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Research: Innovative Solutions and Support

Notes from their Q2 Release and Call:

Q220 results

  • backlog was up to $6.5mm
  • started seeing production deliveries from newest customer – Textron
  • they had just announced that they had been awarded supplemental type certification (STC) with thrustsense autothrottle of the Beechcraft King Air 300 on Aug 4th
  • thrustsense provides VMCA and engine protection – proportionally reduces engine power to maintain directional control
  • offers protection against catastrophic upsets with the loss of an engine if pilot fails to maintain adequate airspeed
  • installing the autothrottle is risk mitigation
  • is the first and only certified autothrottle for King Air 200 and 300 aircraft
  • there are over 5,000 King Airs out there
  • annual production rates of King Air is higher than Pilatus
  • is being actively marketed at service centers and at Textron shops
  • will be standard equipment on all new King Air 360 turboprops
  • also will be added to new 200s and C9s
  • – their operating expenses were not up at all even though revenue was up 30%
  • so now they have OEM production contracts for 3 aircraft: Boeing KC-46A, Pilatus PC-24 and the King Air
  • are beginning to market the autothrottle to Textron and other OEMs for twin jets – so so beyond twin turboprop aircraft
  • from QA: also do single engine airplanes, finding that military and air transports
  • said in Q&A they are in advanced discussions with other OEMs and military
  • Pilatus program remains on-track to deliver 50 aircraft this year – that woud be about $2.75mm for the Pilatus
  • they are already on 100 Pilatus manufactures
  • seeing steady demand for flat panel displays from air cargo companies buying 757 and 767 and converting them
  • KC-46 program, which is also a production contract, continues to make contribution
  • the one questioner seems to suggest that new production from the King Air isn’t very much – says King Air has been around for 30 years, doesn’t know how many new King Airs will be produced
  • large market for King Air is not ongoing production, it is the 5,000 units out there – and points out these are valuable aircraft, not “single engine piper cubs” – the piper cub is a small 1-2 seater, vs a King Air is this:
  • new King Air 360 is a fast airplane – and older airplanes are getting upgraded with new engines
  • FAA said they lose 100 lives a year and that the safety feature on the autothrottle will save those
  • they shipped 13 units for King Air in the quarter
  • the company is built on retrofit, in the past did: $150 million on the KC-135 program. RVSM for over 60% of the world market
  • according to one questioner – they are doing “pretty aggressive hiring”
  • Textron retrofit business could be more than the OEM business – sounds like it should be – the 5,000 aircraft out there are all operating, they are significant investments, retrofit cost is small compared to the expensiveness of the airplane
  • have not sold one retrofit yet and market opportunity is $250mm to $300mm – this is King Air only, we are not talking the existing Pilatus retrofit opp
  • should know in 1-2 quarters how they are penetrating retrofit market

While I imagine the stock still doesn’t screen that well because they haven’t hit any inflection, this is aerospace so there would be a perception that this will get hit by commercial air travel recession (it will not) and it remains a small company ($120mm market cap).  But the business is as well placed as it could be.  Unless they are lying about the opportunity I don’t see what derails this.

3 Comments Post a comment
  1. I love these little research pieces. They’re great, and something I’ve been trying to do more of myself over the past year.

    Have you ever looked at Butler (BUKS), the tiny, perennially-cheapish amalgam of aerospace and casino? Based on the potential split of their businesses and some general interpretation of stance, it seems to me they’ve become somewhat more shareholder-return-oriented in the past year, and I’m trying to figure out whether to believe it.

    August 27, 2020
    • I’ll check that one out, thanks

      August 28, 2020
  2. vlz #

    I’m still thinking through this but I really like the business. The end market exposures appear to be private planes and also domestic e-commerce (757/767 conversions done by ATSG with Amazon as a customer). I still need to convince myself that there’s a competitive advantage vs. a larger A&D company for the Beechcraft retrofit business.

    September 1, 2020

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