BE Aerospace sees worst of crisis abating, but revenue dips by a quarter in 3Q2009

B/E Aerospace saw revenue turn down to USD459.8 million, a pro forma decrease of 26.9%, in the three months to 30-Sep-2009.

The company witnessed further slowing in its aircraft consumables management and commercial aircraft interiors segments, though its business jet segment was notably less affected in the period.

Revenue still declining

On a pro forma basis (including the results of the Honeywell Consumables Solutions distribution business as though the acquisition had occurred on 01-Jan-2008), revenue in consumables management was down by 30.4%, while commercial aircraft fittings (the company’s largest business segment) was down 26%. Lower activity at airline and MRO maintenance facilities, combined with reduced capacity levels by airlines, are having a major impact on both business segments.

Business jet interiors performed slightly better, with revenue declining 17%, due to “severance costs, an unfavourable mix of products and the negative impact of reduced operating leverage”. Business jets have rallied after a fall in quarterly revenue of greater than 40% earlier in the year.

With the lower level of activity, costs were down by 24.5% in the quarter.

Maintaining profitability

Even with the significant decrease in revenue, operating profit was still positive, at USD69.8 million, (a 15.1% margin), although it was down 31.3% year-on-year overall. Net earnings were USD36.1 million, a 30.3% reduction.

The value of the company’s order backlog declined a further 9% in 3Q2009, to USD2,650 million, after taking approximately USD400 million in bookings (a book-to-bill ratio of 0.9 to 1). The value of the company’s order backlog has declined only marginally over the first nine months of the year.

B/E Aerospace Chairman & CEO, Amin J Khoury, commented that the sharply lower yields generated by airlines are forcing the industry, and MRO suppliers, to continue cash conservation, pushing back refits and refurbishments, which, along with the significant reduction in overall aircraft miles flown, have affected revenue. While global capacity is down by approximately 10%, consumables and spares purchasing has dropped by more than 30%.

Business returning in 3Q2009, positive outlook for 2010

However, the company witnessed an uptick in consumables ordering from Sep-2009, and believes that 3Q2009 represents the trough of the cycle for it. 4Q2009 revenue and operational earnings are expected to match 3Q2009 performance, but quarterly results are not expected to see year-on-year improvements until the second quarter of 2010.

Orders and the value of the company’s backlog are expected to expand in 2010, with a forecast 1 to 1 bill-to-bookings ratio expected from 4Q2009, as airlines begin to rebuild inventory levels. Full year 2010 revenue is expected to be USD1.85 billion, reflecting the weak level of bookings seen in 2009 and a lower level of commercial and business aircraft activity continuing into 2010. The 2011 forecast is for a “substantial” increase in revenue and earnings.

B/E Aerospace's shares closed Tuesday 2.4% lower. The company’s share price has gained over 65% since early Jul-2009 and 133% for the year to date.

Elsewhere, MRO suppliers also lost ground yesterday, with HAECO down 2.0% and BBA Aerospace falling 2.3%. Aircraft lessor Aircastle gained 3.3%, while other lessors Aerocentury (+0.6%) and Babcock & Brown Air (0.9%) also had small gains.

Selected Aviation suppliers’ daily share price movements (% change): 27-Oct-09