Q1 2022 Textron Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by welcome to the Textron first quarter earnings release Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you would like to ask a question you May press. One then zero on your telephone keypad, you will hear acknowledgment that your line has been placed in Q. As a reminder, this conference is being recorded I would.
I'd now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead.
Thanks, Leah 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 Donnelly, Textron's, Chairman and CEO and Frank Connor, our Chief Financial Officer.
Our earnings call presentation can be found in the Investor Relations section of our website.
Revenues in the quarter were 3 billion up from $2 9 billion in last year's first quarter segment profit in the quarter was $304 million up $48 million from last year from the first quarter of 2021.
During this year's first quarter, we reported net income of 88 per share compared to <unk> 70 per share on an adjusted basis in last year's first quarter Manny.
Manufacturing cash flow before pension contributions totaled $209 million in the quarter up $138 million from the first quarter of 2021 with that I will turn the call over to Scott.
Thanks, Eric and good morning, everyone.
Revenues and margins were up in the quarter driven by Textron Aviation Avs.
Aviation demonstrated strong execution in the quarter, resulting in 11, 6% segment margin.
We continue to see very strong demand solid pricing and increased deliveries from our citation jet and commercial turboprop product and higher aftermarket volume from increased aircraft utilization.
We delivered 39 jets up from 28 last year and 31 commercial turboprops up from 14 in last year's first quarter.
Order activity was very strong in the quarter with $1 billion of backlog growth, reflecting continued order momentum across our product portfolio.
We ended the quarter with $5 1 billion in backlog.
In March our new commercial turboprop the social Sky Courier received FAA certification and we expect to begin deliveries in the second quarter.
At Bell revenues were down 1% in the quarter largely driven by the mix of commercial products sold.
On the commercial side of Bell, we delivered 25 helicopters up from 17 in last year's first quarter during.
During the quarter, we saw momentum building commercial demand across all our product aircraft models and in markets with a strong quarter of new orders.
Moving to future vertical lift and March Bell submitted its final, Florida proposal revision to the U S Army a down select an award announcement is expected this summer.
Moving to Textron systems revenues were down in the quarter on lower volume, primarily reflecting the impact of last year's withdrawal of the U S Army for Afghanistan on our fee for service and aircraft support contracts.
At <unk>, we continue to see increased flight activity and revenue on our U S Navy and air force or contracts.
During the quarter system successfully deployed the first aerosol and UAS system in our maritime environment.
The U S Navy guided missile destroyer.
<unk> expects to deploy a second Aerostar UAS award additional ship later this year.
Moving to industrial we saw higher revenue in the quarter, driven by higher pricing and volume of specialized vehicles, and our Ptv and golf product lines. We continue to see strong end market demand in most of our product lines across specialized vehicles.
Capex, we saw disruptions related to global auto OEM supply chain shortages to continue to directly impact our production schedules, resulting in lower volume.
At the product level hybrid revenue increased 24% year over year or 12% of total capex revenues in the first quarter up from 9% a year ago as we continue to penetrate the hybrid fuel system segment.
On April 15th we closed our acquisition of <unk>, a pioneer and global leader in luxury powered aircraft.
Visceral brings its technical and regulatory expertise in the development of electric and hybrid aircraft to support <unk> long term strategy to offer families sustainable aircraft for urban Air Mobility General aviation and cargo and special mission roles.
With that I'll turn the call over to Frank.
Thanks, Scott and good morning, everyone let's.
Let's review how each of the segments contributed starting with Textron aviation Rep.
Revenues at Textron aviation of $1 billion were up $175 million from a year ago, largely due to higher citation jet volume of $93 million.
Aftermarket volume of $61 million and commercial turboprop volume of $59 million.
Segment profit was $121 million in the first quarter up $74 million from a year ago, largely due to the higher volume and mix of $55 million and favorable pricing net of inflation of $16 million.
Backlog in the segment ended the quarter at $5 1 billion.
Moving to Bell revenues were $834 million down $12 million from last year due to lower commercial revenues of $32 million largely reflecting the mix of aircraft sold during the period.
Partially offset by higher military revenues.
Segment profit of $98 million was down $7 million, reflecting lower volume and mix, partially offset by favorable impact from performance.
Backlog in the segment ended the quarter at $4 8 billion.
At Textron systems revenues were $273 million down $55 million from last year's first quarter due to lower volume of $59 million, primarily reflecting the impact of the U S. Army's withdrawal from Afghanistan on our fee for service and aircraft support contracts.
Segment profit of $33 million was down $18 million from a year ago due to lower volume and mix of 11 million described above and an unfavorable impact from performance of $9 million, primarily reflecting lower net favorable program adjustments on our fee for service contracts backlog in the segment ended the quarter at $2 1 billion.
Industrial revenues were $838 million up $13 million from last year, primarily due to a favorable impact of $46 million from pricing principally in the specialized vehicles product line, partially offset by lower volume and mix of $24 million largely in the fueling systems fuel systems and functional components product line do.
The impact of global supply chain shortages on our auto OEM customers.
Segment profit of $43 million was down $4 million from the first quarter of 2021, primarily due to lower volume and mix described above.
Finance segment revenues were $16 million and profit was $9 million.
Moving below segment profit corporate expenses were $44 million in interest expense was $28 million or.
Our manufacturing cash flow before pension contributions was $209 million in the quarter up $138 million from last year's first quarter.
In the quarter, we repurchased two 2 million shares returning $157 million in cash to shareholders.
Beginning in the second quarter of 2022, pipistrelle will become part of Textron Aviation, a new business segment, where we will combine our existing initiatives with pistols capabilities to accelerate our development of sustainable aviation solutions.
This new reporting segment will include development expenses related to these efforts and pistols operating results for the remainder of the year. We expect revenues for the aviation segment to be in the range of $30 million to $40 million and a segment loss of about $45 million, which reflects a net cost increase of about 20 million.
From the aviation guidance, we provided in January .
On our January call, we provided guidance for the expected costs related to aviation of about $30 million, which were included in our full year corporate expense guidance of about $150 million.
We now expect corporate expense to be about $125 million, reflecting the move of $25 million of expected aviation costs to the new segment on a prospective basis.
For the full year, we're reiterating our EPS guidance of $3 80 to $4 per share inclusive of the aviation segment results.
That concludes our prepared remarks, Sylvia we can open the line for crest.
Thank you and our first question is from the line of Robert Stallard with vertical research. Please go ahead.
Thanks, so much good morning good.
Good morning, Robert.
Scott you've noticed a very noted a very strong quarter for orders at aviation in the first quarter. I was wondering if you could comment on whether you'd seen any differences in terms of the different types of aircraft you had and whether there's been any change in the customer dynamics by type as well. Thank you.
Not really Robert it's across the whole portfolio Jets King airs.
The momentum continues to be strong.
We'll know more U S centric than general, it's probably around 80 20 on jets.
Around 60% on the turboprop, where we usually see more like 60% international and turboprops. So the dynamics from what we've seen here over the last year lets say kind of continued through the quarter in terms of the kinds of customers.
Youll see quite a fair number of new customers are coming into the marketplace, a place which is encouraging but yes I'd say the dynamic is is quite similar to what we're seeing just very strong in terms of.
The number of transactions the demand out there continues to be robust.
That's great and just a quick one for Frank.
Is there any change to your cash flow guidance for the year.
No.
We're staying at the 700 $800 million for now.
That's great. Okay. Thank you very much.
And our next question is from Sheila <unk> with Jefferies. Please go ahead.
Good morning, and thank you Bill.
Maybe on aviation margins just relative to the guidance you gave on January 11.
Starting for the first quarter on maybe lower deliveries than we thought.
Year over year and price was only one 5%. So maybe Scott if you could talk about what youre seeing there how we should expect that to progress and we see better pricing.
Well I think the.
Yes.
Pricing remains strong obviously, we're selling out into the future and making sure that we get good pricing in anticipation of continued inflationary pressures. So I think we're pretty well covered on that front.
I think the margins a little strong here in the first quarter Sheila because we just give a flying activity is up so strongly that we saw about 38% of our revenue here in Q1 was was service and aftermarket.
So that's a little heavier mix and we would expect to see certainly for the for the total year and that's part of what's driving a little bit.
Probably higher mortgage margin in Q1 than what we guided to so it's a little bit more of a mixed year between aftermarket and original equipment sales and obviously originally from a sales will strengthen as we go through the year.
Okay.
And then maybe one more on Wolfson, just creating a new segment.
Now what was that.
Don how do you envision that sector segment evolving over the next few years.
So our logic for doing this in breaking out as a separate segment as we talked about in January because this was sort of a cross business thing we had at aviation Engineers and Bell engineers and folks from systems that are kind of building out this team.
And it's a new space, particularly around the VTOL, we were funding that.
Corporate line with.
With the acquisition of <unk> role in the increasing importance I think of kind of these investments that we're going to make on the sustainable aviation side.
We thought it would be helpful to shareholders to break that out as a separate initiative and give visibility to that so obviously.
<unk> role is in there its operating results are in there, but it's a it's a $40 $50 million at this point sort of a business. So a lot of the results that youll see in that segment are driven by the significant R&D investments that we're making around the sustainable aviation.
Activities in some of that is.
Actually we were already funding on the through the corporate line.
As well as obviously, bringing purpose role in an increasing.
Some of the R&D that was in that business to sort of accelerate some of the product activities that <unk> already had undertaken.
I think it will just better visibility.
Okay.
And next we move to the line of David Strauss with Barclays. Please go ahead.
Thanks, Good morning.
Good morning.
Scott did you where deliveries are all short at all are you missing deliveries given the transition to <unk>.
The.
<unk> M to CJ for Gen. Gen. Two I thought that was going to impact Q1.
Oh look I think we're probably a couple of aircraft behind where we'd like to be just in terms of schedule ramping up and getting people.
Hitting but not materially I mean, it's.
We expect to continue.
We continue to see the growth in deliveries as we go through the course of the year, but.
It was a couple of aircraft probably that we would like to have got into the quarter, but nothing material.
Pat.
And could you talk about maybe across Bell and systems, how you did in the.
The 22 budgeted in terms of the.
The final bill relative to the euro.
Initial request.
Same thing in the initial fiscal 'twenty three requests.
I think FY 'twenty, two finally came out about where we would have expected it to be.
Our programs are funded to where we expected them I think when we looked at what came out on.
On the FY 'twenty three budget.
This is a very long process, there's certainly value that we would like to see you'll have some increased funding and obviously, we will work on that between now and and.
And getting to an actual appropriated FY 'twenty three budget I would say when we look at the overall budgets and we look at the.
The numbers have been put out in terms of future year defense funding areas that are supposed to us.
Particularly army things around Florida.
<unk> it looks like those are being funded as we would've expected.
Okay. Thanks very much.
And next we'll go to Seth Fleishman with J P. Morgan. Please go ahead.
Hey, thanks, Thanks very much.
Morning.
Just wanted to ask about.
Cash deployment and kind of the pace of share repurchases you told us.
Earlier in the year to.
Sure he put a ramp through the year and it looks like Thats whats happening, but we have seen strong cash generation. So far the markets had some setbacks early on.
How did you think about approaching cash.
Share repurchases Opportunistically.
How did the acquisition play into that thought process.
Well I would say that we tend to model. It is more backend loaded I think we did do a little more acquisition opportunistically here in the quarter because of some of the moves in the share price. So we continue to execute that strategy the acquisition of the the straws.
Not a not a huge cash outlay, so that was something that we handle them.
So sort of within our balance sheet. So I think we have certainly cash available to deploy in and we will continue to do that opportunistically as we worked through the year.
Okay, great and sorry, I'm, sorry to split hairs here, but I think you mentioned Summer award for Florida, It's still affecting that in early July .
That's what we understand yes.
Excellent thanks, very much Scott.
And our next question is from Ron Epstein with Bank of America. Please go ahead.
Hey, good morning.
And Ron I was wondering if you could maybe peel back the onion, a little bit on what drew you to <unk>.
And maybe as a follow on what else are you thinking in terms of M&A out there that could bolster your.
Your businesses.
Well I guess, what I'd say on the pivotal front Ron is as we look at what needs to happen in the technologies and capabilities you need.
To do things like <unk> I think our company is was already very well equipped in terms of aerodynamic capability and structures loads aircraft flight controls.
Obviously your expertise in.
In the aviation business today, and doing part 23 aircraft certifications and the capability that we have and in bell on until rotor, which in essence I think the architecture, certainly where we're heading as a small San Jose is a small tilt rotor sort of a product.
On the on the Vitol front I think we felt like we've got a tremendous amount of organic capability, but we don't have any experience to speak of around battery management systems and sole analysis and development the whole electric propulsion side of this.
And when we looked at <unk> I mean this is a perfect.
Combination so in my view when you look at what's critical from a technical standpoint to go design develop and certify an aircraft of that class and by the way not just us but also other applications in Georgia.
For electric or hybrid.
We had a.
We had a gap in that electrical propulsion side and this is pivotal strength. So I think as sort of the missing piece of the puzzle in terms of how we think about our ability to go often design develop and certified aircrafts in that space. So.
And I would say the more we.
More work, we've done and now with the deal closed and interacting with their team they've got superb.
Capability and a real leader in that space and they understand that very deeply our teams are already integrating them.
And getting to work so I think we're feeling really good about it.
In terms of other acquisition stuff, we probably won't comment at this at this point, but so if that happens we'll certainly let you know.
Alright. Thanks.
Sure.
And our next question is from Pete Shcherbitsky with Alembic Global. Please go ahead.
Hey, good morning, guys.
Pete.
Sorry, if I missed sorry, if I missed this but what was the sequential increase in <unk> backlog was that driven by commercial or just kind of legacy V 22, or age one or something else.
There are some sub commercial but also we signed the <unk> contract a five year Pvs support contract.
Okay. So.
I wanted to ask you guys about this potential Nigeria age one contract just because that seems like it could be sizable for you at that I think may be approaching $1 billion wondering when that contract might get signed and then how to think about you know the start of revenue recognition and timeframe on that.
Peter It's hard to say right I mean, we've been working on this program for a while working the Nigerians develop this the congressional notification and approval was a big deal obviously that so that's an important hurdle to get through.
This does still now need to go through contracting it is an Fms case right. So it's a.
Contract that needs to be negotiated between the Nigerian government and U S government, and then turnaround and contract down to us so.
I'm always leery of providing any data soldiers associated with anything Thats Fms so.
For sure it was a major milestone to to get through the congressional.
Process, but there's probably a bit of work youre still to do to get this thing under contract. So we certainly have not factored that into anything in our guide at this stage.
Okay. Thanks.
Thanks, so much.
Sure.
Next we have a question from Robert Spingarn with Melius Research. Please go ahead.
Hi, good morning, good morning.
Scott regarding the very strong extension of demand at aviation ended the quarter could you talk about the cadence through the quarter just given the war starting in the volatility in the stock market that does that change anything between January and March or even into April .
It really didn't the activity is has stayed very strong through the whole quarter.
Okay, and then and then globally any changes there.
No look I mean.
Obviously flying of assets that are there in Russia or Russian Register has has dropped off dramatically.
We don't service support those aircrafts at this stage of the game, but thats.
Relatively minor.
Light mid size.
Kind of player most of the oligarchs tend to be big iron guys. So.
The impact to US was was pretty material.
Okay, and then just on the specialty vehicle side.
How would you characterize the current demand environment the trends there and the inventory situation just given let's say various changes.
Yes, sure look demand is remains very strong inventory levels are at extremely low levels.
Supply chain continues to be the battle I would say in some of our product lines, particularly on the golf and the golf derivative Ptv's we've been.
We've seen stabilization in that in the supply chain is still fight every day, but we're getting getting stuff out in the market demand is robust pricing is strong.
And some of the other areas you are still getting <unk>.
The supply chain things get caught up I mean, we had a lot of deliveries in the quarter around snow for instance, which normally that would have been done by the end of last year.
<unk> finally came in we were able to finish up units and get those out into the field.
I'd say the encouraging like on GSE for instance, which has really impacted obviously by the.
Airline side of things the order activity has come back very robust, which is which is great. So that those lines are ramping back up again, but.
So I would say in general across pretty much all of those markets that we serve a very strong demand very low inventory out there in the channel supply chain challenges continue but we worked through them every day and are getting stuff out.
Thank you for the color.
Yeah.
Next we go to George Shapiro with Shapiro Research. Please go ahead.
Good morning.
Hi, George.
Yes.
Scott with a strong book.
Book to Bill in <unk>.
You considered raising production rates further for next year or you want to wait a little while yet.
Well.
I would say George as you guys know we've talked about the raise the rates kind of an increasing through the course of this year certainly with the demand that we're seeing in the level of backlog. We will we will plan on continuing to raise those as we go into 2023. So now what we do this on a pretty real time basis. So.
The order activity continues to stay demand.
We will stay on the ramp that we've already committed to on in 'twenty, two and certainly we're not ready to guide 2023, yet, but I would certainly expect it will continue to push on increasing those rates as we go into 2023 as well.
And what are the kind of lead times that you're comfortable with and where are you now.
Well look the lead times are always sort of in that nine months or so kind of timeframe. There is they are certainly long lead longer lead components.
Or that in engines and some other critical technologies, but we work with our suppliers every day on our sort of forecasting that demand. So that they are ready to meet that ramp so for those critical.
We had items that the discussions are happening in real time, and they understand what our expectations are in terms of supporting the ramp not just through the balance of this year, but into 2023.
And one quick one for Frank given the weak system sales in the first quarter is your guide of $1 3 billion for the year still good or it's going to come down some.
No we're still kind of maintaining that type of area. We are we expect that the first half with systems.
It will be on the lighter side, and then we will see momentum and growth going into the second half.
And what drives the growth in the second half.
Just kind of the timing of program activities and kind of other other things.
Okay. Thanks very much.
And next we have a question from Noah <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
Sure.
Is all of your prior full year guidance reiterated this morning.
Well I mean, yes, we didn't we're not changing any of our guidance. So we held the range on an EPS obviously.
We did the <unk> deal. So we have some additional dilution we think we can overcome that.
By some over performance in a in a couple of areas and the cash we're holding at least at this point to our previous guidance. So we're not re guiding the segments, but.
Yes, we don't normally as you know no we don't need to go back and try to re guide the segments, but I would say the color, which we usually provide is that.
Don't expect we will maintain this level of margin in aviation every quarter, but I do think it will be towards the high side on that which helps to cover some of the dilution associated with the acquisition and increased R&D spending in that area.
Okay, Yeah, no I mean, just given where the earnings and cash flow is usually seasonally pretty weak in the quarter, just given where those came in in the quarter. It seemed seem to outperform even what maybe you had been looking for a quarter ago. When you guided so just wanted to make sure. We're on the same page there, yes. So as I said I think we have.
Strong aftermarket in the quarter, which is which is good mix for us.
But as we talked about last year I do think when you guys model. These things if you will see more linearity than we've seen for quite a number of years and that's because having that strong backlog.
We were able to plant production and customer deliveries and all of that activity will be.
More linear than what we've had in previous years.
Okay.
Just honing in on that aviation margin again I mean.
With the the way that was forecasted.
To start the year, it was sort of a low 20% incremental for the year.
It's over 40 in the quarter.
With a strong pricing environment, you have you have low capacity utilization and volume coming into that it would seem like you could have a.
Better incrementals than you've had in the past for a period here recognizing your point on the mix in the quarter.
I mean, just what's your latest thinking on where those incrementals can land as you move through the year.
I mean, we will.
We always feel like this is probably a 2000, 22025% incremental.
Absolutely in the quarter it was considerably stronger than that again thats largely mix.
<unk>, driven and on a year over year basis, because as you know the revenue.
We're growing off relatively low level right I mean last year's deliveries were where life. This year are certainly stronger and so we get some overhead benefit out of all that.
I think we feel great about the margins we delivered in the quarter I think we'll have a very strong year.
This was a very strong next quarter.
Okay, and then just on the.
Aviation lead times.
For customers to buy airplanes are there any models that have moved well outside of the timeframe, where you you've talked in the past about needing to keep it in a range so as to not lose a customer.
For having to wait too long for an airplane has anything moved out of that range.
Well look I mean every customer is different right in terms of when what their expectations are for sure. There is a lot of customers at this point that.
The market has changed dramatically in the last year or so right. So there are folks that would've thought hey, I can just call up and I can get an aircraft here on short cycle are finding that thats not the case right. The lead times are are back where they have been more historically in this industry. So look so that being said.
<unk> of our or our plans as we talked about going into next year. As we expect we will continue to increase production rates because we certainly don't want to create a situation here, where we lose a customer because of timing. So it is a balancing act here, but we need to we certainly do with this backlog and the demand we continue to see in the market. We do need we will need to continue to increase rates.
But I think we won't do that responsibly and work with our suppliers to make sure we don't know.
<unk> put ourselves in a bad situation, but yes, we will continue to be.
Production increases to try to avoid that problem.
Okay. That's excellent okay. Thanks, so much sure.
And our next question is from Peter Arment with Baird. Please go ahead.
Hey, good morning, Scott.
Thanks Scott.
Aftermarket so I think Frank mentioned, 30% of the mix in the quarter I'm, just curious how you see that kind of sustaining.
Or what's really behind the step up there I know, there's a lot of flight activity, but if a flight activity continues should we expect that just kind of.
Maybe just a little more color on that.
Sure Peter.
Flying hours or a very strong obviously.
And that ultimately drives our aftermarket revenue as we all know.
I'm not predicting a change in that I think we continue to see very robust flying hours and so I think our service business aftermarket business will stay strong through the whole course of the year. It's more about the OEM original equipment side ramping up which is just going to change that that ratio as opposed to an expectation that that aftermarket will go down so it's.
Just on a percentage basis at 38% that's pretty strong right. We're normally in that in the low <unk> in terms of our afternoon. After full year aftermarket last year was 29% of total revenue.
We have a numerator denominator here right I think this is just the numerator is going to grow.
On the on the OE side.
So the mix will change a little bit but.
Certainly have no reason to believe the aftermarket is going to stay strong for the whole year.
That's helpful. And then just we're hearing on other calls.
And the supply chain, particularly in aerospace you guys didn't really call it out, but I'm sure you're dealing with it how would you characterize kind of it.
Peter It's <unk>.
Everybody's dealing with supply chain challenges I think our team does a great job of managing from issue to issue.
As I said, we're a little bit behind schedule on a couple of things is just ramping up employees, our suppliers ramping up employees.
It continues to be.
A challenge I mean, there is most things we're able to work our way through.
Theres a couple out there we've got a couple of critical suppliers, who unfortunately.
We had some supply chain their suppliers suppliers that were in Russia, and that's created some.
Some issues. So we see some suppliers are having to go resource.
The good news is at least on a couple of critical ones they've got suppliers that have built those parts before but it's greater the gap right because all that not.
Not just finished goods, but stuff that was work in process in these Russian suppliers is basically unavailable to us as a result of the sanction so we're kind of.
I know you've had a transition in resource to somebody who knows how to do it but it creates a gap in.
We'll have to manage our way through that gap again, its a timing of does it affect an aircraft or a few aircraft here or there.
We are kind of expecting that and I think our our financials can hold together, but there is certainly some aircraft from a timing standpoint that we see.
At risk the good news is most of these things are things, where we can continue our production processes and build the aircraft paint do everything in itself.
It's something that can be incorporated very late in the game. So I think we'll be able to catch up pretty quickly once the flow of some of those things starts again, but it is an everyday thing Peter I think I'll say for the most part.
We worked through it there's going to be a couple of.
Items here or there that could impact us by a few aircraft and we will have to manage our way through that.
Thanks.
Sure.
Next we go to the line of Cai von <unk> with Cowen. Please go ahead.
Carey you might be on mute.
Hello.
Excuse me I'm here I was on mute correct. So so pipistrelle basically has focused on fixed wing.
Implications and Lyft Cruze cargo designs and you guys you know to the extent you've kind of shown models have focused on tilt rotor for the UAS market as you put these two together what do you think are the target markets that are off.
Greatest interest to you.
Well, it's a great question look I think that the.
I think there's a broad range of applications for electric and hybrid electric aircraft Uhm kind of.
So were hijacked that story here for a long time in that market is probably very real market that could be a huge market and certainly one that we want to play in but from my perspective is by no means the only market for electric or hybrid electric.
Aircrafts as you mentioned the cargo like that we have a lot of interest from customers to talk about.
Doing on manned unmanned cargo.
To this point a lot of them are trying to figure out how you take existing platforms and unmanned them.
There's good work going on in that space, but I don't know if thats. The answer I think that some of the work that <unk> done.
Architecturally frankly, what theyre doing in the cargo spaces is.
It is not unlike some of what we've done with some smaller aircraft and the and the unmanned world for the for the military side, but the the.
<unk> done this is a serious cargo machine, there's kind of a 1000 pound.
Utilization. So there's so those are some of the things that we'd like to add additional R&D to try to accelerate bringing some of that.
So the market there is some other work in sort of more traditional aircraft.
Craft that could be electric or hybrid.
Electric so I think that this is certainly there is a better year for us Chi on the on the Uhm side.
<unk>.
<unk> of <unk>.
Mega market opportunity that we need to play in but by no means is that the only one I think some of the stuff that typically strong everything from pure electric for the trainer.
To cargo to the CGA of all sorts.
These are all opportunities that we're looking at pretty hard and I think frankly, some of them will happen faster than the OEM market is going to happen.
Great and so if you think about it with the FAA today being a lot tougher what you have to do to get things certified and you've got a lot of targets I mean, if you look at the other guys are focusing on UA.
I mean, we're talking three four years.
From vision two two.
To actual getting certified.
So that would imply if.
If you're really going after that.
Fair lift in terms of your R&D spend so do you have any rough sense in terms of what kind of an envelope. That's in like the Cisco to $100 million could it go to $200 million because the potential is so big how should we think about that.
Well Guy, we'll sort of work through that here year by year, and obviously part of our objective on creating the separate segment is give you guys good visibility into into where.
What kind of investment, we're placing into that space does it become that big a number a couple of them.
Probably not in my view remember, we've talked a little bit about this before.
We don't when you look at some of the amount of money that some companies are spending in this space. It's it's it's.
<unk> and building out factories and <unk>.
It's a lot of infrastructure that frankly, we already have so I think our investments will be much like they traditionally are for one of our aircraft programs, which is the.
The engineering resources, and some tooling to the extent that we need to do that but we can leverage an awful lot of what we already have.
But anyway look you guys will get good visibility because of the breakout of the segment into what those investments are.
Obviously, we're very open to.
Youre talking about that are showing those those kinds of numbers, but.
The certification issues.
I think people don't understand what that process is all about right now.
And we just certified <unk> as a part 23 aircraft. This past quarter. We know the part 23 process. Yes. Its is challenging new certification program is very challenging but it is something we worked through all the time. So I think we know how to navigate through that process and work with the FAA to get there and obviously now with demonstrable.
Similarly, they they understand that process and have worked out and frankly have already certified electric aircraft with the office. So I think the regulatory framework is one that a lot of people don't understand I think we do understand it.
Terrific. Thank you very much sir.
Next we'll go to Kristine <unk> with Morgan Stanley . Please go ahead.
Hey, good morning, guys.
Good morning, good morning.
In terms of inflation can you discuss the effect of that.
Coating segments, and then also where do you have the strongest ability to pass through on pricing and which ones are you more concerned about.
Yeah.
Well, obviously, we will disclose price versus inflation and I think most of our businesses. Our guys are doing a really nice job of recognizing that the.
Where the inflation is in and we're getting price to.
To offset that not just here in the near term, but in how were pricing products that are delivering out into the future with reasonable expectations about what the inflationary environment will look like.
So I mean as much as this is sort of new territory. It's it.
It kind of is what it is right. The inflation is very real and we have to get price to offset that.
And then we've been doing that so.
Look it's harder if you've had some some government fixed price contracts that are.
That you are working through that put a little more pressure on it but clearly as we as we price and bid new new programs, we factor in that inflationary.
Pressure to that as well so.
In general we.
We've talked about it a lot I think our teams are are very sensitive to what's going on from inflationary standpoint, and understand the need to get price to offset.
Thanks, Scott and maybe following up on Paul.
When you look at some of these new players coming into the market.
Trying to build the airplane.
Jim.
These strategic partnerships around the world with ride sharing company.
Tech companies trying to figure out the distribution side on the direct to consumer relationship.
The go to market of an equal business would be similar or different to what you do.
That was about.
Well look I think it'll be very very similar right.
We have relationships with companies today, obviously, where we have fleet.
Fleet programs into Fractionals for instance, or other charter operators.
Or big cargo operating companies I mean, we do this as a normal course of business. So I think.
I don't worry about that at all.
All of these announcements and people were talking about things that are.
Years into the future and business models arent well defined yet.
We need to do that right. When you talk about direct consumer for us Thats easy we do that every single day, Alright, we sell Susta 170 twos and.
One of you tuned in to assist us in Bonanza is by the way obviously part of what we're doing with petrol is leveraging that that sales team all around the world. It's selling our aircraft today under the assessment of each of our brands will also be out there selling and servicing the Sorel brand.
But I think specifically around <unk>.
As this market.
Evolves and the business starts to build.
We will absolutely be a player in that and I'm not worried at all about our access to those customers and ability to sell our product to those customers.
What we do.
Great. Thanks, Thanks for the color Scott.
Sure.
And we have no other questions you may continue.
Okay.
Okay.
So why.
Why don't you just give them the replay number and.
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