After years of secrecy, Gulfstream, the aviation arm of General Dynamics (NYSE:GD), has finally raised the curtains on its project coded P42, and unveiled two new large business jets -- G500 and G600. The company kept everyone in suspense till the last moment, having sent out nondescript invitations to the media to an unspecified event on October 14. The industry grapevine was buzzing with speculations that the plane maker might unveil a new plane at the event. Not only did the predictions come true, but Gulfstream stunned everyone by taking out the new G500 jet on its own power, signaling that it has progressed significantly with its development. The company also gave a mock-up on the G600 jet. Why the secrecy? Why the new planes? What's Gulfstream's game plan? Let's find out.
The shroud of secrecy
It's been Gulfstream's policy to undertake new development programs quietly without much fanfare. The company has followed a similar approach with its earlier jets like G650 or even the G280, where it announced the plane long after it started development. This is not an easy task. With numerous employees, suppliers, and other interested parties involved in a plane's development, maintaining secrecy is tough. But, Gulfstream has mastered this art to perfection -- though Wall Street analysts guessed the existence of project P42, very little was actually known about the planes till their launch.
Gulfstream's business jets – especially the large cabin models -- are enjoying excellent demand, and the company is careful to ensure that it stays that way. In 2013, Gulfstream sold the highest number of large jets in the industry. Of its total 144 deliveries in the year, large jets made up 121 units, and the key driver was the G650. The G650 entered service in December 2012 and Gulfstream delivered 42 units in 2013. The two other large jets – the G450 and G550 are also witnessing solid demand. In the first half of 2014, the company has dispatched total of 59 large jets, up by four planes from the year-ago period. The secrecy around new planes ensures that the buyers' interest in existing models remain strong, prevents cannibalism, and doesn't allow competitors to become privy to the company's plans.
The G500 and G600
Demand for large jets is typically driven by range, speed, luxury, and comfort -- the new G500 and G600 deliver on all aspects. The two jets priced at $43.5 million and $54.5 million, respectively, would accommodate 19 passengers each on shorter trips and eight passengers on transcontinental journeys. The G500 would offer a maximum range of 5,000 nautical miles (nm) and G600, 6,200 nm. Powered by latest PW800 engines from United Technologies' aviation arm Pratt & Whitney, the new jets will fly at a maximum speed of Mach 0.925, which is highest in the category and is similar to the G650. With such speed, executives could save roughly an hour of flying time compared with present jets. G500 and G600 are expected to enter service in 2018 and 2019.
The new jets might ultimately replace Gulfstream's existing G450/550. The G450, priced at $38.9 million, can fly 4,350 nm at a maximum speed of mach 0.88, carrying up to 16 passengers. G550, priced at roughly $56 million, can lodge two more passengers and cover 6,750 nm at a speed of mach 0.885. However, the company plans to produce the G450/550 duo till buyers discontinue ordering them.
In the past, company president Larry Flynn has said that Gulfstream announces an aircraft only after ensuring that there is a market for it. There's big demand for long range super fast jets and the jet maker wants to capitalize on the trend.
Gaining an edge
The large cabin business jet segment is getting more crowded as manufacturers upgrade and add new planes. Dassault Aviation's developing two new large jets – Falcon 8X and Falcon 5X. The 8X will take on the G650 in terms of range, speed, cabin space, and enter service by the end of 2016. Falcon 5X that would enter service in the first half of 2017 would challenge the G450. In terms of range, Falcon 5X will be comparable with G450 and Bombardier's Global 5000, but it will offer cabin space that's even longer than G650. Dassault is also confident that the operating cost of 5X will be much lower than competing jets.
Bombardier is bringing in two new models-Global 7000 and Global 8000. Global 7000, which is expected to enter service by 2016, would travel 7,300 nm, while Global 8000, slated for service in 2017, would cover 600 nm more than Global 7000. Bombardier will be the first to use Honeywell's JetWave Ka-Band satellite connectivity platform in its Global family jets. This will allow passengers to experience high-speed Internet while flying. Bombardier expects to fetch an additional contribution of approximately $2 billion-$3 billion annually within the next five years from large jet deliveries.
In the middle of all the action, Gulfstream wants to maintain its competitive edge and retain the tag of the highest large jet seller. It perceived a product gap in the space between G650 and the G450/550 duo which the new jets would fill up. The company is also upgrading the G650 to add more range. The first delivery of the new version known as G650ER is expected by this year end.
Gulfstream's habit of keeping the development of new jets under wraps helps it maintain demand for its existing jets and leaves rivals guessing. The new G500 and G600 will instill greater strength into its already enviable portfolio and could take it to even greater heights.
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.