Rockwell Collins Forecasts Tough Business Aviation Conditions • Company forecast a mid-single-digit decline in sales for the segment

The Wall Street Journal
By Doug Cameron and Chelsey Dulaney
Updated September 18, 2015 at  10:42 a.m. ET


Rockwell Collins Inc. on Friday said it expected its corporate jet business to shrink over the next year, marking another setback in the sector’s sluggish recovery from the financial crisis in seven years ago.

The weakness in sales of smaller business jets has spread in recent months to larger planes, and flight activity has stalled in many markets, with U.S. domestic operations offering one of the few pockets of growth.

Rockwell Collins, which makes avionics, communications systems and other parts for business jets, said it expected a mid-single-digit decline in sales to the sector in its fiscal year to Sept. 30, 2016, from a year earlier. The company’s 2016 financial guidance also fell short of analysts’ expectations.

Global business jet shipments fell 4.1% in the first half of 2015 compared with the same period a year earlier, according to the General Aviation Manufacturers Association, a U.S.-based trade group. While shipments rose 6.5% last year, the total of 722 planes was barely more than half the record 1,317 moved in 2008.

Rockwell said it expected production cuts to be focused among smaller and mid-sized jets. Its downbeat outlook comes as business jet makers such as Bombardier Inc., Gulfstream, Embraer SA and the Textron Inc. finalize their production plans for 2015. Bombardier, the market leader by revenue, has already cut production of some models and shelved a planned new jet, laying off around 1,000 staff.

General Dynamics Corp, which owns second-ranked Gulfstream, has been more bullish on its order pipeline in recent months, though it may shift production resources to new models such as the large-cabin G650 that have long waiting lists.

The slowdown in emerging market economies has hampered sales of new and used jets in markets including Russia and China, but the big U.S. domestic market has also been sluggish in recent months, with the number of flights rising 2.4% in the 12 months to end-July, according to the Federal Aviation Administration.

“We came into the year expecting that flight activity would continue to recover at last year’s rate and unfortunately, it just hasn’t,” Rockwell Collins Chief Executive Kelly Ortberg said on the company’s quarterly earnings’ call in July.

Rockwell, based in Cedar Rapids, Iowa, is traditionally the first big aerospace company to provide full-year guidance in the fall, and investor sentiment towards the sector has waned in recent months, due to concern about a potential oversupply of jets and weak sales of spares.

“While the decline in business aviation will make for a challenging year for our commercial systems business, we remain focused on executing the business to drive long-term growth in both operating margin and cash flow,” Mr. Kelly Ortberg said in a statement on Friday.

“We will be taking action through the first half of fiscal year 2016 to right-size our business to these new market conditions.”

The company reiterated its 2015 guidance, and forecast earnings next year of $5.20 to $5.40 a share, including a 10 to 15 cent restructuring charge. Analysts had forecast per-share profits of $5.45. Rockwell’s forecast revenue of $5.3 billion to $5.4 billion was just shy of expectations.

Rockwell Collins shares were recently down 1.6% at $83.89. 

Original article can be found here:  http://www.wsj.com