(Bloomberg) -- General Dynamics Corp. surged after orders of its Gulfstream G650 rose to the second-highest level since sales of the longest-range business jet began about a decade ago.
Demand for Gulfstream's planes, including a new aircraft that begins delivery this year, will get an added boost from U.S. corporate tax cuts, Chief Executive Officer Phebe Novakovic said Wednesday. The aerospace unit of General Dynamics began delivering the G650, which carries a price tag of $67.4 million, in late 2012 after introducing the design in 2008.
“So we had a nice increase in large cabin orders led by the 650 and the 650ER,” Novakovic said on a conference call with analysts to discuss fourth-quarter earnings. “As we speak, there are over 280 of these aircraft in service with many early customers returning to buy another.”
The extra cash that companies will get from the U.S. tax overhaul is helping to push customer sentiment for purchasing a business jet to the highest level in four years, said Sheila Kahyaoglu, at analyst at Jefferies. Sales of new jets are set for an extra nudge because the inventory of used aircraft for sale is falling, she said.
“The commentary on the call behind Gulfstream and the order outlook was pretty robust and that's one thing driving the enthusiasm,” Kahyaoglu said.
General Dynamics rose 5.7 percent to $219.27 at the close in New York, the biggest one-day gain since April 2013.
Bombardier Competitor
The company, which also makes Abrams tanks and nuclear submarines, is playing catch-up to other defense stocks, Kahyaoglu said. General Dynamics' price-to-earnings ratio is in line with the Standard & Poor's 500 Index, while a basket of five other defense stocks trade at a 20 percent premium, she said.
The G650, the private-jet industry's largest business aircraft, will face a direct competitor for the first time with the debut of Bombardier Inc.'s Global 7000 later this year. The Global 7000 is even bigger and matches the G650's speed at just below the sound barrier, although the G650's extended-range version still flies farther.
New aircraft models often spur sales, and Gulfstream's G500 is scheduled to enter service this year. Deliveries of the G600 are also set to begin in 2018.
To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net.
To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren
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