Stung by relentless pricing pressure lowering profit margins for its latest business jet, Textron Aviation plans to keep overall Cessna Citation business jet deliveries flat this year to constrict supply and bolster prices.
Cessna delivered 178 jets to customers last year, a 7.2% increase over 2015, parent company Textron announced on 25 January. The deliveries included 42 mid-size Citation Latitude jets, the company’s new flagship.
With a list price of $16.8 million, the Latitude’s customers still seem unwilling to buy the aircraft at a rate that Textron Aviation considers fair, says Textron chief executive Scott Donnelly, speaking to analysts on a fourth quarter earnings call.
Textron Aviation now faces a 2017 ramp-up of deliveries of the Latitude by 30%, yet at prices negotiated last year at rates the parent company no longer considers acceptable. As a result, Textron Aviation will cut back deliveries of more profitable Citation jets and Cessna and Beechcraft products, Donnelly says.
“I am not willing to take the prices down further to try to drive that demand and end up in a situation where we have today with the Latitude, where you have a great aircraft that delivers very, very well for customers but is priced at a point that doesn't make sense for us,” Donnelly says.
Textron has complained about pricing pressure on the Latitude before. In a second quarter earnings call with analysts, Donnelly pointed the finger at an unnamed competitor, who he blamed for engaging in a damaging price war in the Latitude’s segment. Though not specifically named, Embraer, which markets the newly-certificated Legacy 450 and Legacy 500, denied Donnelly’s accusations.
In his latest remarks to analysts, however, Donnelly turned the blame away from competitors. Instead, he says, many potential buyers are long-time Cessna customers, who are not yet ready to upgrade to the company’s latest model.
“If they're not ready, if they're happy with their current aircraft and they're willing to wait and run that aircraft for another year or two, then that's fine,” Donnelly says.
The pricing pressure on the Latitude has taught Textron Aviation a valuable lesson. The even larger Longitude is scheduled to achieve certification by the end of this year, with a small number of deliveries planned before 2018. For new Longitude sales, Textron Aviation will not bow to demands by customers for rock-bottom prices.
“We're going to start holding the price line from day one that has to make that an attractive aircraft for us, as well as for our customers,” Donnelly says.