Competitor causes profit crunch for Latitude jet

A competitor’s tactics have reduced profit margins for the Cessna Citation Latitude even as demand is growing for Textron Aviation’s latest business jet to enter service, says Textron chief executive Scott Donnelly.

Textron Aviation achieved certification of the Latitude in June 2015 and the nine-seat, super-light category business jet has quickly become the company’s top seller, accounting for one-fifth of the company’s 45 jet deliveries in the second quarter.

The jet’s popularity has not correlated yet to rising profits for Textron Aviation, which saw operating margin decline by $8 million in the second quarter compared to the same period a year ago.

“Launch pricing for the latitude has been less than what we’d hope for due to competitive dynamics in the segment of the market, resulting in a lower per plane margin contribution,” says Donnelly, who leads Textron Aviation’s parent company.

Donnelly doesn’t name the competitor causing the Latitude’s pricing problem in the 22 July second quarter earnings call with analysts, but his description makes that identity clear.

He says a competitor in the same segment has two aircraft with performance that brackets the capabilities of the Latitude. Embraer offers the Legacy 450 with range just below the Latitude and the Legacy 500 with slightly more endurance than the Textron Aviation product.

“Those two aircraft have created a pricing problem. I think our performance and our range were far superior to the smaller aircraft, which is where we wanted to [compete], but [the competitor] is trying to use the larger aircraft to kind of compete with us. And that’s really what’s generated a lot of the pricing problem,” Donnelly says.

Textron Aviation’s long-term response is based on the arrival of the Citation Longitude, a super-midsize category business jet expected to enter service in 2017. A first flight of the prototype aircraft is expected in the third quarter.

As the Longitude enters service, Textron Aviation will be able to turn the tables on its competitor in the mid-size category, Donnelly says.

“Certainly our expectation is that we’ll have a much better pricing position because we can distance ourselves in terms of performance and capability and price, and there’s not another aircraft sitting on top of that that the competitor can bring down on price to compete with it,” he says.

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