After a gap of 10 years, Gulfstream, part of General Dynamics' (NYSE:GD) aerospace business, topped the business jet industry in 2013 by earning 16% more revenue than Bombardier (NASDAQOTH:BDRAF). Gulfstream has dominated the large business jet segment, but Bombardier with its better product mix and good presence in all categories -- small, medium, and large -- has been the topper throughout the last decade. The two companies rule the business jet segment and, according to Forbes, these two together have the potential to own more than 66% of the market in a decade's time. No wonder the competition between the two is fierce, and the current achievement is a big win for Gulfstream. Let's take a look at how the company pulled this off.
In 2013, Bombardier's revenue fell short of Gulfstream's by a billion dollars in spite of 25% higher deliveries. Gulfstream's total deliveries were 53% higher than the previous year and comprised 121 large jets and 23 medium sized 150s and 280s. Comparatively, Bombardier delivered just one extra plane from previous years' level as weakness in the small jet segment led to a fall in Learjet shipments. The company dispatched 62 Global jets, 86 Challengers, and 29 Learjets. The last time that Gulfstream had beaten Bombardier was in 2004 when it registered revenue of $3 billion vis-à-vis Bombardier's $2.6 billion.
Higher deliveries led Gulfstream's total share in the business jet market to rise from 14% in 2012 to 21.2% in 2013, while Bombardier's share remained constant at 26.5%.
The changed dynamics
The main reason why Gulfstream overtook Bombardier was that 84% of Gulfstream's deliveries were of expensive large jets vs. Bombardier's 34.5%. Large jets fetch higher selling prices and generally give a boost to the top line. Though Bombardier sold eight more large Global jets in 2013 than 2012, the increase wasn't enough to top Gulfstream, which made a clean sweep with its new G650 large jet. The G650 business jet entered service in December 2012, and the company delivered 42 units in 2013.
Demand for large business jets has held up even in a post-recession environment and by building a clean-slate, path-breaking jet, Gulfstream has charmed the rich and triggered a buying spree. With a sticker price of $65 million, range of 7,000 nautical miles (nm), and speed of Mach 0.925, the G650 has become the fastest luxury jet and caught the fancy of the high and mighty. Gulfstream's mid-size jets G150 and G280 are also putting up a spectacular performance. In 2013, their deliveries more than doubled to 23 from 11 in 2012. Gulfstream launched G280, a super mid-size jet, with hopes of recuperating the particular market segment. It entered service in late 2012 and since then has lived up to the company's hopes.
Where things stand in 2014?
When Bombardier lost the top spot last year, the company's spokesperson Annie Cossette commented, "We still hope that the top spot is within reach in the short- and medium-term future." But this could be a difficult task, as industry deliveries for large cabin jets during the second quarter of 2014 were 8% higher than the previous peak level, and the onus once again was on Gulfstream's G650, together with Dassault's Falcon 2000.
According to GAMA, Gulfstream continues to lead on the revenue front in the first half of 2014. It has delivered 77 business jets and garnered revenues of $3.9 billion, while Bombardier has delivered 81 business jets for $3.1 billion.
Gulfstream doesn't break out its deliveries by individual models, but total large jet deliveries, including G450, G550, and G650, were 59 units in the first six months of 2014 -- three units more than last year. Deliveries of medium sized aircraft G150 and G280 were 18, up by eight units from last year. In turn, Bombardier delivered 36 large Global jets in the first half of 2014 compared with 31 units in the year-ago period. Deliveries of mid-sized Challenger jets fell by nine units to 37 as the company transitioned from its old Challenger 300 model to the new Challenger 350, and small Learjet deliveries increased by one unit to eight.
Gulfstream has tasted blood and is not going to let go of its No. 1 position anytime soon. While Bombardier is planning to launch its new Global 7000 and 8000 jets to take on the G650, the new planes won't be in service till 2016 and 2017. By then Gulfstream would have launched its even more advanced G650ER. Teal Group aerospace analyst Richard Abouafia sums it up nicely: "Gulfstream has a five-year head start over Bombardier's Global 7000, which won't enter the market until 2017. It's almost unheard of for anyone to have this kind of market all to themselves for this long." This contest has got all the ingredients of a Boeing-Airbus kind of rivalry and will make things quite interesting in the time to come.
ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.