Beginning in 2020, TXT will face its lowest $ value in Pentagon orders since 2004. US Government contracts comprised 22% of TXT revenues in 2017. The revenue trough will continue for at least three years and perhaps much longer unless and until as-yet-ill-defined Army and Marine programs come on line in the mid-2020s.
Backlog is not the issue. Bell's (TXT's principal defense-facing sector) backlog actually increased $884M since January 1 owing mainly to a third (and probably last) multi-year contract for the V-22 tilt-rotor. 67% of TXT's $8.2B backlog will be recognized as revenue through 2019. The issue is what happens in 2020 and beyond. TXT and in particular, Bell, lacks potential orders from the Pentagon after 2019.
The chart shows the total budget authority value of TXT's DoD programs from 2003 to 2023 by its three DoD-facing sectors: Bell, Textron Aviation and Textron Systems (includes Congressional marks for 2019 and PresBud 19 for 2020-23)
When looking at the data in terms of individual programs, it is apparent that Bell must find new work to replace the revenue from the USMC's nearly-complete UH-1Y/AH-1Z procurement (last orders are in 2019) and from the decreasing volume in the V22 program (Joint Venture with BA).
TXT's DoD Programs' Budget Authority by Program 2015-23 $M
Textron has aggressively sought to develop new products with its own money for several years in anticipation of the conclusion of the Marine H-1 and V-22 programs, spending $2.1B in the last three years on research. According to Hedgeye analyst Jay Van Sciver, percentage-wise, TXT has spent more on research compared to sales than any other defense prime.
Textron's research for new products has been focused on three main areas:
- Scorpion. Textron Aviation has developed and aggressively marketed this low cost trainer and light attack aircraft to no avail and all on its own nickel. The aircraft did not survive the first cut in the first phase of the Air Force's light attack demonstration in 2017 and has yet attract a single foreign sale. Ominously, the company recently announced that it would no longer pursue self-financing the USAF to certify the aircraft, which was seen as potentially helpful for foreign sales.
- AT-6 Texan. This enhancement of the TXT Aviation aircraft used in the Air Force and Navy's Joint Primary Aircraft Training System (JPATS) is the apparent front runner in the Air Force's two horse Light Attack competition. Sierra Nevada/Embraer's prototype entry suffered a fatal crash in May. Congress has added $300M to its FY19 appropriation to accelerate this $2.4B program. This is, by far, TXT's near term best chance at new Pentagon business.
- V-280. Bell's tilt-rotor, 30,000 lb aircraft is one of two prototypes selected for the Joint Multi-Role (JMR) Technology Demonstrator, along with Sikorsky (LMT)-Boeing's SB-1 Defiant, a coaxial/pusher propeller design. The V-280 has done exceptionally well in helo mode and is now entering 200+ knot cruise testing while a full-scale Sikorsky/Boeing prototype has yet to fly. Bell has bet its future on this aircraft and on Future Vertical Lift Capability Set 3.
Future Vertical Lift (FVL)
- Nothing short of the future of all of the Army's rotorcraft for the rest of this century after 2030 is the aspiration of the Army's Future Vertical Lift concept. Consisting of five capability sets ("Cap Set") the breadth of the concept ranges from scout/light attack to heavy attack to medium assault to very heavy, C-130-sized rotorcraft. It is priority #3 in the Army's announced six
- Heretofore, the Army's FVL priority has been Cap Set 3, formally known as Future Vertical Lift (Medium), designed to replace more than 3,000 Sikorsky H-60s in the late 2020s and the Marines' Bell H-1s in the 2030s. The JMR Technology Demonstrator now underway was intended to inform this particular niche. TXT/Bell have bet very heavily on the V-280 to win this decades-long prize with the intent of moving its procurement to the left.
- The Army is now apparently adjusting its priorities. The Army has apparently split with the Marine Corps on Cap Set 3 requirements and is also advocating for simultaneous development of Cap Set 1, known as the Future Attack Reconnaissance Aircraft.
- TXT/Bell have bet heavily on Cap Set 3 requirements that emphasize speed and range, where the V-280's tilt-rotor design has a distinct advantage over any other design. Reducing Cap Set 3 requirements reduces the V-280's inherent advantages.
- Cap Set 1 requirements emphasize agility over range and favor Sikorsky's coaxial rotor technology, which it has been developing for ten years and actually flying since 2015.
- The Army's wavering FVL requirements and priorities bring to mind past Army acquisition disasters like the $8B lost on the RAH-66 Comanche recon/attack helo and the $20B lost on Future Combat Systems development, neither of which produced any production contracts.
- We will be publishing a subsequent note on the Army's crucial but complex aviation development requirements and plans.
