Gulfstream's production system and services business made significant progress in the second quarter, but rising costs are expected to blunt the company's momentum in the second half of the year.
The quarter ending 30 June saw Gulfstream post quarterly highs since late 2011 for revenue, operating earnings and operating margins. Compared with the same period in 2012, revenue rose by 29% to $2.05 billion, as operating margins increased 2.8 percentage points to 18.9%. Operating earnings were $389 million, or 51% higher than the year-ago quarter.
The company cleared out a build-up of green aircraft by delivering 36 outfitted jets in the quarter, a 71% increase from last year.
"We had a significant improvement in green and most importantly completions margin in the second quarter as Gulfstream worked through that disequilibrium between initial and final phase production more quickly than we had anticipated," says chairman and chief executive Phebe Novakovic.
A formerly struggling business, Jet Aviation, meanwhile, maintained a recent return to profitability for the second straight quarter. The biggest improvement came from Jet's previously struggling completions business, Novakovic says.
"They've turned the corner and they were a nice contributor in both [the first and second quarters]," she says.
Jet Aviation is expected to remain on a profitable track through the second half of the year.
Gulfstream's aircraft production system, however, will regress somewhat. Higher prices negotiated by G450 and G550 suppliers during the second quarter will compress margins in the quarter ending 30 September. Higher deliveries of the G650 and G280 jets in the fourth quarter, along with productivity improvements, will restore margins in the fourth quarter, Novakovic says.
"The fact of the matter is that on the 450, 550, we have renegotiated a series of contracts," she says. "In some instances, we are paying higher prices as material costs go up and labour goes up. So we need to offset that through performance."