Demand in China is primarily for large cabin aircraft “that will allow Chinese companies to fly non-stop to many destinations around the world”
Gulfstream looks to new crop of Chinese billionaires for sales
Gulfstream Aerospace is counting on China’s freshly minted billionaires and businesses to boost sales as the maker of private jets taps new customers with bigger models that can fly farther.
The demand in China is primarily for large cabin aircraft “that will allow Chinese companies to fly non-stop to many destinations around the world”, Scott Neal, senior vice president for worldwide sales at Gulfstream, said at the Singapore Airshow. “As Chinese businesses expand around the globe, they’ve seen the utility that a business jet can provide.”
The unit of General Dynamics is “still seeing good signs of activity and growth” in China, Mr Neal said, even after demand for luxury items slumped following President Xi Jinping’s campaign against corruption and excess kicked off in 2014. Asia Pacific, and China in particular, was the second-busiest market outside the US for Gulfstream last year, he said.
General Dynamics surged last month after orders of the G650 rose to the second-highest level since sales of the longest-range business jet began about a decade ago. General Dynamics rose 5.7 per cent to $219.27 at the close in New York on January 25, the biggest one-day gain since April 2013.
Demand for Gulfstream’s planes, including a new aircraft that begins delivery this year, will get an added boost from US corporate tax cuts, said the chief executive Phebe Novakovic. The aerospace unit of General Dynamics began delivering the G650, which carries a price tag of $67.4 million, in late 2012 after introducing the design in 2008, according to Bloomberg.
“So we had a nice increase in large cabin orders led by the 650 and the 650ER,” Ms Novakovic said. “As we speak, there are over 280 of these aircraft in service with many early customers returning to buy another.”
The extra cash that companies will get from the US tax overhaul is helping to push customer sentiment for purchasing a business jet to the highest level in four years, said Sheila Kahyaoglu, at the analyst at Jefferies. Sales of new jets are set for an extra nudge because the inventory of used aircraft for sale is falling, she said.
“The commentary on the call behind Gulfstream and the order outlook was pretty robust and that’s one thing driving the enthusiasm,” Ms Kahyaoglu said.
The company, which also makes Abrams tanks and nuclear submarines, is playing catch-up to other defence stocks, Ms Kahyaoglu said. General Dynamics’ price-to-earnings ratio is in line with the Standard & Poor’s 500 Index, while a basket of five other defence stocks trade at a 20 per cent premium, she said.
New aircraft models often spur sales, and Gulfstream’s G500 is scheduled to enter service this year. Deliveries of the G600 are set to begin next year.
Gulfstream has sold about 300 of the G650, the private-jet industry’s largest business aircraft, Mr Neal said, and a model that can clock a Tokyo-New York trip in less than 11 hours. Rival Bombardier is seeking to take on the G650 with the debut of its Global 7000 later this year. Priced at $73m, the Global 7000 is even bigger and matches the G650’s speed at just below the sound barrier, although the G650’s extended-range version still flies further.
The G650 has helped make Gulfstream the most profitable private jet maker, with operating profit margins of 21 per cent, according to JP Morgan estimates.
Meanwhile, in November, the French plane maker Airbus said will start marketing its A350 wide-body as a private jet in the Arabian Gulf, tapping into strong growth in the Middle East business and VIP travel market.
“We’ve not really been marketing the A350 as a private jet [to date] but we’re going to start doing that soon because I think it works very well,” its outgoing sales chief John Leahy told The National.
He declined to provide details of when that marketing push may commence, but said certain features of the A350 made it “ideal” for private travel.
“Quite conveniently, it’s got a low cabin altitude and that’s very important [for private jet customers] and fresher air,” he said.
“It also flies very fast – faster than a lot of other airliners, and that combination, with its texture light cabin, makes it ideal for private jets.”