Ladies and gentlemen, thank you for standing by and welcome to the Q3 2022 Textron Earnings Release Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, today's call is being recorded. And I would now like to turn the conference over to the Vice President of Investor Relations, Eric Salander.

Please go ahead sir..

Thanks, Brad, and good morning, everyone. Before we begin, I'd like to mention we will be discussing future estimates and expectations during our call today. These forward-looking statements are subject to various risk factors, which are detailed in our SEC filings, and also in today's press release.

On the call today, we have Scott Donnelly, Textron's Chairman and CEO, and Frank Connor, our Chief Financial Officer. Our earnings call presentation can be found in the Investor Relations section of our website. Revenues in the quarter were $3.1 billion, up $88 million from last year's third quarter.

Segment profit in the quarter was $299 million, up $20 million from the third quarter of 2021. Income from continuing operations for the quarter was $1.06 per share, compared to $0.85 per share on an adjusted basis in last year's third quarter.

Manufacturing cash flow before pension contributions totaled $292 million in the quarter, up $21 million from the third quarter of 2021. With that, I'll turn the call over to Scott..

Thanks, Eric. And good morning, everyone. Overall, we had a solid quarter across our manufacturing businesses with higher net operating profit, cash generation as compared to last year's third quarter despite ongoing supply chain labor challenges.

Aviation generated segment profit margins of 11.9% up from 8.3% in the third quarter 2021 on slightly lower revenues reflecting a favorable revenue mix with higher aftermarket volume and strong pricing net of inflation. We continue to see solid demand across our jet and turboprops products resulting in backlog growth of $524 million in the quarter.

We delivered strong performance even as we continue to experience supply chain disruptions throughout the year that have impacted production schedules. In the quarter we delivered 39 jets down from 49 last year and 33 commercial turboprops down from 35 in the last year's third quarter.

Last week at NBAA, we also announced two large fleet orders that included an agreement with flyExclusive for eight XLS Gen2 aircraft, we expected deliveries in 2024 and up to six Longitude aircraft with deliveries expected to begin in 2025.

FlyExclusive also exercised its option to purchase an additional five CJ3+ aircrafts from its order earlier in the year with deliveries expected to occur in 2024. We also had an agreement with Fly Alliance for four XLS Gen2 aircraft and options for an additional 16 aircraft with deliveries expected to begin in 2023.

At Bell, revenues were down in the quarter on lower military revenues partially offset by higher commercial revenue. On the commercial side of Bell, we delivered 49 helicopters up from 33 in last year's third quarter, including the 400 Bell 505 aircraft. During the quarter, we continue to see solid commercial demand across all our models.

Moving to Future Vertical Lift, we continue to await a Florida contract award announcement in the U.S. Army. Textron systems revenues were slightly lower in the quarter. During the quarter, ATAC announced a five-year IDIQ contract with the U.S. Navy to provide Chase Flight Services for the F-35 program.

Systems was also recently awarded a contract to provide Aerosonde operational support on its fourth maritime site services that are expected to begin in 2023. Moving to industrial, we saw higher revenues in the quarter driven by higher volume at both Kautex and Specialized Vehicles and favorable pricing principally in Specialized Vehicles.

Kautex, while revenues were higher in the quarter as compared to the prior year, we continue experience order disruptions related to the global auto OEM supply chain shortages. Moving to Aviation, we're seeing increased order activity for our training aircraft like the Alpha Trainer which is a low cost pilot development platform.

In the future, we will look to expand this training option to include the [indiscernible] as we work to achieve NFA research. Also last week at NBAA, we unveiled our new Nexus eVTOL model aircraft.

Our updated design reflects our ongoing investment in the underlying research and development supporting Textron's long-term strategy to offer family with sustainable aircraft for urban air mobility, general aviation, cargo with special mission roles.

To wrap up, we continue to see strong demand in our end-markets and our teams are executing well in a challenging environment. With that, I'll turn the call over to Frank..

Thanks, Scott and good morning, everyone. Let's review how each of the segments contributed starting with Textron Aviation. Revenues of Textron Aviation of $1.2 billion were down $14 million from the third quarter of 2021 largely due to lower Citation jet and pre-owned volume partially offset by favorable pricing and higher aftermarket volume.

Segment profit was $139 million in the third quarter, up $41 million from a year-ago, largely due to favorable pricing, net of inflation of $31 million. Backlog in the segment ended the quarter at $6.4 billion.

Moving to Bell, revenues were $754 million down $15 million from last year due to lower military revenues of $112 million, primarily in the H1 program due to lower aircraft and spares volume offset by higher commercial revenues of $97 million.

Segment profit of $85 million was down $20 million from last year's third quarter, primarily reflecting lower volume and mix partially offset by favorable pricing net of inflation. Backlog in the segment ended the quarter at $4.9 billion. At Textron Systems, revenues were $292 million, down $7 million from last year's third quarter.

Segment profit of $37 million was down $8 million from a year-ago primarily due to lower volume and mix. Backlog in the segment ended the quarter at $2 billion.

Industrial revenues were $849 million up $119 million from last year's third quarter, primarily due to higher volume and mix of $95 million and a $58 million favorable impact from pricing principally in specialized vehicles partially offset by an unfavorable impact of $34 million from foreign exchange rate fluctuations.

Segment profit of $39 million was up $16 million from the third quarter of 2021 primarily due to higher volume and mix.

Textron eAviation segment revenues were $5 million and segment loss was $8 million in the quarter, which reflected the operating results of Pipistrel and costs for initiatives related to the development of sustainable aviation solutions. Finance segment revenues were $11 million and profit was $7 million.

Moving below segment profit corporate expenses were $14 million and net interest expense was $21 million. Our manufacturing cash flow before pension contributions was $292 million in the quarter, up $21 million from last year's third quarter. Year-to-date manufacturing cash flow before pension contributions totaled $810 million.

In the quarter we repurchased approximately 3.1 million shares returning $200 million in cash to shareholders. Year-to-date share repurchases totaled 639 million. To wrap up, we now expect our full-year capital expenditures will be about $375 million, and the full-year tax rate to be about 16%.

For the full-year, we are narrowing our earnings per share guidance to a range of $3.90 to $4 per share. Also, we are increasing our full-year manufacturing cash flow before pension contribution guidance to be at a range of $1.1 billion to $1.2 billion, up $300 million from our prior outlook. That concludes our prepared remarks.

So Brad, we can open the line for questions..

Of course. And our first question today comes from the line of Robert Stallard with Vertical Research. Please go ahead..

Thanks so much. Good morning..

Good morning..

Couple of questions from me.

May be my numbers were wrong, but it looks like revenues in Aviation and Systems were a bit lower than what we'd anticipated in the third quarter, I was wondering if you could perhaps go into a bit more detail with what you experienced in the quarter if it was supply chain issues and whether this has pushed some deliveries to the right?.

Yes, Robert, I think that's safe to say, you know we've been ramping up our production volumes through the course of the year, we continue to do that. But we have been hit by a number of supply chain challenges that have resulted in aircraft pushing out to the right, our guys are managing through that.

And we'll continue to work hard to make deliveries and we'll continue to work on that ramp as we go into 2023 as well. So, in general case seeing some very strong demand environment.

Aftermarket has also been very strong driven by high utilization but for sure we're continuing to see some difficulties around getting parts, labor ramp is, I'd say picking up and doing reasonably well. But we've had some critical part impacts..

So Scott, does this impact your division by division guidance expectations for the year?.

Well, as we've said before, on the last call, Robert, I think we expect Aviation probably is going to come in about $300 million below what we originally guided, I think we're still on track to do that. I think we'll still make strong margin performance as the team has executed well.

As I said, it's a tough market, but we're to our tough situation, but they're executing very well. So I think we'll be solid on the margin side, but a little bit late on the top line. I think at Systems, you also mentioned, well Systems was pretty close. I mean, they're flattish.

We still had a little bit of impact on that year-over-year from Afghanistan. But I think as we get into the fourth quarter here, you'll start to see some slight growth in that business and obviously we expect that to continues into 2023..

Okay, then just a technical one, Frank.

On the corporate and other big decline year-on-year, what sort of run rate should we expect on that line going forward?.

Yes, I think we should probably think about $110 million or so for the year. So a higher level in the fourth quarter that we've been running at a lot of -- some of that depends obviously on share price, but in that zone..

Okay, that's great. Thank you very much..

And our next question comes from the line of David Strauss with Barclays. Please go ahead..

Thanks. Good morning guys..

Good morning, David..

Scott, can you maybe touch on your manufacturing footprint in Europe, how you feel about things there from kind of an energy perspective? And also how we should think about obviously, in the quarter you had a pretty big FX impact there? How we should think about the FX impact, given the euro, dollar parity at the moment?.

Yes, the FX has been obviously quite a dry primarily in our Kautex business. And, I mean, obviously, we expect that to continue, but we'll manage our way through that.

I think on the factory front, most of the impacts we've seen in that footprint in Europe had been driven really just by auto OEM issues around hitting their volumes, it hasn't been energy related at this point. Most of what I'm reading here lately is actually the energy situation seems to be a bit better than they expected heading into the winter.

So we haven't had any indications yet that anyone's going to back off on their auto manufacturing based on that energy. It's really more of these other supply chain issues that they're continuing to just impacted. And look, David, we go kind of by IHS data, in terms of how we think about and forecasting volumes going forward.

So clearly, the year has been disappointing in terms of what was originally thought the volume we achieve. But right now, it's looking like IHS is probably forecasting sort of a mid to high single-digit growth next year on top of some growth we saw this year.

So that's kind of how we think about the volumes and the business including the European footprint..

Got it. Thanks. And Scott, I guess your latest update on Florida and the timing, you're expecting now for a decision? And what kind of incremental spending are you looking at for the rest of year to kind of continue to carry on your effort? Thanks..

Sure. So like the latest we're hearing is it's probably a November timeframe. Obviously, we continue to work with the customer.

And we got to make sure we've been worked on this, as you guys know for a very long time, we're not going to do anything that's other than supportive and doing the right thing for the program, making sure we keep the team together and keep making forward progress. Obviously, we still feel good about the program.

And I think that there's obviously still some uncertainty around this. I mean, we don't know an exact date, but we're doing the right thing by the programs were through by the people.

And while there is some uncertainty I would say that we're pretty comfortable that, we incorporated any impacts over the total year from where we were on our plan in our guidance. So I think that we're comfortable that we'll land inside that guidance, despite the impacts we've seen on the FLRAA delay..

Thanks very much..

Sure..

And our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please go ahead..

Hi, good morning guys, and thank you..

Good morning..

Just a follow-up on the last point, Scott. How do you think about Bell without a FLRAA win.

What would sort of the scenarios look like their Bell without FLRAA or potentially FLRAA? And maybe can you remind us of the R&D investment impact for FLRAA associated with 2022?.

So I don't think about Bell without FLRAA. Because I think we're in a good place, we will let the performance of our product stand and just kind of work through the process, obviously, the Army is going through a very, very rigorous process here. So we'll bear with them and let this thing play out. But we're pretty bullish on that program.

And we'll leave it at that, I suppose. On 2022, the R&D has actually been down a little bit, because we've had more of the crusher activity both on the FLRAA program and the FARA program. So even with some of the impacts that we've seen on some of the delays, I think we'll be fine there.

We're working our way through it, and clearly the FARA program is going to continue to extend and like say hopefully here, compared to all the years we've been working on this thing FARA delays a relatively short period of time so..

Great. That's helpful. And then glad you don't think about Bell without FLRAA. But switching gears to aviation, when we look at year-to-date deliveries, they're like, you mentioned supply chain.

How long does that linger and how do we think about jet deliveries for '22 in total? And does it linger into '23?.

Sure. Look it's a good question. And I think the way we're starting to lay out the years that we've been planning on ramping production all through the year, we've been achieving that. I mean, we have been increasing the number of hours and labor and activity in the factory.

We're clearly not going to get to the number, just that we were originally hoping to be based on some of these delays. But we're going to keep that ramping activity going through 2023. So when you look at the incremental volumes that we had in 2022, we're not ready to guide '23 yet, but it's not on reasonable expected.

We'll see a similar increase in volumes in 2023 from what we saw from the '21 to '22 timeframe..

Great. Thank you..

Sure..

And our next question comes from the line of Seth Seifman was JPMorgan. Please go ahead..

Hey, good morning, everybody..

Good morning Seth..

I guess just to follow-up on that question, Scott, when you think about the strong backlog that you've been able to build here, and you think about where deliveries might ultimately go. I mean, I assume the aim would be to be back to kind of the 200 plus level, maybe in 2023.

Kind of the level that that had been anticipated for 2022 before the supply chain issues. And then when you think about moving higher from there. Would it make more sense to kind of focus on keeping that backlog, maybe expanding margins even a little further from this low double-digit range.

And having a more steady delivery pace, as we head toward mid decade..

First of all, Seth, I think there -- your thoughts on volume here in the near-term are correct. We obviously would like to have had more than in '22, but it's probably reasonable to think that what we hope to get in '22 will be there by the end of '23. So we should back to that kind of 200ish number in the '23 timeframe.

Beyond that, we'll continue to watch demand in the marketplace continues to be strong as long as we see that kind of growing backlog in a strong environment, then we'll continue that ramp, but it's going to be a slow steady ramp, right.

I mean, we've certainly like and we think it's better for -- yes I think we've talked about, it's better for our company, it's better for our customers, it's better for the whole market to be operating with better visibility here around the backlog that's out there in that 18 months kind of timeframe.

So right now, the demand continues to be very robust. We're seeing a lot of order activity that's out in that 18 plus sort of timeline. And so we'll match production as we can to meet that just for the market starts to ease back or slow down.

And obviously, we can taper off on the ramp, but I certainly don't see that being the case going through 2023 considering where the backlog is and where the demand environment is so..

Okay, great. And just to follow-up very strong cash this year. And when you think about next year, other than what we might assume on the P&L.

Are there any things you'd note about cash flow, either headwinds or tailwinds heading into '23?.

I think, now and not really we've -- obviously we've had good working capital management again this year, just like last year. We certainly benefited again from strong customer activity and deposits and so. But there's nothing from a kind of working capital or other cash impacts that are kind of out of line with where we've been..

Okay, great. Thanks very much..

And our next question comes from the line of Pete Skibitski with Alembic Global. Please go ahead..

Hey, good morning, guys..

Good morning..

Hey Scott. I just wanted to beat a dead horse a little bit on the aviation. Just because even at a little bit of a lower guidance number there is still applies a pretty good hockey stick in the fourth quarter. So I'm just wondering kind of on the risk assessment fraud.

Do you have the engines in house already that you need and the parts and the labor trained up? Or is there still some risk to that number do you think given the ramp?.

Well, look, Peter, I'd say there's always some risk to the number, right. But I think we're -- obviously our guys are working heck out of this every day. They're tracking all the critical components.

So I think, kind of that number I gave you guys were probably a few $100 million under our original guide is still holding, is there some risk to it? Yes, I mean, one of the challenges is that we, you get supplier issues that pop up every day, I think we're in good shape in terms of labor, and the things we can control still pops up, we get all over it, but I think we've got a pretty good shot of getting to the number that we told you.

And if we missed something, it'd be a few aircraft around a particular part that pops up between here and there. So you guys are working every day. I think it's a good guide. And could there be some risk in any environment we live in. Sure. But I think we're, our folks are all over it..

Okay, now, I appreciate. Just one follow-up on the same segment, kind of post NBAA, how are you guys feeling about, kind of the health of your customer base, the aviation, how the conversations go. And obviously, I'm sure the macro backdrop was part of the conversations down there.

I'm just wondering kind of what your net assessment is?.

I'd say very positive.

I think that, we're continuing to see some new people coming into the market, we're seeing some of our historical corporate customers that are doing fleet refreshes, they're putting aircraft orders in which obviously, deliveries are ways out, but they're refreshing their fleets, obviously, the level of flight activity in the industry continues to have kind of charter and fractional customers, very motivated to bring additional assets online.

So I'd say all in all, it's really strong and again I also put against the backdrop of hardly a bubble, right, I mean, we're talking about, jet delivery volumes that are kind of back even still maybe below historical norms. So, I don't think there's this euphoric, bubble bursts, but people are refreshing fleets and investing in our aircraft.

We don't see this big pull-in, right, it's just the market is strong, and volume is strong, which is critical..

I was going to say, your exposure to Europe is still fairly limited, like it used to be I think it was only, I don't know 20% to 25% of your citation volume, is that still the case?.

Yes, it is. I mean look, we're seeing kind of relatively normal from what we've seen historically, jets are probably 80%, roughly U.S., 20% International, the [indiscernible] lines are typically the other way around. And that's what we're seeing. We're seeing maybe like 40% U.S., 60% International.

So in terms of the good news here is that the demand across pretty much all the models is strong. And we're seeing mix in terms of international versus domestic fleet operations that are kind of what we've normally seen historically..

Okay, great. Thank you..

And our next question comes from the line of Noah Poponak with Goldman Sachs, please go ahead..

Hey, good morning, everyone..

Good morning, Noah..

Scott, what are you now planning for 2022 Cessna jet units?.

No, we never give a specific number. I think from the top line, you're looking at probably about 300 million off of our original guide. And virtually all of that is jet deliveries really so..

Okay, okay. So we can back into that.

And then you're saying, if I heard it correctly, you're saying, think about that growth rate in units, does that implies for '22 repeating in '23 approximately?.

Yes, that's good..

Okay, and then how much visibility do you have beyond '23?.

Well, pretty good visibility. I mean, it's most of the aircraft, I mean, we have larger aircraft, frankly we're out in 2025 right now and the mix of lighter and midsize are certainly through '23, well into '24, towards the end of '24.

So again this backlog is obviously very helpful to us in terms of having the kind of visibility we need to run the operations.

And obviously, we'd like to do a little more efficiently without some of the supply chain challenges, but I think we're in a pretty good place, as we've had in a very long time, obviously, in terms of the visibility of the business..

Okay. So I guess, that's all positive and really kind of major structural change in the business. But where the bookings are running, if they hang around in the zone that they're in now, you'd continue to run the bookings pretty far in excess of the revenue and which would build the backlog even further.

So, when do you get to the point where that's going too far and customers are going elsewhere have to wait too long? Or is it just with the macro level of supply chain bottlenecks, everybody's in the same boat.

And every OEM kind of has to do the same thing and is there any?.

No, I think -- I think you just said it. Everybody's in the same boat, right? I mean, so, I don't know where that equilibrium point is, right when it gets out too far. But this is not a -- this is not like, some other supplier OEM that says, hey, I've got aircraft sitting around.

So I think this is an industry dynamic, as opposed to just being you need to watch. I mean obviously, I feel great about how guys perform from a profitability standpoint. I mean look this businesses is in fabulous condition, right? It's a great backlog, good visibility, it's generating very strong margins, it's generating very strong cash flow.

I don't think there's a lot, I look it's every day is hard with these supply chain issues and stuff like that. But our guys are fighting through it every day. I'm not sure we'll be apologetic for these kind of margins, and this kind of cash and strong backlog. And guys, I'm not sure what else I would ask them to do.

They're driving hard every day and performing really, really well..

Great, just lastly on price in the business.

Are you actually now increasing price more, in terms of a year-over-year rate of change than you were 12, 18 months ago, when the market first strengthened, I get the sense that the price increases early in this strong demand environment weren't that big, because you wanted to build the backlog? And now that you've done so you can actually accelerate the pricing? Is that a fair assessment?.

Well, I guess, yes, I am not sure I would do. I don't do the first derivative on the pricing every day. But look I think for sure this market has changed over the last 18 months or so as it's gotten stronger and competitive market, obviously. So pricing and what competition is doing matters.

But I think everybody I mean the whole industry has seen stronger pricing. So, again we've looked at this kind of on a model by model basis, and what's going on with the competitive environment and it's not as I'm not sure, I can give a simple answer on the slope of the curve, but it's strong.

And I would say, we continue to obviously very much focus on making sure we're getting price in advance of inflation, we think about this a lot when you start thinking about, obviously we're taking contracts on aircraft that are in '23, and '24, and '25.

And so you've got to make appropriate assumptions in terms of inflation between here and there and make sure price accordingly, I think that we are..

Okay, thank you..

And our next question comes from the line of Peter Arment with Baird. Please go ahead..

Yes, thanks. Good morning, Scott, Frank..

Good morning, Peter..

Hey, Scott. You've been talking about supply chain disruptions, obviously, all year. You've got a lot of -- you had a ton of experience in engines.

Is engines for you still in aviation, the biggest shortage or are there other components like chips or other things that you would call out, and just maybe any color, you could provide on the engine shortfalls?.

Peter it is, I mean engines are strained. And as everybody knows, one particular model that's important to us that had an issue that kind of stems back to this Russian Ukrainian sanctions, but I think that's in recovery mode. So we feel good about that bouncing back.

But there's, I think the frustrating part for our folks, Peter is, it's just sort of everywhere, right stuff happens. It's I say that, overall our avionics suppliers have done a really nice job. Garmin is critical to us, they've been able to meet deliveries.

So they're managing the way, that that'd be there probably most highly concentrated in terms of semiconductor risks. So I think they've done a nice job. But it's -- this is the problem in this business, right? Every part is important.

So it's, there's certainly some things like the engine was an issue, I think that will resolve itself here in the next six, nine months or so. But these things pop up every week or it's just the world we live in. And our guys are kind of used to it. They just keep working and they go manage each thing that pops up..

It's helpful color and just Frank just quickly, could you tell us what the aftermarket was up in the quarter and any comments on pricing? Thanks..

Yes, aftermarket remains strong. It was up 18% year-over-year, 37% of total volume for the quarter. So really, kind of continued as Scott said, we see strong buying activity and therefore strong volumes in the business..

Terrific. Thanks..

And our next question comes from the line of Cai von Rumohr with Cowen. Please go ahead..

Yes, thanks so much.

So how much of the goodness in cashflow that 300 million came from deposits on aircraft and thinking about next year, you've had such a big gusher from that source this year? How should we think about cash flow, if book-to-bill goes back to about 1.0?.

We're not going to kind of break out separately that the cash items, I mean, offsetting the deposit activities, we have seen a little bit of inventory growth as we've had these supply chain issues, and we've seen some kind of slowdown in our ability to deliver. So there has been some offset.

But kind of with a book-to-bill above one and strong commercial at aviation strong commercial demand at Bell, we've benefited from that. Frankly, we benefited also from strong cash performance on the military programs as Bell. So it hasn't been all that.

We've talked in the past about kind of, generally, the business over time wants to be around one-to-one cash flow to profitability, right. So we certainly have benefited kind of this year and last year from strong cash performance relative to that.

And it'll depend on lots of factors, kind of when we get to a slower kind of booking rate, but it will migrate back towards that one-to-one, as we do at..

Look, I guess, I would emphasize that we're conscious of this, right? I mean, I think that you've -- you enjoy a benefit here with strong commercial deposits in aviation. And some of you also in the Bells commercial business, which has had also seen very strong demand here.

But you don't change anything else to do in terms of managing the business and making sure that you're fundamentally managing working capital and CapEx and all those things. So I don't for sure you're getting a benefit of this, but I think we're delivering well over one-to-one.

And that's because the businesses are doing a good job of managing their cash, and then enjoying the benefits of customer positive activity on top of that. So that's the nature of where we are right now..

Terrific.

And given this extra cash, goodness, how are you thinking about deploying the cash?.

Well, same as we talked about. As we said, we've been an active repurchase of stock. We bought about $640 million year-to-date, that that's up from last year's year-to-date number. Last year, we ended up kind of low 900 million of share repurchase.

And so we would expect similar types of rates kind of -- for the year and on at least as we sit here today on a go forward basis, we've been buying back about 5% of our stock on an annual basis. And so kind of that type of rate is a good rate to be thinking about..

Thank you very much..

And our next question comes from the line of Rob Spingarn with Melius Research. Please go ahead..

Hi, good morning. Just wanted to turn to a couple of the other segments for a moment. But in the past, you've talked about systems being a low double-digit margin business, but it's been outperforming that last year and this year.

So can we talk a little bit about the trend there? Is it going to stay more in the mid-teens?.

Look, it's a good question, and yet we're not quite ready to guide for next year. But I think that the -- that business performs really well. I mean, it's always has some components of it.

For instance, I think and you'll still see this everywhere, right? Where there's a fixed price government contracts, I guess you can't reprice those, so there'll be some pressure on inflation on that front.

But there's like also a constant flow of new programs and I think overall strong execution, which has helped us deliver strong double-digit margins that I would expect that to continue..

Okay, and Scott, sticking with these other businesses, industrial was clearly strong. And I think you call that specialty vehicles.

Can we talk about the forward trends there?.

Sure.. I think that the specialized vehicle businesses is doing well. There's -- they -- obviously there were some segments of that business that real hits through the COVID periods around support equipment and things like that that are seeing robust or directivity come back into those markets as well.

Also achieving strong pricing our golf in specialized PTVs and whatnot is very strong. I think we have a great product lineup, and that team has done a nice job that. Obviously, in that business, we also see supply chain challenges all the time, but the team's work through it. And I think we'll continue to see that on a steady improvement..

And you haven't really seen any evidence of this recession. How do you feel hitting that that business? I would imagine that business is somewhat sensitive..

Some are more sensitive than others. So but absolutely, I think particularly when you look at the powersports world, we keep a very close eye on that. Inventory levels are still very much lower than they typically are in those channels because of supply chain challenges.

So I think you need to get those to a healthy level, but absolutely we watch very, very carefully, because I think that that particular piece, which is a relatively small piece for us. Obviously, is -- it is very recession sensitive.

But I think when you look at a lot of the municipal stuff, and ground support equipment, golf, these things have historically been pretty resilient in terms of how they perform even in a recessionary period. And I think we're well positioned in those markets, which are much larger pieces of the business for us..

Of course. Thank you very much..

Sure..

And our next question comes from the line of George Shapiro with Shapiro Research. Please go ahead..

Yes. Good morning. Scott, on a supply chain issues, it seems like it's affecting your business more than say like, Gulfstream at the high end.

Is there any differentiation you can say as to why?.

I haven't George. I have a list of all of the parts we're missing right now. I could call Mark, I guess and see if he has some extra ones. But the -- no, I don't I mean, again, you guys look, I think this is a world we live in, right? We have the challenges. I think our guys have done a nice job through this.

I think we'll be -- we'll have a strong fourth quarter. It's not without, some risk on a part popping up here and there. But it's -- I don't know how to explain the difference between the commentary with the -- with some of the high end stuff versus where we are. But it's some where you going to manage our way through, it'll be fine..

Okay.

And Frank, can you provide some comments on what you see for pension next year, given the big changes we're seeing in DR and asset returns?.

Yes, we don't expect it to be a headwind. We're obviously, we've got a lot of work to do in fourth quarter and calculating the numbers and everything, but it should not be a headwind for us..

Okay. And then one last one. Is Scott, you've been saying that the delay in FLRAA has been a cost to you in terms of carrying all the people.

Can you quantify it all? How much of a cost it was to Bell in the quarter, because the margin at Bell still look pretty good this quarter?.

Yes, well Bell had a very strong quarter on the commercial side. And I think we'll continue to see strong commercial business. And we talk a lot about aviation, obviously, you guys asked. But the commercial helicopter business is also seeing very robust demand. And those guys are performing well.

And it's obviously offsetting the historical military programs, which continue to ramp down a little bit. But like, I think on the FLRAA Georgia, it's obviously, it was our original guide. That's why we're certainly seeing lower absorption.

And we expected to be kind of under contract at the stage of the game, but it's something we're managing our way through.

And like I said, I think we can't quantify or wouldn't quantify exactly the number, but suffice to say that we can live within our guidance based on I think, where we are and our expectations for the -- for announcement toward the latter part of this year..

Okay, thanks very much..

And our next question comes from the line of Kristine Liwag with Morgan Stanley. Please go ahead..

Hey, good morning. Scott, I mean you mentioned pretty strong session, that pretty strong orders and incremental interest you're seeing from corporate buyers. And book-to-bill is pretty solid at 1.5x. So from your conversations with your customers and potential customers.

What's the key impetus for the incremental order? Is it replacement capacity increase, or new customers to biz jet? And how sensitive are they from the financing environment?.

Well, it's a bit of all we've bought, Kristine. I mean, so -- I mean, obviously, we have some corporate customers out there that in the quarter placed orders, because they're going to replenish turnover to their fleets of aircraft. As you know, the corporates, they -- they're used to sort of looking out on that 18 month two-year or so timeframe.

As they plan their fleet refreshes. So the lead times that are there right now aren't something that they're not accustomed to, and that kind of fits in their plan. So we are seeing that activity, we are still seeing some new activity.

And yes, we continue to see a lot of -- there are certainly new people that were coming in more than normal that are buying a whole aircraft. But we also see just the demand of new people coming into the market that are using either fractional or charter operations. And so we continue to see strong demand from those customers as well.

So it really is across the board, which is I think again very healthy for the industry..

Thank you for the color, and maybe switching gears, Scott in the past, your Sensor Fused Weapon exposure, albeit only support on the past few years, and no longer production, it had limited your -- the European owner of your SOC, now that you're completely out of the Sensor Fused Weapon business, and it looks like you're completely out of support to, and you have the only electric aircraft certified for passenger use, it seems to me like your portfolio is more attractive on an ESG basis.

So are you seeing any recognition of the portfolio shift? And are you seeing incremental interest from European asset managers and ESG investors? And how do you think of that evolution?.

Well, it's a good question, Kristine. And I don't know specifically, those funds that have historically not wanted to invest in the company, in large part because of the SFW exposure. And as you know, that doesn't exist anymore.

So I think that's not an issue on the overall ESG front, without a doubt, there you're going to see certain funds out there that are going to be more oriented towards companies they think are investing in that future in terms of particularly electric transportation. And I think we have a very good story.

I mean, obviously, aviation is an area we're investing and frankly, particularly as a result of that Pipistrel deal are a leader in that field. And we're also very strong in electric side in terms of our vehicle businesses, right.

I mean, we've pioneered over the years, a lot of that electrification, and frankly, that's spreading out across that business in a big way, including ground support equipment and turf care equipment, it's, that trend is going to continue to happen. So I can't speak specifically to the European funds.

But I absolutely and consciously, obviously, on our part, we think we're engaging in strategies that will help make us more attractive to funds that have ESG criteria..

Great. Thank you, Scott..

And our next question comes from the line of Ron Epstein with Bank of America, please go ahead..

Hey, good morning..

Good morning, Ron..

There's been a ton of focus on Florida for obvious reasons. But could you walk through some of the opportunities beyond Florida, then the Navy is looking for some helicopters down the road as the Air Force and you guys talked about a bit of AUSA but not everybody was there.

So I was wondering if you could kind of walk through some of those other opportunities that are beyond Florida?.

Sure, absolutely, Ron. Look I mean, you're right. We everybody asked a lot about Florida, we're obviously very, very interested in the outcome of Florida. But that was hardly a one trick pony, right. I mean, there's a lot of other stuff going on.

I think when you think about the maritime strike, and or like there's active AOA activity going on right now in the Department of Navy thinking about what they do with their future of aircraft replacement programs.

Obviously, we think that our offering, which is in that tiltrotor space is very attractive to them, I mean these are services that obviously today operate V-22s and they need aircraft and assets that can keep up with V-22s. So it's I think we feel like the tiltrotor solution is a good answer in that space.

These programs are relatively early on, I say they're doing their analysis alternatives, and that'll lead to more acquisition activity here in the next couple two, three years. So we're very close to those programs obviously.

Air Force, as has been fairly public is, talking about what they want to do for, frankly, higher speed vehicle, right? So even beyond the kinds of speeds we see today, it'd be in 22 or in be 280 class of aircraft we're highly engaged with the Air Force on those sorts of programs. So I think there's no doubt that what we're seeing with the Army.

And obviously that's a huge opportunity to replace that for the Black Hawk class of aircraft, that you will see similar programs in the Navy, Marine Corps and in the Air Force in one form of fashion and our guys are highly engaged in those program opportunities..

Got it. And then maybe shifting gears back to Cessna. Bigger picture question.

When you look at the portfolio of Cessna airplanes, is there any place that you think you need to do a refresh or not? And how are you thinking about new product development, given that the businesses in a healthier place than it was just a couple of years ago?.

Yes, look, I think we have a very robust set of refresh programs. We've launched a couple of these Gen2, Gen1 mod programs. We have more of that in the works. We think it's really, really critical to be rolling those out on a fairly regular frequency. So we have a couple that are in the works right now that we haven't yet announced.

But obviously, the work is going on the clean sheet front within Denali program, which is still under development. So I think if you look at both jet and turboprop, there's a robust level of activity. I mean, I love our product lineup right now.

I think the longitude, latitude obviously have been homeruns in the market, the sky career is just getting in, kind of getting to raised in production with great demand. I think that's going to be a homerun product. Denali will similarly and I think the -- a great product for us.

And the line is, be sprinkled with a couple of these refresh programs here in the coming years..

Got it. Thank you..

And our next question comes from the line of David Strauss with Barclays. Please go ahead..

Thanks for taking the follow-up. Sure I just wanted to ask about the H-1 and how that kind of rolls off from here and what sort of headwind we should be thinking about to Bell as that program runs awesome? Thanks..

Sure. H-1 is about to wrap up. It's program a record in terms of the U.S. sales. We have some FMS programs that are still under production, but those clearly won't be ramping down here over the next couple of years. Service programs continue to run. But no question, David, that program will continue to ramp down here in the next couple of years..

And Scott, could you quantify how much in revenue each one currently accounts for?.

No, we don't break out the individual programs, David. But look, obviously, our plan is largely based on the fact that you'll see a ramp up in FLRAA program activities that will largely replace overseeing in the ramp down on H-1 program..

Got it. Thank you..

Sure..

Okay, Brad, that completes the call..

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