Mary Carr Mayle

July 29, 2007

There was a time not so long ago when General Dynamics execs were cringing at questions about Gulfstream's future as the Savannah-based aerospace manufacturer struggled to regain its footing during an economic downturn that hit business jet sales especially hard.

In fact, only four years ago, Gulfstream was in the process of laying off some 1,000 employees, while a substantial unsold inventory of large and mid-sized planes prompted the company to furlough another 1,000 workers at its Savannah manufacturing facility for the month of July in an intentional effort to slow production.

No more.

From that low point in mid-2003, Gulfstream has roared back to become one of its parent company's shining stars.

Last week General Dynamics reported that, while its second-quarter profit dropped 19 percent due to one-time charges, strength in its private jet unit helped fuel a 23 percent increase in its core earnings.

Gulfstream sales totaled $1.2 billion for the quarter, up 13.2 percent over the same period a year ago and up 10.4 percent over the first quarter of 2007, General Dynamics Chairman and CEO Nicholas Chabraja told industry analysts in a conference call Wednesday.

That revenue growth, coupled with an expanded operating margin of 16.5 percent, resulted in operating earnings for the quarter of $199 million, nearly 20 percent higher than second quarter 2006.

"The pace of orders continues to increase, giving Gulfstream a truly extraordinary backlog, particularly with respect to large aircraft," Chabraja said, noting that 51 percent of orders were international as opposed to 49 percent from North America.

"While every geographical segment grew in numbers, from a percentage point of view, the greatest growth was in the Middle East, Africa and Latin America," he said. "Whereas in the past it had been driven by European sales.

"It was a great quarter."

Aerospace analyst Paul Nisbet agreed.

"Any time a company can post two and a half times as many orders as deliveries in a quarter, they are definitely doing something right," said Nisbet, president of JSA Research Inc., a Rhode Island-based firm specializing in independent aerospace equity research.

To address that growth, Gulfstream has embarked upon a $300 million, seven-year expansion of its local manufacturing and service facilities, a move that will eventually add more than 1,100 jobs to the more than 4,500 already here.

In May, Gulfstream also announced plans for a Research and Development Center II at Crossroads Business Park, nearly doubling the capacity of the RDC it opened last year.

"We've built and opened a new sales and design center," Chabraja told analysts. "We've built a new service center and it's open."

The old service center, which is a relatively new facility, will become an expanded completion center. The plan also calls for a new manufacturing and assembly facility.

"That facility will be available to us in 2008, where it will be used to begin manufacturing or building prototypes and test items for our next generation aircraft," Chabraja said.

"We haven't exactly resolved where we expect to be in 2009 or 2010, but you can expect to see a new plane introduced somewhere in that window," he said.

"There's much I can't tell you about."

While Chabraja declined to elaborate on what that next generation aircraft might look like, Nisbet said it was highly unlikely to be a supersonic business jet.

"The cost both to develop and build a supersonic business jet is enormous," he said. "I know they're looking at that, but I don't see how they could introduce anything in that short a time frame."

More likely in the near term, he said, would be an updated version of the G550 that incorporates all the most recent technology.