July 31, 2012
The North American market is returning to dominate Gulfstream’s order book, but overall market softness has “elongated” order cycles, says Jay Johnson, chairman, CEO and president of Gulfstream parent General Dynamics (GD).
“Gulfstream continues to enjoy a sizable, multiyear, large-cabin backlog and a robust order pipeline,” Johnson maintains, noting that the second quarter turned in the lowest number of defaults since the economic downturn began in 2008.
“We are seeing, however, some elongation of our business jet order cycles, with a number of factors causing deal closing times to increase,” he says, attributing order delays—most of which materialized late in the quarter–in part to a decline in global economic confidence.
“We continue to believe we will realize many of these orders, although their timing and in some cases their scope may vary from initial discussions,” Johnson adds.
Orders were softer than expected in the second quarter, he says, citing the “ timing ” of orders—many of which are expected to come in the second half.
The North American market accounted for 60% of the orders to date, “reflecting a return of some of our North American customers and a cooling in some international demand, particularly Asia,” Johnson says.
He notes that by comparison, North American buyers accounted for only about 28% of first-half orders in 2011, while orders from Asia made up about 49% of the total. This year, however, Asian orders are estimated in “the high teens,” he says, but adds activity there is expected to pick up in the second quarter.
He is more optimistic about the second half because certain fleet orders that were near completion in the first half pushed into the last six months of the years. Johnson says the “ elongation of the order cycle,” coupled with ongoing G650 deliveries, caused the total backlog to decline to $16.3 billion, down from $16.9 billion at the end of the first quarter and $18.2 billion at the end of the second quarter in 2011.
Even so, Gulfstream still has an 18- to 24-month delivery window for its G450 and G550 aircraft and a five-year backlog for its top-of-the-line 650. “Because new orders of the G650 currently have this five-year, entry-into-service date, we do not expect new orders to match planned deliveries,” he says.