達信公司 (TXT) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Textron third quarter earnings call.

(Operator Instructions)

As a reminder, this call is being recorded.

I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Doug Wilburne.

Please go ahead, sir.

Thanks, Brad, and good morning, everyone.

Before we begin, I would like to mention we will be discussing future estimates and expectations during our call today.

These forward-looking statements are subject to various risk factors which are detailed in our SEC filings, and also in today's press release.

On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer.

Our earnings call presentation can be found in the Investor Relations section of our website.

Textron's revenues in the quarter were $3.4 billion, up $526 million from last year's third quarter.

The Beechcraft acquisition completed at the end of the first quarter contributed $398 million to the increase.

Income from continuing operations was $0.57 per share, compared to $0.35 in the third quarter of 2013.

Textron aviation operating results included a $10 million reduction to segment profit from fair value step-up adjustments to acquired Beechcraft inventories sold during the quarter.

Plus there was an additional $3 million charge related to Beechcraft restructuring costs which were recorded on a separate line for acquisition and restructuring costs.

Together, these items reduced EPS by $0.03 per share.

Manufacturing cash flow before pension contributions was $144 million, compared to $269 million in last year's third quarter, bringing year-to-date cash in-flow to $304 million, compared to a use of cash of $518 million at this point last year.

Third quarter pension contributions were $17 million.

And with that, I will turn the call over to Scott.

Thanks, Doug, and good morning, everybody.

Revenues were up 18% in the quarter reflecting success of new product investments and our acquisition strategies.

For example, at industrial, we saw growth across all our businesses reflecting the impact of new product introductions, and recent acquisitions in the segment, such as TUG Technologies, Dixie Chopper and HD Electric.

On the new product front, in Textron specialized vehicles, we introduced the new Recoil iS Crew, an electric Bad Boy Buggy vehicle with a cargo bed and two forward-facing bench seats.

At Jacobsen, we rolled out a completely refreshed TurfCat front rotary mower, featuring an all hydraulic deck, traction drives with the lowest cost of ownership in its class.

And Textron tools and test, in August we made a small technology acquisition that resulted in the launch of a new product, the DataScout 10G which further adds to our current family of Ethernet transport network analyzers.

At CalTex, revenue growth reflected automotive strength in the North American market, which did overcome some softness in Europe.

Moving to systems, revenues were down in part due to delay in the TAPV vehicle program, for which we had expected to begin deliveries in the quarter.

During reliability testing in August, we identified the need for a number of durability improvements in the vehicle steering system, and in cooperation with the customer we decided the best approach was to suspend the testing to support an optimal redesign and retest process.

Our initial analysis indicates that we will be able to meet the vehicle durability requirements with relatively minor modifications to our steering system.

We expect the redesign, validation, and retest process will delay initial deliveries by about one year.

Elsewhere at systems, we are making progress on a number of fronts.

In our TCDL program, the customer has agreed to begin accepting production units which commenced during the fourth quarter.

Our unmanned systems business was recently awarded a contract to provide an unmanned naval mine detection system for use in conjunction with the Navy's Littoral Combat Ship.

This work validates the investment we've been making to leverage our unmanned aircraft technologies into marine-based applications.

Our [Sim]TRU Simulation and training business, we announced plans to open an East Coast Citation training facility in Tampa, Florida, which will complement our West Coast facility in Carlsbad, California, providing more convenient access for our customers.

And earlier this week, we announced we will be opening a training center in Valencia, Spain in 2016, with a Bell 429 full flight simulator as our initial offering.

On the other, the transport side of True, we delivered a Boeing 737NG simulator that will be used at Boeing's training center in Singapore.

We also won a contract to provide China Express Airlines with a Bombardier CRJ 900 full flight simulator for pilot training, and a contract to provide an Airbus A320 full flight simulator to Ansett Aviation, one of the largest training operators in the southern hemisphere.

In our Bell segment, we delivered 12 V-22s, and 4 H-1s, compared to 10 V-22s and 7 H-1s in last year's third quarter.

On the commercial side, we delivered 41 aircraft, down from 54 a year ago.

We continue to see slow order flow across the commercial helicopter market compared to last year.

And at this point, with only a quarter to go, we expect that the 2014 commercial deliveries will be down from last year's 213 units.

Despite this environment, Bell's win rate remains favorable, especially with our model 429, where deliveries are up year-to-date over last year.

In China, we received regulatory approval to conduct helicopter pilot and maintenance training to support our growing business in the country During the quarter, we were also named the number one Product Support Organization by Aviation International News for the 9th consecutive year.

We continue to make great progress on development of our 525 Relentless program.

Our first two test vehicles are in final assembly, and the manufacturing process is going smoothly, thanks in large part to the use of new digital design and manufacturing process tools.

We have also begun safety flight testing for most of the major components of the systems.

However, in order to accumulate the hours necessary to demonstrate safety margins on all components, we now anticipate first flight will occur during the first quarter of the year.

Development of our 505 Jet Ranger X program is also proceeding well, with first flight still expected by the end of this year.

We also broke ground for our new 505 assembly facility in Lafayette, Louisiana.

We continue to sign new customer purchase agreements, reflecting solid demand for the aircraft in the marketplace.

Moving to Textron aviation, in the quarter we delivered 33 jets and 30 King Air turboprops.

In last year's third quarter, we delivered 25 jets, and Beechcraft delivered 26 King Airs.

We are seeing a number of encouraging trends at Textron aviation.

First, the integration of Beechcraft is going extremely well, which is evident in our cost productivity, with a significant sequential improvement in margin.

Another example of an integration benefit is the roll-out of a new product support program for our King prop customers, based on Cessna's ProAdvantage lifecycle service program.

On the market front, we continue to see the availability of used aircraft come down, and our own used trade-in activity has improved.

In the new aircraft market, we have seen a pickup in order activity since September.

With improving market dynamics, we are encouraged as we prepare to exhibit our full line of products at next week's annual NBAA show, including the debut of the first fully-configured Citation Latitude.

I was in Wichita several weeks ago, and had the opportunity to see the NBAA Latitude firsthand.

It's a great-looking airplane, and it makes an impressive statement about value, comfort, style and performance.

In fact, with over 600 accumulated flight hours and development program, we recently announced that the aircraft's range has been increased to 2,700 nautical miles.

To wrap up, we believe we had a solid third quarter, with overall revenue growth, improved manufacturing margins, and solid cash flow performance.

Furthermore, our strategy of investing in new products is paying off, and we are seeing significant contributions from our M&A investments.

With that, I will turn the call over to Frank.

Thank you, Scott.

Good morning, everyone.

Segment profit in the quarter was $293 million, up $85 million from the third quarter of 2013 on a $526 million increase in revenues.

Let's look at how each of the segments contributed, starting with Textron aviation.

At Textron aviation, revenues were up $487 million from this period last year, reflecting $398 million of acquired Beechcraft revenue and higher new jet volumes.

The segment had a profit of $62 million, compared to a loss of $23 million at the Cessna segment a year ago.

This reflected the impact of the Beechcraft acquisition, higher new jet volume, and favorable pricing and inflation.

Backlog in the segment ended the quarter at $1.4 billion, approximately flat with the end of the second quarter.

Moving to Bell, revenues were up $20 million, reflecting higher V-22 program volume, partially offset by lower H-1 and commercial deliveries.

Segment profit increased $15 million from the third quarter in 2013, primarily reflecting favorable performance.

At Textron Systems, revenues were down $47 million, reflecting lower marine and land systems volume, partially offset by the impact of acquisitions.

Segment profit was down $8 million, reflecting the lower volumes.

Industrial revenues increased $74 million, due to the impact of acquisitions and higher overall volumes.

Segment profit increased $1 million, reflecting the impact of higher volumes, offset by an unfavorable mix of revenues in the quarter.

Finance segment revenues decreased $8 million, primarily due to gains on finance receivable dispositions during the third quarter of 2013.

Segment profit decreased $8 million, primarily due to prior year impacts of loan loss reversals, and gains associated with the dispositions, partially offset by lower administrative expenses.

Non-accrual accounts ended the quarter at $101 million, up $13 million from the end of the second quarter, while 60 day delinquencies were $70 million, down $26 million in the quarter.

Moving below the segment profit line, corporate expenses were $22 million, and our tax rate was 30.7%.

Interest expense was $37 million, up from $29 million a year ago, reflecting debt cost related to the Beechcraft acquisition financing.

We recorded $3 million of restructuring costs in the quarter on the acquisition and restructuring line, and we still expect full year costs of about $45 million.

During the quarter, we repurchased about 4.1 million shares at an overall cost of about $152 million.

We also repaid $200 million of our $500 million five year bank loan from the Beechcraft acquisition.

Finally, we are increasing our full year earnings per share from continuing operations guidance to a range of $2.05 to $2.15 a share, and increasing our estimated manufacturing cash flow from continuing operations before pension contributions to $700 million to $800 million.

That concludes our prepared remarks.

So Brad, we can open the line for questions.

Thank you.

And our first question will come from Joe Nadol with JPMorgan.

Thanks.

Good morning.

Good morning.

Scott, just first of all on the systems side of things, given that there is some large lumpy programs here, if you could just maybe give us an update on what you expect revenue to be for the year, relative to your earlier expectations?

And then I know you are not going to give 2015 guidance yet, but as we think about the year delay on the vehicle program, what is the profile -- sort of the quarterly run rate we should be thinking about until you start those deliveries?

So, first of all, Joe, the revenue at systems is probably going to be down about [$300 million] from what we were originally forecasting.

And that is principally driven by vehicle programs.

Okay.

And then into next year?

We are probably not going to go into 2015 guidance yet, Joe.

We will -- we have a lot of work to do here at the balance of the year, make sure that we know where we are on the TAPV program in particular.

We are well into the analysis phase.

We feel pretty good about where it is.

But we are -- just based on that, starting to lay out what that recovery plan looks like.

So I think we are -- we would probably would prefer to wait, and give you the guidance on that when we get into the January call for 2015.

Okay.

Over at aviation, good margin there.

When we think about the Beech cost saves that you have laid out at the time of the acquisition, is there a way of thinking about how much of that is now embedded in -- on a run rate basis in the Q3 number?

So Joe, absolutely.

I mean, clearly what is happening here is that the number that we guided you guys, we are getting there quicker, is basically what is happening.

So I think the speed of the integration, of the cost take-out, the integration of the organizations and whatnot has happened quicker than we have laid out.

So I think we still feel pretty good about the absolute numbers that we gave you, but we are going to get there sooner.

So obviously that is going to drive some margin expansion in the year.

That is part of what -- the largest part, frankly of what is driving our increase to our guidance.

We had said originally, that to help you guys think about 2015, to think about a couple hundred basis point improvement over where we would be this year.

Obviously, that is not going to be as big of a number, because we are going to achieve more of that this year.

So when you think about going forward, it's not going to be a 200 basis points, because we are sort of raising the bar this year, only because we are getting there quicker.

Okay.

And then just finally, sticking with aviation here, you mentioned -- I think you mentioned that orders have picked up since September.

I wasn't sure if you were talking about certain models, or maybe if could you just give some context there, and talk about the market environment, demand environment for Cessna jets in particular.

I think we have seen an overall better demand environment.

I mean, July and August are always tough.

People are out on holiday.

But there is no doubt that as we t got into sort of the September and beginning of October time frame, we have seen a pretty significant uptick in terms of the demand, the level of activity out there.

And it's pretty much across the board.

We are still doing very well in the M-2 this year, as it's a new product.

And across the CJ line, we are a little bit light on CJ3s this quarter, but that is driven by the fact it was really a transition from the old CJ3 to the CJ3+, which is now certified.

So we feel good about demand for that.

All the way up -- Sovereigns are still doing very well.

Excels are doing well.

So I think we feel -- probably have seen one of the strongest September, October levels of activity that we have seen in quite some time.

Okay.

I will turn it over to someone else.

Thanks.

And our next question comes from Carter Copeland with Barclays.

Hey, good morning.

Thanks.

I wondered if you guys would expand a little on the mix impact that you called out in industrial as unfavorable?

And then perhaps, just tell us if there was anything in the Bell margin that was one-timey in nature, perhaps related to the -- getting to the end of the V-22 multiyear contract ahead of the transition to the next one?

Thanks.

Sure, Carter.

The -- so on the Bell front, first of all, there was nothing unusual in there.

I think if you look at the total Company, in terms of cumulative catch adjustments, it was only $10 million across all of Textron.

There certainly was some positive contribution there in Bell, but nothing that is unusual for us in a typical quarter.

So it was really driven by strong performance in the business.

As you know, we are still fighting our way through a little bit of trapped inventory costs from last year's issues, and inefficiencies around some of the labor activities.

So we still face a bit of that headwind.

But I think the guys did a nice job of performing and delivering a pretty good margin rate in spite of that.

So, no, there is nothing unusual in there.

It is just -- continue to try to drive the cost base down in the business.

With respect to the industrial segment, the margin -- this is the first time in a while, we have not had a margin expansion on a quarter by quarter basis in that business.

It is a little disappointing, but I think we will call that back here as we get into the fourth quarter, and still turn a year that has margin improvement in the business.

In terms of the mix, largely driven within our automotive business, we are seeing some significant growth in our SCR business.

And as we talked before, the SCRs do come with a lower return on sales, because there is large component of cost that is largely a pass-through on that.

And so, that does provide some dilution in terms of our overall ROS number.

And so, that was probably the biggest moving part in there.

It's been a tough year, frankly, in the Gulf, in the turf business.

We -- I think you probably hear that from everybody in the turf side, so Jake is having a little tougher year than usual.

But the Caltex piece in the mix, around SCR versus our blow-molding tank side is the primary driver.

Okay, great.

And just perhaps a one or two for Frank, just clarification.

On the Beech inventory step-up impact, I think you said last quarter, you have been through [$45 million] of [$65 million], you called out.

You said another [$10 million] this quarter.

So are we still expecting a kind of [$10 million] in the fourth quarter?

And then with respect to the corporate expense, it looks like we -- given the pattern of the first three quarters, you might be under-running that full year expectation slightly.

Is that the case, and did that contribute at all to the increase in the guidance as well?

Thanks.

On the step-up, yes, we are at [$55 million] now as you point out, and we expect about [$10 million] for the fourth quarter.

And then we will carry over probably about [$15 million] into next year as well, in terms of additional step-up.

So there is no change there.

On corporate expense, no.

We always have quarterly volatility.

It revolves around kind of share price activity and just levels of spend.

So we are still looking at about $150 million for the year.

Okay.

Great.

Thanks, gentlemen.

And our next question will come from Noah Poponak with Goldman Sachs.

Hello.

Good morning, everyone.

Good morning, Noah.

Scott, I wanted to ask about Bell commercial.

And I guess, what I am wondering is you had this big step-up the past two years in a pretty strong market to this kind of 180 to 215 aircraft, call it per year.

Each of the next two years as you see it now, does this business stay up in that kind of annual delivery range?

Or was there so much demand from a particular end market or a particular product cycle recently, that this business needs to revert back to the 150 to 170 kind of range that it had in a lot of good years, but not quite as good as 2012 and 2013 were in the past?

I think we will stay in the range that you talked about at the beginning here.

I mean, predicting the end market obviously is a bit of a wild card, and we are seeing some slowness right now.

But I think what' is important is that our share has increased over the last couple years as a result of a lot of what we have done on the product side.

So even in a market, that would be like the market had been back when we were in those -- call it, 115 to 150 days, I think our share has improved, and would keep us in that kind of 180 plus range.

Last year, it was 213.

I do think we will be down somewhat from that, as we look at the balance of this year, just because of what has happening here in softness.

But I don't see us going back to the old days, primarily because our share is in a much better position.

And clearly, as we get into 2016 and beyond, as you add in the 505 and the 525, I think that really gives us that next step up, in terms of where we will be from a total number of deliveries of helicopters.

So again, I am trying to isolate us a little bit from the market, because I can't really predict that.

But I certainly have seen -- as we have talked about before our share increase.

And I think the product investments are certainly paying off, and the 505, 25 will only help that going forward.

On the market, can you elaborate on where you have seen some incremental softness?

Is that in oil and gas because of oil prices or elsewhere?

Any color you can give us there?

Well, I think some of the oil and gas has been softer.

We are seeing some of the slowdowns in EMS, certainly things around tourism.

It is really kind of across the board, and I think it's just a lot of people concerned about what is going on around the world economically.

So I don't know that we have seen -- it's probably too soon to see what the reaction of the oil and gas market is to the drops in the price of oil.

But that is a variable I think still needs to play out.

Most of what we have seen this year versus where we expected, was around things like EMS.

And certainly, some oil and gas has been a little softer even before we have seen these changes in oil price.

Okay.

And you called out favorable pricing in aviation.

Any additional detail you can provide there, on where and to what degree you saw that?

In terms of the aviation business?

Yes, yes.

It has more or less firmed up across the board on our products.

Yes.

I think part of that again, is driven by new products, having the M-2 out there, having the Sovereign out there, the CJ3+ upgrade, I think certainly helps us.

And importantly, on the used side, we have seen prices are not going up, but they are firming and not continuing to drop.

And that residual impact certainly has a knock-on effect into new aircraft pricing as well.

And the inflation comment -- that is separate from pricing, can you just explain what that is, and why it's different?

You called out pricing and inflation separately in the press release, I think.

Yes, we have seen deflation at aviation, just kind of due to -- in part to our scale and kind of purchasing activity and things.

So we have kind of benefited from some good cost productivity on the supply side at aviation.

I think that is just, Noah, in the general category of productivity, right?

I mean, we are seeing some good productivity in terms of labor in the plants.

We are seeing good productivity in terms of supplier purchasing.

It's really across the board.

Okay.

All right.

Thanks a lot.

And our next question will come from Robert Stallard with Royal Bank of Canada.

Thanks so much.

Good morning.

Hello, Rob.

Scott, I thought I should start on the industrial division, and whether you have seen any signs of weakening in some of these European markets over the last quarter, and what your expectations might be for the final quarter here, including foreign exchange?

So foreign exchange hasn't been a big issue for us.

It's kind of an immaterial number for the Company, and even for within the automotive business.

But I would say, Robert, that there is no doubt that we have seen weakness in the European auto market.

And so, our European sales have been down, and that has largely been offset by the fact that the North American market continues to be up, and the Asian market has been up slightly.

So the combination of those other markets.

And again, a lot of expansion in new products, particularly driven by SCR is offsetting just volume demand of the European models of cars.

Okay.

And then maybe switching over to Bell.

You have talked some in the past about some of the prospects for V-22 exports.

I was wondering if anything's progressed over the last quarter, whether we have firmed up some of these prospects?

I would say no.

Okay.

That is easy enough.

(Laughter).

Hey, I mean, it is just -- look, Robert, I mean, there is a great deal of frustration on our part.

The deal with Israel, which has been talked about a lot, is still moving forward, but it is moving forward at a slow pace.

There has been progress.

I mean, the FMS Cases are working their way through the process.

So I think Japan is -- has been talked about a lot.

It continues to progress.

It just progresses very slowly.

I wish I could tell you that in one quarter's time, I see a lot happened, but it takes time.

And then maybe just a final one for Frank.

Any comment on pension, and what the change in the discount rate could mean for next year?

Yes.

I mean, obviously, there is tremendous volatility in rates and returns and everything else right now.

I would say kind of overall, we don't believe it will be a headwind.

We thought it would be a tailwind.

It will depend a lot obviously on what happens between now and year-end.

But kind of as of as we look at the sensitivity around it right now, we think that kind of -- it will be no worse than flattish type area.

And does the MAP-21 legislation have any change on your contribution?

It pushes out some 2016, 2017 required contributions.

It doesn't have any impact on 2015.

Thank you very much.

you are welcome.

And our next call, question will come from John Godyn with Morgan Stanley.

Please go ahead.

Hey, guys.

Thanks for taking my question.

Scott, I was just hoping to go pack to your comments on biz jet demand.

I think on the last call, the view was legacy product continues to be unexciting, and new product is sort of driving all the order activity.

Now you have broadened up that commentary, which sounds exciting.

I mean, it sounds like the legacy product is doing better.

I am just curious, sort of taking a step back, we have seen a lot of head fakes in biz jet upticks, and you guys have done a good job kind of moderating expectations.

But I can't help but interpret your commentary as very positive.

What is different this time?

Is this not just seasonality?

Why is this -- why are these data points that you are seeing now maybe stronger, and maybe have more signal value than what we have seen in the past?

Well, we probably feel better about where we are right now.

Again, partly due to new product, right?

So we have got the M-2 which has been very well-received.

We have got the Sovereign that's doing well.

The Ten is doing fine.

I mean, it is just not a large volume product.

Now with the CJ3+ in there, that gives us one more new product offering, it is sort of the middle of the product range.

But as we have said all year, I think that the demand has been -- we expect it to be fairly constant, and in the total marketplace, but that most demand creation would be associated with new products.

And that is what we have been seeing happen through the year.

And the good news with that obviously, is we have had a full year of some of those new products like the M-2s and Sovereigns and Tens, is we have been a bit more level-loaded, right?

So we don't have this huge fourth quarter run-up, to get to where we were targeting in terms of the total year.

And the demand is there.

And so, we feel pretty good about our ability as we look out over the quarter or so, to feel good about what the demand looks like, and what our production rate looks like, and what our available for sale looks like.

So it is -- the tone of the market is certainly improved.

The better linearity of being able to run the business from a more linear function is helping.

It is to drive some of our cost and performance.

And so I think that is why we feel pretty good about where we are.

Obviously, as we look into 2015, on the basic theory that the new products are what helps drive your growth, with the Latitude performing as well as its performing, the way the aircraft looks, the way it flies, we are feeling pretty good about the demand for that aircraft.

We have the first one out there now.

It is already doing a bunch of demo flights.

It is going to be out there at NBAA, and I think it is a beautiful aircraft, and it will help us in the 2015, as that thing comes into revenue generation.

That's helpful.

And when we think about aviation margins, you had some commentary about synergies and pricing.

But if I just sort of put it all together, I mean, as a simple point can we use this quarter's margin as a base for forecasting going forward?

It is very strong.

Or are there things in the number that you would highlight as sort of being irregular for whatever reason for the purpose of forecasting going forward?

No, II don't think there's anything irregular in there.

It's just straight performance.

And so, that kind of margin rate, with that kind of volume is certainly expected.

Great.

And then just last one on capital allocation.

About a year ago, when the Beech situation I think was a bit hotter, we were talking about buybacks.

But obviously the Beech deal, I think took that off the table for a bit.

You have been very successful, and in fact accelerating some of the synergies on Beech.

At what point, and is it time now to have the conversation about buybacks again?

Thanks.

So we have -- our position officially on buybacks as you know has been that we will do enough to offset dilution of employee programs, and that we would look at sort of additional buybacks on an opportunistic basis.

And so we did do, in the quarter about $4 million of -- I'm sorry -- 4 million shares of buyback in Q3.

I guess, I mean more of a larger scale buyback with cash flow.

Well, I think at this point we are also still doing things like paying down our bank lines, associated with the acquisition of Beechcraft.

So we have to sort of have a balance here, in terms of what we are allocating into paying down the debt associated with Beech, as well as trying to continue a buyback.

So I wouldn't expect us to come out and announce some committed number.

I think we will stay on the commitment of avoiding dilution and opportunistically executing buyback programs as we see fit.

And the good news is, our cash flow generation and strength of the balance sheet, I think allows us to be able to do both those things, as we have been doing.

Great.

Thanks a lot.

And our next question comes from [Tony Wright] with Nomura.

Hey, guys.

Just a couple questions from me.

Firstly, probably for Frank, backing into your revised cash flow guidance I think you are looking for something like $650 million in operating cash flow in 4Q on net income of around $200 million.

So you get, say $100 million of option depreciation, but there is still that $350 million gap.

Can you just maybe talk through that?

Is that a big working capital swing, or is there anything else unusual in that 4Q cash flow?

No, there is nothing unusual.

If you look at kind of our seasonality and quarterly progression, Q4 is always a very strong quarter, both from a profitability standpoint, but also from a working capital performance just given the seasonality of the business.

So there is nothing unusual in there.

For the full year, you expect to have a positive working capital movement, of something like $100 million to $200 million, is that fair?

I haven't worked through what that means in terms of the overall working capital.

But if you look at the fourth quarter this year, this year I mean, this year's fourth quarter progression if -- based on that guidance, is actually down significantly from last year.

Yes.

So again, there is nothing unusual in the working capital side.

Okay.

Great.

And then you talked about China and helicopter market in your prepared remarks.

Both of those had a big order this quarter from China.

Obviously, a lot of potential there.

Is there anything changing in that market?

Do you see any prospects for actually some demand from China coming through?

We have had good demand from China over the last couple years.

I think part of that is just the economy is generally doing well.

There is been a lot of liberalization of air space in the lower altitudes which is where helicopters fly.

And so, everything from corporate to EMS to parapublic, inspection, utility, infrastructure, surveillance, things like that, which drives a lot of the helicopter market around the world, we are just -- continuing to see that market grow in China, and we have been doing very well over there.

Actually, we are pleased with our position in China and being able to -- it's getting to be a big enough market and a big enough demand, which is what is driving us to start to do more training, maintenance training as well as air crew training over there to help support the deployment of our aircraft.

Okay.

Great.

And then just one final one on Latitude.

You talked about increasing the range of that aircraft.

Is there any potential to get the existing Latitude model to a 3,000 nautical mile range or would that need a bigger redesign or a new aircraft?

That would be a bigger aircraft, for sure.

Okay.

And I guess, it is probably too early to talk about this but any plans to compete in that sort of coast-to-coast market with a flat body jet?

Probably not going to make any new product announcements.

(Laughter).

Okay.

Thanks, guys.

If we did one, could I sign you up?

Would that be a commitment of any kind?

Sure.

(Laughter).

And our next question comes from Pete Skibitski with Drexel Hamilton.

Hey, good morning, guys.

Hey, Pete.

I might have missed it guys.

Are you still expecting $4.8 billion at aviations this year, including $1.5 [billion] at Beech?

It's close to that, Peter.

It might be just a bit lower, not on jet deliveries, but little bit less on used, and a couple fewer Caravans but in that range.

Got it.

Okay.

And I guess, Scott, I just -- obviously just trying to figure out the cycle here on biz jets to some degree.

How do you think about Beech being -- revenue being down sequentially, and then I thought Sovereign pluses -- you made some positive comments, but I think unit deliveries were down sequentially also.

I am just wondering how you think about that?

And maybe you can give us also kind of what book-to-bill was in the quarter for Citations?

Let's see, Pete.

So we don't really keep very close track of year-over-year comps on the revenue number with Beech, just because Beech wasn't part of us, and we are generally reluctant to try to look too much at the financials.

But sequentially, it's a question of sequential -- I'm sorry.

We are down, but it's only a couple of aircraft.

And so, I think we have been pretty linear about the King Air product line.

And I think we continue to feel good about where we are, and the demand is about what we expected.

So plus or minus a couple of aircraft, it is about where we expected, and fairly linear from quarter to quarter, which is good.

On the Sovereign Plus side, again, an aircraft or two, the demand is still very good.

I think we are going to be where we expected to be on the total year.

So the book-to-bill in these areas is pretty close to one to one.

We are not really seeing a whole lot of change from what we expected.

So again, on a sequential basis, we might be plus or minus a couple aircraft, but it's about where we would have expected to be.

Okay.

So kind of still sort of a spot-ish market, but you just intuitively feel a little bit better than you did the last quarter, is that a fair statement?

Yes, we do, Pete.

I mean, look, the Q3 is usually pretty soft, right?

I mean, you look at the amount of order activity, in terms of what flows in July and August is generally pretty light.

And as you know, Q4 usually tends be a little stronger.

People are back on holiday.

They are looking at stuff.

Of course, there is always folks that have capital at the end of the year, and from a tax standpoint would just as soon take delivery in a Q4.

So I think, part of this, again, they are small numbers sequentially from Q2 to Q3, but I think easily within the normal cycle of how we see that market working.

Okay.

And then just last question on Latitude.

Can you remind us what quarter next year you are expecting the first Latitude deliver, and have you built any backlog yet?

And how should we think about the slope of the production ramp on that program?

So we have built some backlog.

We are still expecting to have certification in Q2.

We are -- as you know, we don't fully control that's process.

So if it's early in Q2, we will get some sales in Q2.

But certainly the vast majority of the Latitude sales I would expect to see in Q3 and Q4.

And is that going to be a fast ramp or -- ?

Yes.

Okay.

It is already being ramped.

The beautiful thing about this aircraft is a lot of the aircraft in terms of the wings and empennage, all the cockpit systems are common to what we just did on the Sovereign Plus.

So obviously it is a very new fuselage, much larger cross-section cabin, but an awful lot of the key components and technology we developed as part of the Sovereign Plus program.

So we actually run these things as sort of a mixed model line, if you will.

If you go into the factory, we can run things down the line and whether it's a Latitude or a Sovereign it flows together quite nicely.

From a production ramp perspective, it is one that drops into our line very nicely.

Thank you.

And our next question comes from Cai von Rumohr with Cowen and Company.

Yes, thanks so much.

So your guidance for the year, as I recall you were at $2 billion on systems.

So if you are down $300 million, it's $1.7 billion.

And so, you are basically saying volume will double in the fourth quarter from the third?

How come?

And that seems like a huge jump.

Well, Cai, it's driven by the TCDL program.

So as you know, we have been working on this program for what seems like a very long time, going through all the development work.

As I said in the prepared remarks, we now have received approval from the customer to accept the units in the fourth quarter.

Now those units have to go you through their final acceptance test.

There is a flight test involved with the air vehicles and such.

So that will happen here over the course of the fourth quarter.

But we do now have their approval to go ahead and commence the production shipments.

And so, that is why the fourth quarter will be disproportionately higher in revenue than what we have seen.

Because we built these units, Cai.

They are -- they have been manufactured, and they are ready to go.

Now that we have approval, we can go ahead and go you through the formalities of the final production test, flight test and acceptance.

And we expect, obviously, for that to be happening here in the fourth quarter.

Is there sort of a disproportionate delivery in the fourth quarter, because if we annualize that rate, you just get a humongous number next year, (inaudible) even don't have any vehicles in the fourth quarter.

Right, correct.

I mean, we have had no sales associated with that program in any of the preceding quarters.

So it is going to be a big spike in deliveries here in Q4.

And again, the only reason that is possible is, these things have been built.

We have been building them for the better part of the last year or so.

And it's just a matter now of having to go through the production test and acceptance, as opposed to normal production flow.

So without a doubt, Q4 is much heavier.

And as you go through 2015, you will see a normal flow of deliveries of those units, not all of the contract units all in one quarter.

Got it.

And so, if we go to Bell, you did 12 V-22s.

As I recall, you are looking for 36 for the year, so it looks like you go down to 6 in the fourth quarter.

So the mix, which looks very favorable in the third would look pretty lean in the fourth.

Is that correct?

Or has the full year number changed?

No, I mean, the full year number hasn't really changed Cai.

I think, all you are seeing is that -- of course, the fourth quarter is the beginning of the next contract year.

And so, we are now stepping down from the multiyear deliveries to the next multiyear.

So the run rate of V-22s is now going to step down, and stay down at that level as we go through the next few years.

Well, given that you know you are getting a step-off, and you have such a great mix in the third quarter, do you still feel comfortable as you look at next year that you can hold Bell's margins above 10%?

Absolutely.

Look, Cai, we are still targeting the 12% number.

I think the reason you are seeing the kind of margin numbers you are seeing, and certainly our expectations for margins in the fourth quarter is because we have been taking a lot of cost actions to prepare the business for that lower run rate of V-22s.

And I feel pretty good about where we are on that.

The team has done a nice job of getting us where we need to be.

Obviously, we are not going to talk about a guide to 2015 yet.

At this point, the number, we haven't determined is, what our expectation should be on the commercial side of the market.

We certainly know where we are on the military side of market.

We know what we have done in terms of costs.

So we are still targeting the 12%, and where we end up will have largely to do what is our perspective on volume in the commercial market in 2015.

Got it.

And so, if we go over to Cessna, so you have seen a pick-up in demand in September and October.

Normally, you kind of set your production targets in the fourth quarter for next year.

How -- what is your strategy going to be in kind of a establishing the production targets for Cessna?

So Cai, they have largely been set, right?

Because the lead time, the cycle time I should say on manufacturing in the jet world is -- depending on the model.

And I mean, obviously we have some degrees of flexibility from model to model, but you are anywhere from 6, 9, 12 months.

So we are already running the production lines with the volumes that we would expect to see in 2015, including new things like the Latitude.

Now, we can make, and always have the ability to make adjustment toss that, and as we go quarter to quarter we do that.

But it is -- for the next couple quarters, it's pretty well set.

Well, if it is pretty well set, what kind of flexibility do you have to take it up?

And to what extent, are you more inclined to leave set, and just basically get stronger pricing?

Well, I think -- again, at this point we are -- our strategy is --what we see in the marketplace, what we still believe is going to happen in the marketplace is relative stability in terms of overall market demand, and most growth or upside driven by new products.

So as we think about our production rates for next year, as we have been thinking about our production rates next year, that is kind of what we forecasted this year, and what we are thinking about for next year.

So we will keep most of the volumes of products about where they have been, and we would expect to see some upside from growth driven by the introduction of the Latitude.

And then in terms of cash deployment, I mean, with this huge step-up in deliveries on TCDLs, your cash flow is going to be very strong in the fourth quart, kind of as you have indicated.

How come you don't buy more stock?

What is the cash being saved for?

Well, Cai, as you know, as Frank said, we are a bit seasonal in terms of cash, And so, we do generate a lot of cash typically in the fourth quarter.

That is mostly coming out of working capital, in terms of usually inventories principally around the aviation and helicopter business.

We will continue to deploy cash as we have talked about in the past, and that is largely around the pay down on debt.

I mean, we did take on a fair bit of debt associated with the Beechcraft deal.

We have already paid down a couple hundred million of that.

We will continue to pay that down, and we will continue to be opportunistic about stock buybacks.

As we said, we took out 4 million shares here in Q3, and we will continue to look for opportunities to buy back additional as we think it makes sense.

Thanks a lot, and good job.

And our next question will come from Myles Walton with Deutsche Bank.

Thanks, good morning.

The first one is a clarification on the margins guidance for Cessna.

I imagine if that is where most of the guidance uptick is coming from, you must be looking at somewhere in the mid 4[%]s, with a little bit lighter on sales to Pete's previous question.

Is that about right?

I don't think we are -- we really don't want to get into guiding on each individual segment, but you are certainly correct.

I mean, the upside of what is driving the raise is certainly better margins in the aviation segment, largely offsetting lower NOP in the systems business as a result of some of the vehicle delays.

And again we factor in some softness on the Bell commercial side, which we have already factored into our numbers.

So it is driven by the aviation beat, but I don't think we are going to revise any kind of guidance on a segment by segment.

All right.

I tried.

And then aftermarket commentary, within the Cessna and Bell, if you can comment on the trends you are seeing there?

I guess, Doug alluded to maybe that was maybe a little bit on the top line pressure for the full year, but just the overall trend in the quarter that you saw in the two segments would be great?

We are still seeing mid single-digit growth in our service franchises, in both the aviation and the Bell helicopter markets.

And that's -- there is a little volatility from quarter to quarter, but it has been pretty steady, and about where we would expect kind of a top line, mid single-digit sort of numbers.

It is obviously from a recorded basis, a lot higher than that because of the Beech integration for this year.

But in terms of actual growth, it is probably mid single-digit.

And then one last one, maybe for you, Scott, is, as you roll out the new products, obviously there is an initial buzz, an initial pent-up demand, and then oftentimes there is a bit of a honeymoon where it fades.

You saw it on the CJ4.

You have seen it on other programs.

How do you think about kind of the timing of launching -- obviously, the M-2 has got a great reception, and the Sovereign likewise.

Is it a one year kind of phenomenon, then you kind of normalize to where the true demand is?

Or how do you think about that?

I think in this market, it is really -- certainly our expectation woes be that deliveries on things like M-2s and Sovereign will more or less stabilize where they are.

I don't think that there is a -- there were certainly, back in earlier phases of the cycle where you had a huge uptake, and then kind of went back to a normalized level.

We are not expecting big changes, going forward as we look at things like an M-2 or a Sovereign.

So that is why I say, I think our expectation is -- for those things which are sort of in transition to being a legacy product if you will, is that they will just follow general market demand.

Okay.

Got it.

Thanks.

And our next question comes from Julian Mitchell with Credit Suisse.

Hey, guys, it's Charlie for Julian.

I know that you guys said you wouldn't comment on the kind of segment margins, but just was curious if you could maybe just comment on them at systems, just given the big kind of swing in revenue guidance for the year?

If that is positive for the margins or negative or negligible?

I don't think we want to get into segment margin guidance.

Sorry.

Okay.

Thanks.

And our next question comes from Jason Gursky with Citi.

Hey, good morning.

Excuse me.

Scott, I was wondering -- I know you touched on this briefly before, but I would maybe just a little bit more color if you don't mind on the order activity you have seen here in September and October, to the extent that results in deliveries in the fourth quarter?

And whether we are now beginning to take orders for periods further out, and we are now actually starting to get into the position where we can build some backlog?

Absolutely, Jason.

I think that is where we are.

This is probably the-- part of the positive feeling that we have right now is that we clearly see a fourth quarter, where the amount of aircraft we have left to sell, is not as many as that we probably could sell.

Or that there is a market demand.

And so, that would lead us to start moving deliveries into the first quarter of next year, which I think is a very healthy thing for the business -- getting out of having sort of a negative, or 1 to 1 book-to-bill.

I don't think -- and we have talked earlier, Jason, I think that the days of two years -- I mean, crazy numbers of backlog are [nonsensical], but we would sure be able to run a much more efficient operation, and have a much healthier industry if we had six months to nine months of visibility.

So that we are not having to sort of do forecasting around our production lines and customizations and things like that.

So there is no question that, if we can get to a point here where we are at least three to six months out, that is a much healthier business.

And I think we are looking at the fourth quarter, as the first time we have seen in a while where we clearly see more demand out there in the market, than what we think we have aircraft available to sell in the fourth quarter.

And that will necessarily push some things into the fourth quarter which -- or into the first quarter, I'm sorry, which is good.

Right.

Okay.

That's great.

And then, as you look at the two businesses together, Beech and Cessna, and then the acquisitions which you brought in here of late, can you just help us -- or explain to us how you are thinking about seasonality in that -- in the aviation business going forward?

Historically, you have obviously seen some.

Is that becoming more muted?

Does it go away all together, or are we still going to continue to see seasonality in the second half of the year?

Well, I think -- there is -- I believe there is always going to be a seasonality around the fourth quarter, and that (inaudible) by tax, right?

So you have a lot of customers out there that given their druthers they would rather take delivery of an asset, where they can take a year depreciation in the current year, rather than acquiring that aircraft in the first half of the following year.

Is that a huge number?

I don't think it's a huge number but I don't think that the -- some seasonality around fourth quarter will ever go away in this industry because of that.

Now the good news is, again, as we looked at both of our King Air business and the Citation jet business, it has been more level-loaded this year.

And that partly reflects some better demand coming back into the marketplace, and obviously we prefer to see that.

We would be much better running these operations on a more linear basis.

We have seen more linear behavior in terms of customers this year, but I still think you are always going to see some fourth quarter demand driven around tax.

Okay.

And then, the last one from me is on the industrial side.

Are there any new products or programs that you have been designed into, and any of those businesses on the industrial side that will lead to an acceleration of revenues over the next several quarters into 2015?

Now look, I think if you looked at our Caltex on the automotive side of things, we have had a lot of new vehicles, new platform wins in both the fuel tank side, as well as a lot around our selective catalytic reduction business.

There was demand for that vehicle.

As that family of vehicle grows in the marketplace, that is going to drive nice revenue growth for our business.

As I said earlier, the only challenge for us there is it does usually have a lower ROS, because part of that system is an acquired part which we pass through at a lower ROS than would be typical of what we manufacture just because it is a high dollar sourced component.

But clearly, revenue growth, and overall [NOT] growth will be driven by that business.

And so, it is a lot of new platforms which we have won, and new product around the SCR system.

We still see nice growth both organically and through acquisitions in the vehicle business, as well as our tool and test business.

So I think generally speaking, the industrial segment, I think will provide nice growth next year.

Okay.

That's helpful.

Thank you.

And our next question will come from George Shapiro with Shapiro Research.

Good morning.

Scott, given how strong you said September and October has been, is it fair to assume that the pricing might even be somewhat better in the September, October quarters, than what we saw in the strong margins in the current quarter?

No, George, I wouldn't be too bullish on the pricing side.

I think the good news is, it has firmed up, right?

So, and again, this is a market dynamic, as you have got more customers out there, it gives us the ability to hold the line on pricing.

So I don't know that we see a step function by any means here.

I don't want to mislead anybody.

It is not like the market is strong enough to demand the kind of pricing that was in the last cycle.

But certainly it has allowed us to firm up pricing and at least be stable, maybe with some small gains, because the market dynamic is stronger.

So it is just supply and demand working a little more in our favor.

And the strength you talk about, was that similar, international, domestic or weaker international, given what we all read about?

George, our order intake in Q3 I think was still slightly biased to the Americas, but it is probably 60/40, somewhere in there.

I mean, it bounces around a little bit from quarter to quarter, but it is not way out of line.

Okay.

And just some clarification.

Given the revenues you are suggesting for Cessna in the fourth quarter, looks like we will probably get 70 plus deliveries in the fourth quarter?

No.

70 would be -- I would love to have 70, but that is an awfully big number.

I don't know if we want to get into exact units, George.

But I mean, again, I think you -- we have usually seen average aircraft revenues is -- I think kind of how we usually think about it, being somewhere in the 8 to 9 range, so 70 something would be a pretty huge number.

Okay.

And one -- ? (Multiple Speakers).

The revenue number will be higher than that -- the number we talked about.

Okay.

Yes.

And then one last one if you will split it all --.

Do you have any color on whether the book-to-bill of 1 for aviation was similar at both Beech and Cessna?

It was pretty close, George, pretty close on both Beech, Cessna, military versus commercial.

It has been pretty close to 1 to 1 across every way -- every dimension that we would look at.

And you how about used mean sales used plane sales in the quarter versus last year's quarter?

Much different?

I have to look, check the revenue number.

I mean, we usually have been looking at that one sequentially, George.

So I am sorry, I don't have that number on the tip of my tongue here.

The -- certainly on a sequential basis, it was better, but we will have to --

We will get back to you.

It was about flat from a revenue standpoint.

On a year to year?

On a year to year, yes.

I will have to look at that.

And up a little bit sequentially you just said, Scott?

What he was saying, I think was average selling price was up a little bit.

Financially.

Okay.

That is -- I can call you offline, Doug.

Yes.

No, we can try and -- we can get those for you, George.

We just don't have it.

Okay.

Thanks a lot.

Good numbers.

And our next question will come from Sheila Kahyaoglu with Jefferies.

Thanks for taking my question.

I guess, how do you think about the underlying profitability for the Beechcraft business as it stands today, and where you see the run rate?

Do you think you need additional investments in the King Air portfolio?

And what about the service business, is there additional capital required to increase the level of service there?

Well, Sheila, we don't track or report separately the Beech number.

And part of that is, because we have completely merged these entities.

So I mean, all the overhead pools, all the engineering, R&D and whatnot is all treated as one thing.

I wouldn't even have the ability to break out overall profitability of, say historically Beech versus historical Cessna.

But I think we are at a point, where we feel pretty good about the productivity that has been driven, and that is benefiting obviously across all the product lines.

In terms of R&D, we will now and we already are looking at the turboprop product line, the same we look at the jet product line, and laying out new product road map plans, upgrades, enhancements, all the kind of things people have expected us to do in the jet business.

So absolutely, there will be investment on the R&D side into the King Air, and other historical Beech products as we go forward.

And we think, just as we do on the jet side, that we will have some good things coming out in the market as time goes on.

In terms of capital, I don't see any big capital outlays.

We have got, I think a very strong service network now around the world, and I think we are capitalizing on that, in terms of taking some of these new service program offerings.

We are trying to take most of our sites now, and make it so that they are capable of doing, not just Beechcraft but also doing Citation jets.

Or if they were Citation jets, now they can also do Beechcraft.

There is some tooling involved in that, just to make sure that each of the sites has capability to do both, but it is not a material number.

Similarly, on the overall aviation business side of things, what CapEx is in there, is really driven primarily by new product introductions.

And so, I don't see any appreciable sort of change if you will, over what we have seen in the last couple years.

Because the flow of the new products will be pretty consistent with what we have seen in the past.

Okay.

Thank you.

And so, just -- is there any way you could provide a range of where the -- whether it is King Air or the Cessna piston portfolio, is that a mix single to double-digit --10% margin business?

Or is that at about a breakeven?

No, I don't think --

Okay.

We are not going to go into margin levels, by the individual product lines.

And then just last question, in terms of Beechcraft synergies, you mentioned you are ahead.

I am guessing 2014 has largely been focused on headcount.

In terms of what's left for 2015, is it supply chain?

Is it additional footprint consolidation?

How could we think about that?

No, mostly what is out in 2015 really is around some footprint consolidation.

We have some warehousing and sites, that largely to do with our distribution of spare parts and services, where we are going to consolidate some of that.

And then there are some opportunities to do some consolidations in some of the back shops, if you will.

So we don't envision any significant changes to final assembly operations.

Those are running pretty well, and are pretty focused around the different model types.

But there is an awful lot of stuff that we do today, where we -- we have two separate composite operations.

We have two separate machining and metal bonding, and a lot of fabrication sort of stuff.

And we will continue, as we go forward to seek consolidation of those, to again drive better cost efficiencies and better utilization of those facilities.

Got it.

Thank you.

Sure.

I think we will take our last call now, operator.

All right, and that will come from Ron Epstein with Merrill Lynch.

Yes, hey, good morning.

So just want to follow up on kind of one of my favorite subjects with you guys, is what is going on with the Scorpion?

(Laughter).

Are we any closer to a customer, or if you could just give us an update there?

Look, Ron, I would say we are getting closer all the time.

We have a bunch of customers, frankly, that we are talking to.

There is a lot of activity in the market.

There's a number of companies -- or countries that are going to be putting out RFPs, for how they think about replacing some of their aircraft.

And part of that, frankly, is driven by the fact that there is something like this out there now, that they see as a viable, affordable product to meet their mission.

So we continue in pretty serious discussions on a number of fronts, and feel pretty good about where we are.

We did have the aircraft out at the Air Force Association meeting in Washington a few weeks back.

We had a ton of customers coming through and looking at it.

We continue to get very good feedback.

We have had a lot of customers that have come out to see the aircraft, and go through pretty detailed briefings in Wichita as well.

So I don't want to -- I don't have anything to announce to you particularly today.

But I think we feel pretty good about where it is going, and we are in pretty serious discussions with a number of folks.

Okay.

And on that one, do you guys see it as a potential -- or maybe some modification to it, as a potential bid for the upcoming Trainer program?

Yes, absolutely, Ron.

We have been participating in the TX program.

There have been industry days.

There is a lot of work going on in the Air Force right now, as they kind of work their way through requirements [document].

So we are certainly interested in the program.

We are following it quite closely, as are a number of other competitors.

Look, I don't think the Air Force is interested in a big development program.

So I think clearly one of the things they are going to have to do, is look at what aircraft platforms are out there, that are available, that with some minor adaptations will fit what they need for TX.

So we would love to participate in the program.

We are working the program.

And how competitive we are, or whether our aircraft is the right aircraft or not will depend, on where the requirement documents end up.

And that is something that I don't think we will probably see, til either late this year, beginning of next year, to know whether the Scorpion or a minor adaptation to the Scorpion is the right answer for them.

But we are certainly very interested, and are following it very closely.

Okay.

And then, maybe just one last one.

So you guys delivered 33 Cessna aircraft in the quarter.

The mix was clearly skewed more towards M-2s, and M-2 has clearly, it has been well received.

But relative to historic levels, it is still pretty anemic, right?

And when we think about -- and again, I guess, I am sort of thinking about 2015, 2016.

I mean, it is okay to walk away from this call thinking, we are in a market recovery?

Or is it more walking away from this call that it is stabilized?

Ron, I still think that the way we think about it is, that it has stabilized.

And again, upside to where we have been is largely driven by new products.

That has been true this year, as we have seen most of the growth driven by M-2 and Sovereign.

And I think that my plan would be right now would be that most of the growth next year would be driven by the Latitude introduction.

Got you.

Okay.

(Multiple Speakers).

So we feel good about where the market is.

I mean, it certainly appears to have been stabilized.

So as I said earlier, we like the level of demand that we are seeing.

But I don't want to say that we think there -- has been some significant inflection in the market.

Okay.

Just stability on current aircraft programs, and new programs driving growth is still how we see it.

Okay.

And then maybe just one last one, that is another favorite topic of mine.

With Mechtronix, have you picked up share you think by offering a training package with the Cessna product?

Do you think you have picked up share from the likes of CAE and Flight Safety in that market?

Well, I think, Ron, it is still too early to say.

I do think that -- and we have had great feedback from a lot of our customers, particularly our CJ customers as we acquired ProFlight, which gave us that CJ training capability out in the West Coast.

As I said, we have now announced that probably by the second quarter, we will have that same training capability up and running in Tampa, that we do have a lot of our CJ customers that have given us great feedback, and like the idea of being able to, not only acquire the aircraft, but take care of all their servicing of the aircraft, and their personal training in the aircraft.

So I do think it will help us.

I don't know -- in that case, it is not so much a share shift of the equipment side of the business, but some share shift in terms of the training side of the equation.

Okay.

Great.

Thank you so much.

Sure.

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