I think our team is executing well there we certainly expect over time to see that business.
Grow the dependent position to ship the short connector program was a big deal for us to now be under the production side. So clearly we expect that to.
To grow and again continue to see incremental better margins as we move out of the development deliveries and into the production deliveries going forward. So.
I think overall that.
The performance there is strong and we expect to see continued strong margins the growth driven by the era, which again is something we invested in.
We took a little bit longer to get there that when we would've liked but I think we feel great about the awards that we've received and that will add both revenue and.
And good margin growth of the business going forward. So I think systems was kind of.
Moving into more of a growth and better margin performance I think you see that in the second quarter performance.
Thank you very much.
And our next question will come from the line of.
David Strauss with Barclays. Please go ahead your line is open.
Thanks, Good morning.
Scott one or two.
I guess a follow up on the question I have last quarter on net jets.
Now back last quarter, I think thats talked about how they were going to reduce their plan for the year, but I think yesterday.
Before they came out with something within announcements and that they were going to reverse that can you just.
Talk about how that impacts year.
Well, Hi, David I think what net jets all as the same thing our sales team salt right. When when this thing first hit.
All activity kind of stopped and so net jets sales team understandably, so although our sales activity taper off I think what the note that you saw net jets is there.
They are seeing the same thing there worsening from sale standpoint, there is demand out there.
An awful lot of people we've talked about this on the last call as well are looking at increased use of private aviation lots of customers that have not been in the private aviation space before that are that are acquiring and and looking at using private aviation on a go forward basis. So I think.
In the in the mid to long term. This is a very healthy thing.
For the industry I think you'll see the frankly the rate of flying the number cycles has rebounded much quicker than you've seen in other pieces of aerospace.
So thats very encouraging and.
At the bottom line is as as we see increased demand.
Whether thats whole aircraft or whether that's fractional.
That's that's good for us not jets is obviously a hugely important.
Customer of ours and as they look at that those latitude and longitude markets and see increased demand that demand will flow right back to increased volumes and textron aviation.
Okay.
So so is it fair to its fair to say that the after revising down their claim review the revised up their plan with you I think thats very safe to say okay. Thanks.
And then.
A follow up by gets you Frank on on cash flow.
I was a bit surprised.
The inventory with was a source of source of cash and talk about where the contribution came from.
Hi business and what Youre thinking now how does it said free cash flow positive for the year.
Maybe maybe a bit of a finer point on that now if you could offer that thanks.
Yes.
All the businesses did a really nice job of kind of responding to the deceleration in the on the commercial side of the businesses. So.
We saw all the business is frankly perform well in terms of a working capital.
And inventory management.
And so as you said I mean, we saw strong working capital performance in the quarter, we expect to continue to see good working capital performance in the back half of the year, we're not going to get into specific guidance, but certainly expect from second half of the year to be to be cash flow positive and cash flow positive for the full.
Sure.
Alright, thanks very much.
Our next question comes the line of Carter Copeland with a Mellis research. Please go ahead.
Turning to.
Our.
Hey.
Scott I wondered if you my kind of help us expand on that.
Great sales side of.
Aviation and then and if there's any seasonality or cadence to how that that sales cycle works and really what I'm getting at is limited.
Yes.
Now I'll corporations are out there.
Budgeting cycles, and there's a lot of variability across the corporate complex.
Is that you think your sales teams will get a real honest look.
Any any potential change in demand is that something that happens this year or is it more like next year.
Well I guess, a very good question Carter, so as I said the level of activity and orders.
That are closing have been stronger on the light side right. It's.
And your 250 is right now were very strong mtwos.
Our strong so there are more private businesses high net worth individual sort of.
Customers those corporate customers that are or more of our latitude and longitude.
There's a lot of dialog going on this conversations, but you're right look they they have their budgeting cycles. Obviously a lot of companies have been watching their capex very closely just as we have been.
So I think it really the pace of how the economy recovers and provide certainty is going to be really important to seeing that segment of the market.
Start to actually put down deposits and signed deals so.
I wish I could give you a lot better insight anatomy, we're watching the economy like everybody else. We certainly are encouraged by how things have kind of moved out here over the last.
A couple months would we need to see that continue to progress and start to head back to some degree of normalcy. So.
Thats why thanks, we look at more of the.
Latter part of Q3 into Q4 and even.
Probably deliveries out in the beginning in 2021.
As the corporate.
Piece of America starts to make Capex commitments again.
Great. Thanks for the color and and one for Frank.
I Wonder if you could just.
Give us.
The.
Yes.
Yes, a cumulative adjustments in the quarter, just any any detail on that will be helpful. As always.
Yes the.
Net.
Were 17 million favorable so a bit down from a year ago on year over year basis favorable was 46 unfavorable was 29.
Awesome. Thanks for the details guys yes.
Our next question comes from the line of.
George Shapiro with Shapiro Research. Please go ahead.
[music].
Yes, good morning.
Frank just one clarification, then again to follow up to 53 million of idle facility costs that led to 27 million.
Negative impact so what we still positive 26 million if I just subtract those two numbers unless I'm reading it in properly.
So George there's a lot more moving pieces on that right. So the we do spike out the idle facilities, obviously, that's a significant number.
The net to net that down to where the overall performance number is has a lot of our short right. I mean, there's a lot of cost savings, obviously that we derived through.
Furloughs and.
Through the quarter a lot of that frankly helped offset what would've been of more challenging.
Idle facility.
Cost.
There's a number of other impacts in there that you were kind of expected.
A much lower.
No volume environment. So it's not just a matter of ill take the total performance its size out a little one thing. Okay. So there was there was a lot more cost savings.
Than that but there was a lot of.
Sort of other.
As always in the quarter I should say.
Netted out to a pretty significant positive relative to the idle facility cost that you. So yes for sure and Thats. What was the result of a lot of the furloughs that the savings that were driven by the.
The fact that we took out a lot of costs, both direct and indirect through the furloughs, while the plants were shut down.
And obviously now thats.
Has transitioned from the Furloughing, Unfortunately, where we had to make.
Permanent adjustments, which for which we took the restructuring to align the costs on a go forward basis.
Okay, and then just a follow up to David's question. So that billion for in backlog that you say for aviation does that include some additional.
Net orders that were reversed out in the first quarter.
There was no no there's no change in the in a nutshell backlog in Q2.
Okay.
Okay does my questions. Thanks.
Sure.
Next we'll go to the line of Peter Arment. Please go ahead. Your line is open.
Good morning, Scott Frank.
Scott just circling back on your comments about the at aviation on the aftermarket side. If we look at kind of the jet flight activity has kind of you mentioned it does kind of look like a true the from what we saw the fall off from March.
Alan July how did how did aftermarket perform kind of exiting the quarter I know it was down Frank mentioned, 31% in the quarter and just kind of your expectations for what we should expect at the second half.
Yes, it was down total of 31% for the quarter Peters as we mentioned, but if you looked at the progression of.
Bizjet cycles in both North America in Europe are big markets, there was a pretty market.
Change from April to June So I would expect.
The the aircraft showing up in part consumption and service work, what kind of lag that a little bit so even though we certainly saw activity pick up pretty significantly through through the quarter, particularly as we got into to June we certainly expect to see that.
I'll start to positively impact the service business in Q3 in Q4, so there's a there's a lag between those aircraft utilization rates picking up and service activity picking up.
Okay. That's helpful. And then just quick one on are you seeing any further tightening supply chain disruptions at all that.
Meaningful or anything to call out.
Nothing that I would say is material Peter it's a food fight everyday.
Still have.
Suppliers that have a flare up or shutdown or whatever so but look at soffe by guys.
Our guys manage through an everyday and we've had some impacts across all of our different businesses right were.
There's an issue or the supplier here or there.
We just kind of manage work our way through it on a day by day basis.
Appreciate the color. Thanks.
Next we'll go to the line of Robert Stallard with vertical research. Please go ahead.
Thanks, so much good morning.
All right.
Scott. This is my one for you you mentioned that aviation is now at a had been a run rate at run rate Youre happy away I'm wondering if you could give us an idea of how that run rate compares to way you at the start of the maybe sort of a percentage change versus where it was down where it is now and then second follow up question as well.
Robert I think again, there's there's not huge visibility right, but I think if you look we think about right now given the fact, we had the plant shutdown for a couple of weeks and adjustments. We've made looking more towards ended the year in 2021 rates.
We're going to be down somewhere in the 30 for 30 or so percent.
Probably 30% to 40% down in terms of deliveries in 2020.
On rates would anticipate that you probably.
Half that reduction back as you go into 2021, but there's a long way between here and in 2021, but that sort of how we're thinking about setting production rates at this stage.
Great and then one Frank you.
You are paying down some debt in the quarter, having any plans to further debt reduction in 20 Twentys exhibit unusual in the rest of aerospace LC, having liquidity paintings back.
Well, you'll recall in the earlier in the year, we did a debt offering to essentially prefund.
Our 2020 maturities and so that that Paydown of debt was effectively just the the pay down of that we have another 350 million of debt coming due in November that again, we have effectively kind of already refinanced so other than that.
We feel like kind of we're in good shape from a a debt structure standpoint, but that's what we have in front of us.
Thank you very much.
Next we'll go to the line of Seth Seifman with JP Morgan. Please go ahead. Your line is open.
Hi, Thanks.
Good morning.
Yes, I wonder.
Win win.
You just talked about the run rate in aviation.
20 expected.
Cup in 21.
Expect that to include a mix shift along the lines.
What you talked about toward smaller and then as part of that I guess I was little surprised.
When you mentioned not seeing as much pick up on launch into latitude side net jets is in fact.
Turning to come back and talk about taking some more deliveries and so maybe if you could talk about that dissidents there.
Well look I think the mix as I said right now we're seeing the pickup in activity is more oriented towards the smaller aircraft. We certainly do expected to shift to a better mix of were better next but a different mix of of larger aircraft as the year progresses.
I think with respect and that's just again.
We are working with these guys everyday so we're factoring in what we believe there demand is going to look like.
We said, what we didn't put stuff into the backlog in Q2, obviously the dialogue with them continues and I would certainly expect to see.
Ill backlog for.
Larger aircraft through not just pick up in the third and fourth quarter.
Okay, great. Thanks, and just as a follow up in industrial if you could talk about sort of the relative loss between.
And specialized vehicles and kind of that the the path back to profitability for for each it sounds like maybe autos has had.
Pretty clear path.
Capex and.
Is that the case and I think talk little bit about vehicles.
Well, we don't go down into the into the op profit by the individual businesses, but obviously in Q2, we saw the vast majority of our plants in.
In the Celtic swirled shutdown and there's just no demand the globe Global Auto Oems head.
At all shut down so we should our plants down as I said, we're back at least globally running around that 75%. We if you look and then again guys remember we base our data based on what I just looking at him.
In terms of our forecasting we don't really make the stuff up so we expect to see.
That utilization in those plants pick up in Q3 in Q4, but there's no question that.
And given where things are right now Q2 was really tough quarter.
For context, when you got all your plant shutdown around the world. So all lines have now picked up their operating.
They are back performing continue to see the volumes so that'll be.
You don't really significant contributor in terms of change of profitability in industrial as you go into Q3 in Q4.
In the case the vehicle business look I think we performed well in the quarter and vehicle business.
Golf in the Ptv markets will remain robust we did see significant uptick in retail activity, particularly in June on the outdoor power sports markets was those markets came back up and.
The good news is as result of all that Weve turned those factories back on an are starting to produce 2021 model years given.
Demand in the market, so I think it'll be improvements sequentially in both businesses.
But from a relative basis was tough quarter and caltex, when you're when your plants or shutdown.
Thank you very much.
Next we'll go to the line of Pete Skibitski with.
Alembic Global please go ahead.
Yes, good morning, guys.
[music].
Hey, Scott coming into the second quarter at systems, I guess I thought shoe in Lycoming will be big revenue headwinds for you and I imagine true had to me but.
Collectively is it just at the headwind from those units were just more than offset by this is our services business is that just kind of you now almost like a secular growth driver at this point.
Yes, the unmanned business continues to grow and do really well for us.
Was the it was the largest offset in there.
Have you don't renew land was little bit drive look our.
Year ago. This was our I think our last quarter, where we had the west of the.
The and the type b programs, but the the ship to shore side was strong and obviously, we expect to continue to grow.
Through the course of the year so for sure.
Significant headwind, obviously with with the simulator business shutting down with the rest of the businesses are growing and again performing well.
Okay, Great and then and then ATAC any color that you can give in terms of how big that unit can be with with all the wins, it's kind of collecting.
So the too.
Task orders that we were awarded is about as we said about $240 million over the next.
And a half year. So if you look at that Thats about.
$50 million a year of.
Revenue and we expect to be good margin, we own when we look we've invested in the aircraft we have.
Yes, Thats our teams done a great job is already 10 of the aircraft or are through airworthiness.
Fly and ready to go so we should be starting to see that revenue in Q4 of this year associated with those programs.
Okay I appreciate the color.
Our next question comes from the line of Jon Raviv. Please go ahead. Your line is open.
Thank you and good morning.
When we talk about the long term growth opportunity in Biz Jets, it's a kind of market, where you need to the cost of entry to be lower to attract a lot more people in there.
So just thinking and sort of long term about that business.
What does that business model look like in that kind of world how much of profit comes from aftermarket versus OE today, and how might that change going forward. If there is truly a.
More of us.
Really more or less start flying around on the smaller player.
Well I think.
In general the aftermarket business has always been the more profitable part of.
All of these aerospace business, so I don't see that changing.
Okay, I think as we look at the dynamic which again is we'll see how this plays out but as we see a lot of people entering into the business jet.
Or business aviation of marketplace.
I think our portfolios in a very good place to serve that right I mean, we have very strong.
Lineup of product that that entry level, whether its jet or turbo prop.
Through the King Air family in and the M. In CJ line, and then as people look into the larger weathers zealous space or latitude and longitude.
I think we've got very very competitive product I think we'll take our portfolio run better so.
The strength of entry point is.
This is what we're seeing most activity picking up right now, but I clearly would expect that like everything you'll see people migrate into the those those mid sized aircraft as well.
Thank you Scott and then just a follow up on.
Capital allocation I mean, it truly we're in a tough time, right now and you're having to conserve cash.
Largely but.
But how do you think of any sort of bigger physicians, how do you think about capital allocation going towards maybe later this year entering 20, when you have a little more visibility asset in the context of.
Sometimes down markets, where you guys are down 30% deliveries from your competitors out there was it delivers in biz jets, sometimes those markets are right for some consolidations, so any thoughts on capital allocation and bizjet consolidation that context going forward.
Well I mean, it's probably early to talk about that I think we're we're very happy with where we are from a from a cash standpoint than our balance sheet right now.
Obviously with the reserves actions that we will continue to take to continue to strengthen that and de risk that.
Before basis in terms of.
Consolidation I think everybody says consolidation makes sense in this industry do I see that happening anytime in the near term, giving valuations and sort of all the uncertainties, it's kind of hard to imagine that's something that's on the on the near term horizon.
So right right now obviously, we're very focused on making sure. The company is in good shape unhealthy in weathering through this and I think we've demonstrated so far that we're in.
Were very good.
Thank you Scott.
Our next question comes from the line of Noah Poponak with Goldman Sachs. Please go ahead.
Oh you there.
Possibly of your Mupa non.
Hey, guys.
Yes, we got you.
Okay fair enough.
Yes.
Net jets is clearly seeing it.
But but I'm curious.
In the new orders at at Tesco in the quarter.
Actually have real dealer customers that came in and said.
No I don't want to fly commercial or I've always been on the fence and.
The risks perceived risks of flying commercial or pushing me.
Over that trance I've always said on I'm trying to get a sense for you know how real is that trend is from not wanting to five commercial defined private versus being more anecdotal.
No I think as we said before I think is very real.
But remember it starts with charter and closed an hour and then moves into Fractionals and before whole ownership right. I mean, certainly that's never been on a business ship afford doesn't.
By the new airplane right I mean, there's a progression here, which is I think kind of the normal.
Entry of anybody going into business aviation theyre, not going to jumped in with.
A large equity position, they're going to start to see it.
Utilizing it and you don't get some experience with it on a on a sort of by the hour and progress too.
Fractionals and that sort of the normal process that we see so.
I think when you talk to the folks that are out there.
Operating units so it's across everything its its charter companies that are flying older aircrafts.
Wheels up that are very strong club membership.
Models, that's the net jets and again I think net jets is seeing both the folks that are interested in cars, but also fractional shares. So you see people migrating to these.
Known brands as well there are new to the business. So I don't think it's anecdotal I think is quite real but again from our perspective it starts more in.
Non equity you know mode and sort of migrates through the the path towards ownership, whether thats a fraction are ultimately in a whole aircraft on.
Okay.
Great.
Yes.
Well commercial is it do you have the visibility or desire here on the call too.
Share Similarly to how you just did with with assessment in terms of how you see the production loading in for the back half of this year and then into 2021 on Bell commercial unit.
No look it's a totally different market right. So it's not it doesnt sure of particular analogy around that I think when you.
On the area, where we've seen lighter activity has been.
An aircraft that we should also on a more short cycle right. It's a high net worth individual it's more of a discretionary spend.
Which is some of the five will five which we've seen lower volume and we've talked about seeing more volume I think we'll see lower volume through.
The balance of the year, but a lot of the other aircraft or are going into yes, they're going to police training.
Power public that piece of the market tends to have all longer lead time.
Sort of different acquisition process.
So look I think you don't feel there's no doubt that you'll see some some softening in the in the commercial side, but nowhere near as dramatic as you see in.
In the in the fixed wing market and obviously the other part adult which has a very strong defense business were utilization is high deliveries or are good aftermarket is very strong. So thank you don't.
It's hard not to feel good about we're bells position both in terms of their performance as well as opportunities for the future. So.
Yes.
I appreciate that color.
Actually really helpful. But I was actually just asking if you would provide the directional rate of change and commercial units you see for for this year next year. The same way you that versus another.
No I would not.
I mean other than given some color on it can be lighter on fiber fives for sure and we've adjusted production accordingly, but the rest of the market is.
At our visibility.
Okay.
My question to come across but I understand now thanks very much.
Ryan.
We have.
Another color in the Q.
Our next question comes the line of Ron Epstein with Bank of America. Please go ahead.
Hey, good morning, guys.
Maybe a quick brand and then a follow up do you guys have any white tails. It isn't right now are all the tail sold or.
And you haven't had used aircraft floating around.
Overall, we haven't used the whitetail word in a very very long time so.
As you know for years now, we rebuild dual forecast and.
Thats kind of what we continue to do so.
If you're interested if you're if your inquiring about wanting to buying aircraft.
Sure I can help you.
I wish I could another life.
Ron look we obviously, we we do everything we can do to match supply and demand.
Adjustments that we've made by having the factory shutdown that obviously helped aligned to a lower demand environment that we've been seeing the adjustments that we've made to the.
Each of the run rate on our production through the balance of the year into 2021 is all aimed at.
Making sure that were build the number of aircraft that we expect to be selling.
We've got very good at it so we'll we'll keep doing what we just along the way, obviously up or down but.
That's certainly our objective, but one thing I would say I mean, because if you remember.
Fortunately remember the.
Creation will wait till the years ago was encourages all these massive cancellations.
And then when we haven't seen that right I mean, our customers that were in our in our backlog have stayed in our backlog and we talked about situation on the fractional side and now we're seeing that.
Improve those as demand comes back into the marketplace, but.
The good news here is unlike previous cycles.
The two big dynamics, you don't see different you don't see this.
Float of incoming call, saying, hey, I want to cancel airplane people want to keep their airplane on that was on order and also I'd say on use side right. You don't see this flood of of aircraft going into the U.S market. The used available for sale remains at very low levels, we're seeing lower volume, obviously, just given the nature of the pandemic, we hear or.
The last few months.
And but again those that.
Lack of Airclic flooding into the U.S market, which number of years ago, obviously put huge price pressure in that in that light segment, we're actually seeing a little bit of an uptick in some of the pricing on on the use because there's not a lot of them out there that are very new aircraft.
So I think that that market remains healthy which is good.
Okay Thats great. Thank you for the color on that then and then maybe just one much bigger picture question.
As we listen to a lot of these these calls with different management team. There's a lot of focus on re sizing cost cutting so and so forth for for obvious reasons, but when you. When you think about textron from your seat and you look past the pandemic.
Are there any opportunities here to make some fundamental changes at the company to make the company stronger when we get out of the pandemic.
Either from a portfolio reshaping point of view or some other things that you just couldn't do if it was business as usual because everybody were so busy right does this give you an opportunity like to take a breadth and looked at the company and make some changes that you couldn't have done or wouldn't have been easy to do when you're trying to get your airplanes out the door does tanks out the door and so on.
And so forth.
Well go specifically at aviation on I think this is more about recognizing that over the last few years, we've had very high R&D levels right as we brought latitude and then particularly as we brought longitude.
Into the market. So we were already situated in a position where we had gone through a very large.
R&D phase, we still have things like Sky Courier and Denali that are there on the roadmap, but these are much smaller programs and something of a magnitude.
The longitude we're also getting back to doing a lot of upgrade programs to our existing.
Aircraft that are out there so I think from our perspective. This is.
We look over the next couple two three years I think we've got a great portfolio, we have a lot of.
Things like this guy occur, which should add a lot of growth and as a great product is coming along really well and then you've got a lot of upgrade programs, which are not as R&D intensive but keeps refreshing that product line. So.
Certainly, we're we're taking out cost associated with that lower run rate.
On production going forward at least through late this year in the into 2021, we can adjust accordingly, obviously, if we see a stronger demand.
So I would say in terms of.
Aviation I don't see such a.
Dramatic change beyond you don't probably that R&D.
Profile in looking a couple oil businesses, obviously as we've seen.
The slowdown we are doing some things around restructuring and fundamentally change the business going forward to things, we've talked about with the air transport.
Outside of the business some of the things in the vehicle side, we're we're consolidating.
Some of our operations into other operations, just making them run more efficiently on those cases, I think absolutely. We're in a better position as we come out of this downturn than we were from a from a fundamental structural cost standpoint.
We're better place going forward.
Okay, great. Thank you sure.
Okay, Ryan that does it for questions in the queue and.
We will end the call.
Okay, ladies and gentlemen that does conclude today's conference I'd like to thank you for your participation you may now disconnect.
And one moment speakers.
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