達信公司 (TXT) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Textron First Quarter Earnings Release Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Eric Salander, Vice President of Investor Relations. Please go ahead.

Thanks, Leah, and good morning, everyone. Before we begin, I'd 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.

Revenues in the quarter were $3 billion, up from $2.9 billion in last year's first quarter. Segment profit in the quarter was $304 million, up $48 million from last year's -- from the first quarter of 2021. During this year's first quarter, we reported net income of $0.88 per share compared to $0.70 per share on an adjusted basis in last year's first quarter. Manufacturing cash flow before pension contributions totaled $209 million in the quarter, up $138 million from the first quarter of 2021.

With that, I'll turn the call over to Scott.

Thanks, Eric, and good morning, everyone. Revenues and margins were up in the quarter, driven by Textron Aviation. Aviation demonstrated strong execution in the quarter, resulting in 11.6% segment margin. We continue to see very strong demand, solid pricing and increased deliveries from our Citation jet and commercial turboprop products and higher aftermarket volume from increased aircraft utilization.

We delivered 39 jets, up from 28 last year and 31 commercial turboprops, up from 14 in last year's first quarter. Order activity was very strong in the quarter with $1 billion of backlog growth, reflecting continued order momentum across our product portfolio. We ended the quarter with $5.1 billion in backlog.

In March, our new commercial turboprop, the Cessna SkyCourier received FAA certification, and we expect to begin deliveries in the second quarter. At Bell, revenues were down 1% in the quarter, largely driven by the mix of commercial products sold. On the commercial side of Bell, we delivered 25 helicopters, up from 17 in last year's first quarter. During the quarter, we saw momentum build in commercial demand across all our product aircraft models and end markets with a strong quarter of new orders. Moving to Future Vertical Lift. In March, Bell submitted its final FLRAA proposal revision to the U.S. Army. A downselect and award announcement is expected this summer.

Moving to Textron Systems. Revenues were down in the quarter on lower volume, primarily reflecting the impact of last year's withdrawal of the U.S. Army from Afghanistan on our fee-for-service and aircraft support contracts. At ATAC, we continue to see increased flight activity and revenue on our U.S. Navy and Air Force adversary air contracts. During the quarter, Systems successfully deployed the first Aerosonde UAS system in a maritime environment aboard a U.S. Navy guided missile destroyer. Systems is expected to deploy a second Aerosonde UAS for an additional ship later this year.

Moving to Industrial, we saw higher revenue during the quarter, driven by higher pricing and volume in specialized vehicles and our PTV and golf product lines. We continue to see strong end-market demand in most of our product lines across specialized vehicles. Kautex, we saw disruptions related to global auto OEM supply chain shortages to continue to directly impact our production schedules resulting in lower volume. At the product level, hybrid revenue increased 24% year-over-year to 12% of total Kautex revenues in the first quarter, up from 9% a year ago as we continue to penetrate the hybrid Fuel Systems segment.

On April 15, we closed our acquisition of Pipistrel, a pioneer and global leader in luxury powered aircraft. Pipistrel brings its technical and regulatory expertise in the development of electric and hybrid aircraft to support Textron's long-term strategy to offer families sustainable aircraft for urban air mobility, general aviation, cargo and special mission roles.

With that, I'll turn the call over to Frank.

Thanks, Scott, and good morning, everyone. Let's review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of $1 billion were up $175 million from a year ago, largely due to higher Citation jet volume of $93 million, aftermarket volume of $61 million and commercial turboprop volume of $59 million. Segment profit was $121 million in the first quarter, up $74 million from a year ago, largely due to the higher volume and mix of $55 million and favorable pricing net of inflation of $16 million. Backlog in the segment ended the quarter at $5.1 billion.

Moving to Bell. Revenues were $834 million, down $12 million from last year due to lower commercial revenues of $32 million, largely reflecting the mix of aircrafts sold during the period, partially offset by higher military revenues. Segment profit of $98 million was down $7 million, reflecting lower volume and mix, partially offset by favorable impact from performance. Backlog in the segment ended the quarter at $4.8 billion.

At Textron Systems, revenues were $273 million, down $55 million from last year's first quarter due to lower volume of $59 million, primarily reflecting the impact of the U.S. Army's withdrawal from Afghanistan on our fee-for-service and aircraft support contracts. Segment profit of $33 million was down $18 million from a year ago due to lower volume and mix of $11 million described above and an unfavorable impact from performance of $9 million primarily reflecting lower net favorable program adjustments on our fee-for-service contracts. Backlog in this segment ended the quarter at $2.1 billion.

Industrial revenues were $838 million, up $13 million from last year, primarily due to a favorable impact of $46 million from pricing, principally in the Specialized Vehicles product line, partially offset by lower volume and the mix of $24 million, largely in the Fuel Systems and Functional Components product line due to the impact of global supply chain shortages on our auto OEM customers. Segment profit of $43 million was down $4 million from the first quarter of 2021, primarily due to lower volume and mix described above.

Finance segment revenues were $16 million and profit was $9 million. Moving below segment profit, corporate expenses were $44 million and interest expense was $28 million. Our manufacturing cash flow before pension contributions was $209 million in the quarter, up $138 million from last year's first quarter. In the quarter, we repurchased 2.2 million shares, returning $157 million in cash to shareholders.

Beginning in the second quarter of 2022, Pipistrel will become part of Textron eAviation, a new business segment where we will combine our existing initiatives with Pipistrel's capabilities to accelerate our development of sustainable aviation solutions. This new reporting segment will include development expenses related to these efforts and Pipistrel's operating results. For the remainder of the year, we expect revenues for the eAviation segment to be in the range of $30 million to $40 million and a segment loss of about $45 million, which reflects a net cost increase of about $20 million from the eAviation guidance we provided in January.

On our January call, we provided guidance for the expected costs related to eAviation of about $30 million, which were included in our full year corporate expense guidance of about $150 million. We now expect corporate expense to be about $125 million reflecting the move of $25 million of expected eAviation cost to the new segment on a prospective basis. For the full year, we're reiterating our EPS guidance of $3.80 to $4 per share, inclusive of the eAviation segment results.

That concludes our prepared remarks. So Leah, we can open the line for questions.

And our first question is from the line of Robert Stallard with Vertical Research.

Scott, you noticed a very -- noted a very strong quarter for orders at Aviation in the first quarter. I was wondering if you could comment on whether you've seen any differences in terms of the different types of aircraft you had and whether there have been any change in the customer dynamics by type as well?

Not really, Robert. It's across the whole portfolio. Jet, (inaudible), it's -- the momentum continues to be strong. It's still more U.S.-centric than in general. It's probably around 80-20 on jets, around 60% on turboprop, where we usually see more like 60% international in turboprop. So the dynamics from what we've seen here over the last year, let's say, kind of continued through the quarter in terms of the kinds of customers. Still seeing quite a fair number of new customers coming into the marketplace, which is encouraging. But yes, I'd say the dynamic is quite similar to what we've seen, just very strong in terms of the number of transactions. The demand out there continues to be robust.

That's great. Just a quick one for Frank. Is there any change to your cash flow guidance for the year?

No, we're staying at the $700 million, $800 million for now.

And our next question is from Sheila Kahyaoglu with Jefferies.

So maybe on Aviation margins, just relative to the guidance you gave in January, 11.6% was pretty strong for the first quarter on. Maybe lower deliveries than we thought, but up significantly year-over-year and price was only 1.5%. So maybe, Scott, if you could talk about what you're seeing there, how we should expect that to progress? Can we see better pricing?

Well, I think the pricing remains strong. Obviously, we're selling out into the future and making sure that we get good pricing in anticipation of continued inflationary pressure. So I think we're pretty well covered on that front. I do think the margin is a little strong here in the first quarter, Sheila, because we just -- again, the flying activity is up so strongly that we saw about 38% of our revenue here in Q1 was service and aftermarket business.

So that's a little heavier mix than we would expect to see certainly for the total year, and that's part of what's driving a little bit, probably higher margin in Q1 than what we guided. So it's a little bit more of a mix here between aftermarket and original equipment sales and obviously, original equipment sales will strengthen as we go through the year.

Okay. And then maybe one more on eAviation, just creating a new segment. What was the thought process behind that, Scott? And how do you envision that sector -- segment evolving over the next few years?

So our logic for doing this and breaking out as a separate segment is, as we talked about in January, because this was sort of a cross-business thing, we got aviation engineers and Bell engineers and folks from systems that are kind of building out this team. And it's a new space, particularly around eVTOL, we were funding that in a corporate line. With the acquisition of Pipistrel and the increasing importance, I think, of kind of these investments that we're going to make on the sustainable aviation side, we thought it would be helpful to shareholders to break that out as a separate initiative and give visibility to that.

So obviously, Pipistrel is in there, its operating results are in there, but it's a $40 million, $50 million at this point sort of a business. So a lot of the results that you'll see in that segment are driven by the significant R&D investments that we're making around the sustainable aviation activities. And some of that is activity we are already funding on -- through the corporate line as well as, obviously, bringing Pipistrel in and increasing some of the R&D that was in that business to sort of accelerate some of the product activities that Pipistrel already had undertaken. I think it will just give better visibility.

We move to the line of David Strauss with Barclays.

Scott, was -- did you -- were your deliveries a little short at all or did you miss any deliveries given the transition to the M2, CJ4 Gen2, I thought that was going to impact Q1.

Look, I think we're probably a couple of aircraft behind where we'd like to be, just in terms of schedule, ramping up and getting people hitting but not materially. I mean it's -- we expect to continue to see the growth in deliveries as we go through the course of the year. But I mean it was a couple of aircraft probably that we would like to have gotten in the quarter, but nothing material.

Okay. And could you talk about maybe across Bell and Systems, how you did in the '22 budget in terms of the final bill relative to the initial request and same thing in the initial fiscal '23 request?

I think FY '22 finally came out about where we would have expected it to be. Our programs are funded where we expected them. I think when we look at what came out on the FY '23 budget, this is a very long process. There's certainly things that we would like to see have some increased funding. And obviously, we'll work on that between now and getting to an actual appropriated FY '23 budget. I would say, when we look at the overall budgets and we look at the numbers that have been put out in terms of future year defense funding, areas that are (inaudible) to us, particularly in the Army, things around FLRAA and FARA, it looks like those are being funded as we would have expected.

And next, we go to Seth Seifman with JPMorgan.

Just wanted to ask about cash deployment and kind of the pace of share repurchases. You told us earlier in the year to expect share repo to ramp through the year. And it looks like that's what's happening. But we've seen strong cash generation so far. The markets had some setbacks early on. How did you think about approaching cash share repurchases opportunistically. And how did the acquisition play into that thought process?

Well, I would say that we tend to model it as more back-end loaded. I think we did do a little more acquisition opportunistically here in the quarter because of some of the moves in the share price. So we continue to execute that strategy. The acquisition of Pipistrel was not a huge cash outlay, so that was something that we handled sort of within our balance sheet. So I think we have certainly cash available to deploy, and we will continue to do that opportunistically as we work through the year.

Okay. Great. And sorry to split hairs here, but I think you mentioned summer award for FLRAA, still expecting that in early July?

That's what we understand. Yes.

And our next question is from Ron Epstein with Bank of America.

I just wondered if you could maybe peel back then in on a little bit on what drew you to Pipistrel? And then maybe as a follow-on, what else are you thinking in terms of M&A out there that could bolster your businesses?

Well, I guess what I'd say on the Pipistrel front, Ron, is as we look at what needs to happen, the technologies and capabilities you need to do things like eVTOL, I think our company was already very well equipped in terms of aerodynamic capability and structures and loads, aircraft, flight controls. Obviously, our expertise in the aviation business today in doing Part 23 aircraft certifications and the capability that we have in Bell on tiltrotor, which, in essence, I think the architecture certainly where we're heading is it's a small tiltrotor sort of a product. On the eVTOL front, I think we felt like we've got a tremendous amount of organic capability, but we don't have any experience to speak of around battery management systems and cell analysis development, the whole electric propulsion side of this.

And when we looked at Pipistrel, I mean, this is a perfect combination. So in my view, when you look at what's critical from a technical standpoint to go design, develop and certify an aircraft of that class -- and by the way, not just this eVTOL, but also other applications in GA for electric or hybrid, we had a gap in that electrical propulsion side and this is Pipistrel's strength. So I think it's sort of the missing piece of the puzzle in terms of how we think about our ability to go off and design, develop and certify aircraft in that space.

So -- and I would say the more work we've done and now with the deal closed and interacting with their team, they've got superb capability and are real leader in that space. And they understand it very deeply. Our teams are already integrating and getting to work. So I think we're feeling really good about it. In terms of other acquisition stuff, we probably won't comment at this point, but if something happens, we'll certainly let you know.

And our next question is from Pete Skibitski with Alembic Global.

Sorry if I missed this, but what was the sequential increase in Bell's backlog? Was that driven by commercial or just kind of legacy V-22 or H-1 or something else?

There is some commercial, but also we signed the V-22 PBL contract, a 5-year PBL support contract.

Okay. So I wanted to ask you guys about this potential Nigeria AH-1 contract just because that seems like it could be sizable for you, I think, maybe approaching $1 billion. Wondering when that contract might get signed, then how to think about the start of revenue recognition and time frame on that?

Peter, it's hard to say, right? I mean we've been working on this program for a while, working with the Nigerians to develop this. The congressional notification and approval was a big deal. Obviously, that's an important hurdle to get through, but this does still now need to go through contracting. It is an FMS case, right? So it's a contract that needs to be negotiated between the Nigerian government and the U.S. government and then turn around a contract down to us.

So I'm always leery of providing any data associated with anything that's FMS. So for sure, it was a major milestone to get through the congressional process, but there's probably a bit of work here still to do to get this thing under contract. So we certainly have not factored that into anything in our guide at this stage of the game.

Next, we have a question from Robert Spingarn with Melius Research.

Scott, regarding the very strong extension of demand at Aviation into the quarter, could you talk about the cadence through the quarter, just given the war starting and the volatility in the stock markets? Did that change anything between January and March or even into April?

It really didn't. The activity has stayed very strong through the whole quarter.

Okay. And then -- and globally, any changes there?

No. Look, I mean, obviously, flying of assets that are in Russia or Russian registered has dropped off dramatically. We don't service or support those aircrafts at this stage of the game, but that's relatively minor as a light mid-sized kind of player. Most of the oligarchs tend to be big iron guys. So the impact to us was pretty immaterial.

Okay. And then just on the Specialty Vehicle side, how would you characterize the current demand environment, the trends there and the inventory situation? Just give a...

Yes, sure. Look, demand remains very strong. Inventory levels are at extremely low levels. Supply chain continues to be the battle, I would say, in some of our product lines, particularly on the Golf and the Golf derivative PTVs. We've been -- we've seen stabilization in that in the supply chain. It's still a fight every day, but we're getting stuff out. And the market demand is robust. Pricing is strong.

In some of the other areas, you're still getting challenges on supply chains, things get caught up. I mean we had a lot of deliveries in the quarter around Snow, for instance, which normally that would have been done by the end of last year. As the parts finally came in, we were able to finish up units and get those out into the field. I'd say it's encouraging like on GSE, for instance, which is really impacted, obviously, by the airline side of things.

The order activity has come back very robust, which is great. So that -- those lines are ramping back up again. But -- so I would say, in general, across pretty much all of those markets that we serve, very strong demand, very low inventory out there in the channel. Supply chain challenges continue, but we work from them every day and are getting stuff out.

Next, we go to George Shapiro with Shapiro Research.

Scott, with a strong book-to-bill and you consider raising production rates further for next year or you want to wait a little while yet?

Well, I would say, George, as you guys know, we've talked about the rates kind of increasing through the course of this year. Certainly, with the demand that we're seeing and the level of backlog, we'll plan on continuing to raise those as we go into 2023. So look, we do this on a pretty real-time basis. So as the order activity continues to stay demand, we'll stay on the ramp that we've already committed to in '22. And certainly, we're not ready to guide 2023 yet, but I would certainly expect that we'll continue to push on increasing those rates as we go into 2023 as well.

And what are the kind of lead times that you're comfortable with and where are you now?

Well, look, the lead times are always sort of in that 9 months or so kind of time frame. There's certainly long lead -- longer lead components that are part of that and engines and some other critical technologies. But we work with our suppliers every day on sort of forecasting that demand so that they're ready to meet that ramp. So for those critical long-lead items, the discussions are happening in real time, and they understand what our expectations are in terms of supporting the ramp, not just through the balance of this year but into 2023.

And one quick one for Frank. Given the weak Systems sales in the first quarter, is your guide of $1.3 billion for the year still good or it's going to come down some?

No, we're still kind of maintaining that type of area. We expect that the first half with Systems will be on the lighter side, and then we'll see momentum and growth going into the second half.

And what drives the growth in the second half?

Just kind of the timing of program activities and kind of other things.

And next, we have a question from Noah Poponak with Goldman Sachs.

Is all of your prior full year guidance reiterated this morning?

Well, I mean, yes, we're not changing any of our guidance. So we held the range on EPS. Obviously, we did the Pipistrel deal, so we have some additional dilution. We think we can overcome that by some overperformance in a couple of areas and the cash we're holding at least at this point to our previous guide.

Yes, we're not reguiding the segments, but we're...

Yes, we don't normal -- as you know, no, we don't usually go back and try to reguide the segments, but I would say the color, which we usually provide is that -- I mean I don't expect we'll maintain this level of margin at Aviation every quarter, but I do think it'll be towards the high side on that, which helps to cover some of the dilution associated with the acquisition and increased R&D spending in that area.

Okay. Yes. No, I mean, just given where the earnings and cash flow is usually seasonally pretty weak in the quarter, just given where those came in in the quarter, it seemed to outperform even what maybe you had been looking for a quarter ago when you guided. So I just wanted to make sure we're on the same page there.

Yes, it did. Look, as I said, I think we had strong aftermarket in the quarter, which is a good mix for us. But as we talked about last year, I do think when you guys model these things, you will see more linearity than we've seen for quite a number of years, and that's because having that strong backlog, we're able to plan production, customer deliveries, and all that activity will be more linear than what we've had in previous years.

Okay. Just honing in on that aviation margin again. I mean, with the way that was forecasted to start the year, it was sort of a low 20% incremental for the year. It's over 40% in the quarter. It's a strong pricing environment, you have low capacity utilization and volume coming into that. It would seem like you could have better incrementals than you've had in the past for a period here. Recognizing your point on the mix in the quarter, I mean, just what's your latest thinking on where those incrementals can land as you move through the year?

I mean, we always feel like this is probably a 25 -- 20%, 25% incremental. Absolutely, in the quarter, it was considerably stronger than that. Again, that's largely mix-driven. And on a year-over-year basis, guys, the revenue, it's -- we're going off relatively low levels, right? I mean last year's deliveries were light. This year's are certainly stronger. And so we get some overhead benefit out of all that. So I think we feel great about the margins we delivered in the quarter. I think we'll have a very strong year, but it's -- this was a very strong mix quarter.

Okay. And then just on the aviation lead times for customers to buy airplanes. Are there any models that have moved well outside of the time frame where you've talked in the past about needing to keep it in a range so as to not lose a customer for having to wait too long for an airplane. Has anything moved out of that range?

No. Look, I mean every customer is different, right, in terms of what their expectations are. For sure, there's a lot of customers at this point that -- the market has changed dramatically in the last year or so, right? So there are folks that would have thought, hey, I can just call up and I can get an aircraft here on a short cycle or finding that that's not the case, right? The lead times are back where they've been more historically in this industry.

So -- and look, I don't -- that being said, part of our plans, as we talked about going into next year is we expect we will continue to increase production rates because we certainly don't want to create a situation here where we lose a customer because of timing. So it is a balancing act here, but we need to -- we certainly do with this backlog and the demand we continue to see in the market, we do -- we will need to continue to increase rates.

But I think we want to do that responsibly and work with our suppliers to make sure we don't put ourselves in a bad situation. But yes, we will continue to meet production increases to try to avoid that problem.

And our next question is from Peter Arment with Baird.

And Scott, on the aftermarket, so I think Frank mentioned 38% of the mix in the quarter. I was just curious how you see that kind of sustaining or what's really behind the step-up there? I know there's a lot of flight activity. But if the flight activity continues, should we expect that just kind of continues to flow through? Maybe just a little more color on that.

Sure. Well, look, Peter, the flying hours are very strong, obviously, and that ultimately drives our aftermarket revenue as we all know. I don't -- I'm not predicting a change in that. I think we continue to see very robust flying hours. And so I think our service business, aftermarket business will stay strong through the whole course of the year. It's more about the OEM, original equipment side ramping up, which is just going to change that ratio as opposed to an expectation that aftermarket will go down. So it's just on a percentage basis at 38%. That's pretty strong, right? We're normally in that in the low 30s in terms of our aftermarket.

Yes, after -- full year aftermarket last year was 29% of kind of total revenues.

Right. So it's a function -- we have a numerator and denominator here, right? I think this is just the numerator is going to grow on the OE side. So the mix will change a little bit, but I certainly have no reason to believe the aftermarket isn't going to stay strong through the whole year.

That's helpful. And then just -- we're hearing on lot of the calls about just pressure with the supply chain, particularly in aerospace. You guys didn't really call it out, but I'm sure you're dealing with it. How would you characterize kind of the decline...

Peter, it's -- everybody is dealing with supply chain challenges. I think our team does a great job of managing from issue to issue. As I said, we're a little bit behind schedule on a couple of things, as just ramping up employees, our suppliers ramping up employees. It continues to be a challenge. I mean there's -- most things we're able to work our way through. There's a couple out there where we've got a couple of critical suppliers who unfortunately had some supply chain, there are supplier's suppliers that were in Russia, and that's created some issues. So we see some suppliers that are having to go resource.

The good news is, at least on a couple of critical ones, they've got suppliers that have built those parts before, but it's created a gap, right? Because all that not just finished goods, but stuff that was work-in-process in these Russian suppliers is basically unavailable to us as a result of the sanctions. So we're kind of -- you've had to transition and resource to somebody who knows how to do it, but it creates a gap.

And we'll have to manage our way through that gap. Again, it's a timing of does it affect an aircraft or a few aircraft here or there? I mean, I think we are kind of expecting that. I think our financials can hold together, but there are certainly some aircraft from a timing standpoint that we see at risk. The good news is most of these things are things where we can continue our production processes and build the aircraft, paint, do everything, and it's something that can be incorporated very late in the game.

So I think we'll be able to catch up pretty quickly once the flow of some of those things starts again. But it's an everyday thing, Peter. I think I say for the most part, we work through it. There's going to be a couple items here or there that could impact us by a few aircraft, and we'll have to manage our way through that.

Next, we go to the line of Cai von Rumohr with Cowen.

So Pipistrel, basically has focused on fixed-wing applications and lift cruise cargo designs. And you guys, to the extent you've kind of shown models have focused on tiltrotor for the UAM market. As you put these 2 together, what do you think are the target markets that are of greatest interest to you?

Well, it's a great question, Cai. Look, I think there's a broad range of applications for electric and hybrid electric aircraft. UAM kind of -- sort of hijacked that story here for a long time, and that market is probably a very real market. It could be a huge market and certainly one that we want to play in. But from my perspective, it's by no means the only market for electric or hybrid electric aircraft. As you mentioned, the cargo, like we have a lot of interest from customers who talk about doing unmanned cargo. And to this point, a lot of them are trying to figure out how do you take existing platforms and unman them.

There's good work going on in that space, but I don't know if that's the answer. I think that some of the work that Pipistrel has done architecturally, frankly, what they're doing in the cargo space is not unlike some of what we've done with some smaller aircraft in the unmanned world for the military side. But the work Pipistrel has done, this is a serious cargo machine. It's kind of 1,000 pound utilization. So there's -- those are some of the things that we'd like to add additional R&D to try to accelerate bringing some of that to the market.

There's some other work in sort of more traditional GA aircraft that could be electric or hybrid electric. So I think that this is -- certainly, there's a bet here for us, Cai, on the UAM side. And mega market opportunity that we need to play in, but by no means is it the only one. I think some of the stuff that Pipistrel's done, everything from pure electric for the trainer to cargo to GA of all sorts, these are all opportunities that we're looking at pretty hard. And I think, frankly, some of them will happen faster than the UAM market is going to happen.

Great. And so if you think about it, with the FAA today being a lot tougher on what you have to do to get things certified and you got a lot of targets. I mean -- if you look at the other guys who are focusing on UAM, I mean, we're talking 3, 4 years from vision to actual getting certified. So that would imply, if you're really going after that, a fair lift in terms of your R&D spend. So do you have any rough sense in terms of what kind of an envelope that's in like the (inaudible) to $100 million? Could it go to $200 million because the potential is so big? How should we think about that?

Well, look, the guide, we'll sort of work through that here year-by-year. And obviously, part of our objective on creating a separate segment is to give you guys good visibility into where -- what kind of investment we're placing into that space. Does it become that big a number -- a couple of hundred, probably not, in my view. Remember, when we've talked a little bit about this before, we don't -- when you look at some of the amount of money that some companies are spending in this space, it's facilities and building out factories and it's a lot of infrastructure that, frankly, we already have.

So I think our investments will be much like they traditionally are for one of our aircraft programs, which is the engineering resources and some tooling to the extent that we need to do that, but we can leverage an awful lot of what we already have. But anyway, look, you guys will get good visibility because of the breakout of this segment into what those investments are. Obviously, we're very open to talking about that and showing those kinds of numbers.

But the certification issues, look, I think people don't understand what that process is all about, right? We just certified the SkyCourier, it's a Part 23 aircraft this past quarter. We know the Part 23 process. Yes, it's challenging. Any certification program is very challenging, but that's something we work through all the time. So I think we know how to navigate through that process and work with the FAA to get there.

And obviously, now with Pipistrel, similarly, they understand that process and have worked that and frankly, have already certified an electric aircraft with the (inaudible). So I think the regulatory framework is one that a lot of people don't understand. I think we do understand it.

Next, we go to Kristine Liwag with Morgan Stanley.

In terms of inflation, can you discuss the effect of that on your reporting segments? And then also, where do you have the strongest ability to pass through on pricing? And which ones are you more concerned about?

Well, look, Kristine, we obviously will disclose price versus inflation. I think in most of our businesses, our guys are doing a really nice job of recognizing that -- where the inflation is and we're getting price to offset that, not just here in the near term, but in how we're pricing products that are delivering out into the future with reasonable expectations about what the inflationary environment will look like. So I mean, as much as this is sort of a new territory, it's -- it kind of is what it is, right? The inflation is very real, and we have to get price to offset that. And then we've been doing that.

So look, it's harder if you've had some government fixed price contracts that are -- that you're working through that put a little more pressure on it. But clearly, as we price and bid new programs, we factor in that inflationary pressure to that as well. So I think in general, we talk about it a lot. I think our teams are very sensitive to what's going on from an inflationary standpoint and understand the need to get price to offset.

And maybe following up on eVTOLs. When you look at some of these new players coming into the market, trying to build their airplane, but at the same time they're pursuing these strategic partnerships around the world with ride-sharing companies, other tech companies trying to figure out the distribution side on the direct-to-consumer relationship. How do you think the go-to-market of an eVTOL business to be similar or different to what you do for Cessna or for Bell?

Look, I think it will be very, very similar, right? I mean we have relationships with companies today, obviously, where we have fleet programs into fractionals, for instance, or other charter operators or big cargo operating companies. I mean, we do this as a normal course of business. So I think -- I don't worry about that at all. I mean, I see all these announcements and people are talking about things that are years into the future and business models that aren't well defined yet. I just -- we don't need to do that, right?

When you talk about direct consumer, for us, that's easy, we do that every single day, right? We sell Cessna 172s and 182s and 206s and Bonanza's. By the way, obviously, part of what we're doing with Pipistrel is leveraging that sales team all around the world that's selling our aircraft today under the Cessna and the Beechcraft brands, will also be out there selling and servicing the Pipistrel brand.

But I think specifically around eVTOL, as this market evolves and the business starts to build we will absolutely be a player in that, and I'm not worried at all about our access to those customers and ability to sell our product to those customers. It's what we do.

And we have no other questions. You may continue.

Okay. So why don't you just give them the replay number, and that will end the call.

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