Saturday, January 21, 2017

Rockwell Collins Confident on Jet Ramp: CEO expects new jetliner deliveries to continue to rise through end of decade

A worker assembles a liquid-crystal-display screen for Boeing aircraft at the Rockwell Collins production facility in Manchester, Iowa.

The Wall Street Journal
Updated Jan. 20, 2017 1:49 p.m. ET

New jetliner deliveries should continue to rise through the end of the decade even with the dip in orders that has spooked investors, the head of one of the aerospace industry’s largest suppliers said Friday.

Rockwell Collins Inc. Chief Executive Kelly Ortberg also expressed optimism that the new administration could be a catalyst for the long-awaited recovery in the business-jet market after years of flat or declining sales.

Mr. Ortberg said he expected a repeat of the previous cycle for big jets when backlogs at Boeing Co. and Airbus Group SE sustained production even as orders dipped and more airlines sought to defer new aircraft.

“We’re going to continue to see the narrow-body because of the strong backlog, continue to ramp up at both [companies],” he said, forecasting that the order cycle would continue through 2020 when Boeing’s new 777X jet is due to enter service.

Boeing and Airbus last year both secured new orders that fell short of their deliveries but still plan to boost output over the next three years for most models, the exception being some widebody jets where demand has weakened over the past two years.

Cedar Rapids, Iowa-based Rockwell Collins has doubled down on what some analysts call a supercycle that has amassed a $1 trillion order book for the two big plane makers, including 10,000 more fuel-efficient narrow-body jets that will become the backbone of the global airline industry.

Rockwell Collins in October agreed to pay $6.4 billion for B/E Aerospace Inc., one of the biggest makers of aircraft seats and interiors, marrying it with its own specialty in cockpit and communication systems.

The proposed deal received a mixed reception from some analysts who viewed it as pricey and questioned the timing, but Mr. Ortberg said investors had warmed to the potential synergies and expected a shareholder vote in March. Subject to investor and regulatory approval, he expects it to close by May. France’s Safran SA this week agreed to pay $9 billion for the other large seat maker, Zodiac Aerospace SA.

His comments came as Rockwell Collins opened the aerospace and defense reporting season with fiscal first-quarter profits that fell short of expectations because of costs related to the B/E Aerospace deal, though the company reaffirmed its full-year guidance. Its shares were recently up 1.6% at $90.65 in a weak session for a sector that has underperformed so far this year.

Rockwell Collins also has a large defense business, providing systems on jets such as the Lockheed Martin Corp. F-35 and Boeing’s Pegasus refueling tanker. Sales are expected to grow with rising military spending, though Mr. Ortberg said they could be crimped this year if the temporary Pentagon budget that runs through April is extended.

The defense and business jet markets have weighed on Rockwell Collins over the past few years, but the run-up in stock markets and potentially more supportive tax policies from the Trump administration have increased optimism that the latter will also start to improve.

“I’m hopeful the new administration will create confidence in the marketplace,” said Mr. Ortberg. “It could be the catalyst we need,” he said.

Rockwell Collins reported profits of $145 million for the quarter compared with $135 million a year earlier, with per-share earnings rising to $1.10 from $1.02. Revenue increased 2.1% to $1.19 billion.

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