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General Dynamics' Q2 aerospace profit slips to $331m

General Dynamics's aerospace business earned an operating profit of $331 million in the second quarter of 2019, down 14% from $386 million in the second quarter of last year.

The aerospace division, which includes business jet maker Gulfstream, generated revenue of $2.1 billion in the second quarter, up 12.7% from $1.9 billion one year earlier, Falls Church, Virginia-based General Dynamics reports.

The unit generated a second quarter operating profit margin of 15.5%, down from a 20.4% margin in the same period last year.

General Dynamics chief executive Phebe Novakovic calls the second quarter of 2018 a "banner" period, and therefore challenging to match.

In last year's period Gulfstream received an "unusually large launch-assistance payment from a supplier", she says. "The result is higher year-over-year R&D expense."

She also notes the Gulfstream did not deliver any low-margin G500s in the second quarter of 2018. The company has delivered 21 G500s to customers since that aircraft received certification in July 2018, and the airframer has been working to improve those profits as more aircraft move through production, she adds.

Gulfstream does not specify how many G500s it delivered in the second quarter of 2019 and did not immediately respond to questions.

In the second quarter, Gulfstream delivered 31 new aircraft, up from 26 during the same period last year. The second quarter 2019 deliveries included 23 large-cabin jets and eight midsize-cabin jets.

General Dynamics's aerospace unit held an order backlog worth $12.1 billion at the end of June, down slightly from $12.3 billion one year earlier.

During the quarter, the US Federal Aviation Administration certificated Gulfstream's newest business jet, the 19-passenger G600.

"This now paves the way for G600 pilot training and deliveries commencing in early August," says Novakovic.

The company anticipates European regulators will certify the G500 in the third quarter of 2019 and the G600 in the fourth quarter.

Asset Image

The FAA certificated Gulfstream's G600 in July

Gulfstream

Novakovic downplays concern that threatened Chinese sanctions will impact Gulfstream's sales of business jets to Chinese customers.

That concern arose on 12 July when China's foreign ministry spokesperson Geng Shuang said China would impose sanctions on US companies involved with a planned US sale of military equipment to Taiwan. That equipment includes General Dynamics' Abrams tanks and Raytheon missiles.

Novakovic notes that General Dynamics itself will not sell tanks to Taiwan. Rather, under the Foreign Military Sales process the US government buys the tanks from General Dynamics and sells them to foreign nations.

Novakovic also says Gulfstream already sees "fairly muted demand" in the Chinese market, which she attributes partly to tariffs stemming from the ongoing US-China trade war.

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