Ladies and gentlemen, thank you for standing by. Welcome to the Textron Second Quarter Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, today’s conference is being recorded. I’d now like to turn the conference over to Vice President of Investor Relations, Eric Salander. Please go ahead.

Thanks, Ryan, 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 Web site. Revenues in the quarter were 2.5 billion, down from 3.2 billion in last year’s second quarter. During this year's second quarter, we recorded 78 million in pre-tax special charges related to the restructuring plan announced in June and a 55 million non-cash inventory valuation charge as we ceased manufacturing at our TRU Simulation & Training Montreal facility. The net loss for the quarter was $0.40 per share. Excluding these charges, adjusted net income was $0.13 per share, down from $0.93 per share in last year's second quarter. Segment profit in the quarter was 82 million, down from 339 million in the second quarter of 2019. Manufacturing cash flow before pension contributions totaled 215 million, up 113 million from last year's second quarter. With that, I’ll turn the call over to Scott.

Thanks, Eric, and good morning, everybody. Overall, given the difficult underlying market conditions, second quarter results were solid with strong cash performance and positive adjusted earnings. Our defense businesses performed extremely well with revenue growth and strong operating performance at Bell and Textron Systems. Our commercial businesses implemented aggressive cost mitigation efforts, including employee furloughs, temporary manufacturing shutdowns and reduced discretionary spending to offset the impact of revenue declines in the quarter. At Bell, we had a very strong quarter with higher revenues and a 14.4% operating margin, driven by increased military volume. On the commercial side of Bell, we delivered 27 helicopters, down from 53 in last year’s second quarter largely driven by lower demand for the 505 Jet Ranger X model and to a lesser extent delivery delays due to COVID-19 travel restrictions. During the quarter, we achieved a number of milestones on the V-22 program, including delivery of the 400th V-22, the first delivery to the U.S. Navy of the CMV variant for the Carrier Onboard Delivery Mission, and the first international V-22 delivery to Japan. Textron Systems revenues were up primarily due to higher volume in our unmanned systems product line. Also within unmanned, Textron Systems was awarded two FMS contracts for total five Aerosonde systems, including initial spares, new equipment trading and logistics support totaling $44 million. Together these and other awards along with the definitization of the first Ship to Shore connector production contract resulted in an increase in backlog of 505 million in the second quarter. In the quarter, Textron Marine & Land Systems successfully completed both builders and acceptance trials for the next Ship to Shore Connector Craft 101. We expect delivery of this unit to the U.S. Navy in Q3. Also at Systems, our Airborne Tactical Advantage Company was recently selected…

Thanks, Scott, and good morning, everyone. Let’s review how each of the segments contributed, starting with Textron Aviation. Revenues at Textron Aviation of 747 million were down 376 million from a year ago, largely due to lower citation jet volume of 178 million and lower aftermarket volume of 120 million. The decrease in citation jet volume largely reflected a decline in demand related to the pandemic and to a lesser extent delays in the acceptance of aircraft related to COVID-19 travel restrictions. The lower aftermarket volume reflected lower aircraft utilization. Segment loss was 66 million in the second quarter, down from 102 million of profit last year, primarily due to lower volume and the unfavorable impact of 27 million from performance which included 53 million of idle facility costs recognized in the second quarter of 2020. Backlog in the segment ended the quarter at 1.4 billion. Moving to Bell, revenues were 822 million, up 51 million from last year, primarily on higher military volume, offset by lower commercial volume. Segment profit of 118 million was up 15 million, largely on military volume, partially offset by an unfavorable impact from performance. Backlog in the segment ended the quarter at 5.8 billion. At Textron Systems, revenues were 326 million, up 18 million from a year ago, primarily due to higher volume in our unmanned systems product line, partially offset by lower volume in the Marine & Land Systems product line. Segment profit of 37 million was down 12 million, primarily due to an unfavorable impact from performance which included a gain of 18 million recognized in last year's second quarter related to our contribution of assets to a training business formed with FlightSafety International. Backlog in the segment ended the quarter at 1.9 billion. Industrial revenues of 562 million were down 447…

Thanks, Frank. As we begin to gain clarity around the restart of the economy, I’d like to touch on each of the segments and their outlook. Industrial, our fuel systems and functional components manufacturing operations are up and running and we expect production to continue to ramp up through the second half of the year in line with auto OEM demand. In the Specialized Vehicles business, we’re encouraged by what we’re seeing in the powersports market and we expect sequential growth from the powersports revenue in the second half of 2020. At Aviation, the sales team is back in the field meeting with customers and arranging demonstration flights. We saw a pickup in business jet fight activity in the latter part of Q2 and we expect to see higher new aircraft deliveries and aftermarket revenue in the second half of the year on a sequential basis. So we continue to invest in future vertical lift where we are in the early stages of prototype development on FARA. On FARA, we continue flight testing with the V-280 and we’re actively working with the U.S. Army and responding to information requests related to the program. At Systems, we saw a number of awards in our unmanned and air adversary businesses that will continue to drive growth in these product lines. We’re in the soldier assessment phase of FTUAS with our Aerosonde Hybrid Quad unmanned air vehicle and we’re progressing on the RCV-Medium program with build-out of initial vehicles. That concludes our prepared remarks. So, operator, we can open the line for questions.

Okay. [Operator Instructions]. Our first question is going to come from the line of Sheila Kahyaoglu with Jefferies. Please go ahead. Your line is open.

Hi. Good morning, guys. And thank you for the time. Scott, you just talked about what you’re seeing in the aerospace with sales going back out in the field. Can you talk about what you expect to see in terms of Aviation margins and a baseline for that? You called out 27 million of unfavorable or 53 million of idle cost that were offset by 27 million of favorable benefits. So just like the puts and takes and when we get back to our normal Aviation margins in your view?

As you know, Sheila, we had a pretty significant expense in the quarter with respect to the underutilized facilities. Obviously, we do have most of our manufacturing operations – all of our manufacturing operations back up in Aviation, so we certainly expect to see sequential improvements with respect to that. We did take out a fair bit of cost in the second quarter, initially through the furloughs and now as I said we’ve set through the restructuring kind of what we believe is our run rate through the balance of the year and for 2021. So we won’t give specific guidance on the margin rate, but suffice to say that we certainly expect to see them improve as we go through Q3 and Q4. A lot of that obviously will depend on the level of sales activity we see. Right now, we certainly have seen a pick up. It’s particularly in the turboprops and the light jets, which is encouraging. We’re not seeing as much activity yet in terms of the latitudes and longitudes, for instance, but there’s a lot of dialogue going on. And since those are primarily corporate oriented aircraft, I think as people are coming back, most businesses are worried about getting their own businesses up and operating. But certainly, the dialogues are there. And as people go into the end of the year and certainly beginning of 2021, we expect to see an uptick in the order activity there as well. So again, we know we’re going to be off considerably this year given the fact that factories were shut for several months and we’ve now re-baselined [ph] the volume, but we do certainly expect to see sequential improvements in margins through the balance of the year.

Great. And then just another question on Systems. You entered sims [ph] about five years ago and I remember you were pretty excited about it, but a fairly quick exit since pricing is tough in that environment. So the decision makes sense. Margins were really good in that segment. What are the puts and takes, how do you see the future of Systems from here?

I think Systems has performed really well and we have certainly this issue in the commercial transport business which as you can understand given where the airlines are right now is in a very, very tough spot and it’s been a tough business. And so I think it makes sense for us to scale back in that area. The balance of Systems performance has been really strong. Our unmanned business continues to grow and execute really well. The land vehicle side now, things like RCV-Medium, I think our team is executing well there. We certainly expect over time to see that business grow the definitization. The Ship to Shore Connector program is a big deal for us to now be under the production side. So clearly we expect that to grow. And again, we continue to see incremental better margins as we move out of the development deliveries and into the production deliveries going forward. So I think overall that the performance there is strong and we expect to see continued strong margins with growth driven by the air adversary which again is something we invested in. It took a little bit longer to get there than we would have liked, but I think we feel great about the awards that we’ve received and that will add both revenue and good margin growth of the business going forward. So I think Systems is kind of moving into more of a growth and better margin performance. I think you see that in the second quarter performance.

Great. Thank you very much.

Sure.

And our next question will come from the line of David Strauss with Barclays. Please go ahead. Your line is open.

Thanks. Good morning. Scott, wanted to I guess follow up on the question I had last quarter on NetJets. Back last quarter I think NetJets, talked about how they were going to reduce their plan for the year, but I think yesterday or the day before they came out with something with an announcement saying that they were going to reverse that. Can you just talk about how that impacts you?

Look, David, I think what NetJets saw, the same thing that our sales team saw, right. When this thing first hit, all activity kind of stopped. And so NetJets’ sales team understandably saw all their sales activity taper off. I think the note that you saw on NetJets is that they are seeing the same thing that we’re seeing from a sales standpoint. There’s demand out there. An awful lot of people, and we even talked about this on the last call as well, are looking at increased use of private aviation. Lots of customers that have not been in the private aviation space before that are inquiring and looking at using privation aviation on a go-forward basis. So I think in the mid to long term, this is a very healthy thing for the industry. I think you see frankly the rate of flying, the number of cycles has rebounded much quicker than you’ve seen in other pieces of aerospace, so that’s very encouraging. And what the bottom line is, as we see increased demand whether that’s whole aircraft or whether that’s fractional, that’s good for us. NetJets is obviously a huge important customer of ours and as they look at that, those latitude and longitude markets and see increased demand, that demand will flow right back to increased volumes in Textron Aviation.

Okay. So is it fair to say that they after revising down their plan with you, they revised up their plan with you?

I think that’s very safe to say.

Okay, thanks.

Sure.

And then a follow up I guess for you, Frank, on cash flow. I was a bit surprised that inventory was a source of cash in the quarter. Can you talk about where the contribution came from by business and what are you thinking now? I know you had free cash flow pauses for the year. Maybe a bit of a finer point on that now if you could offer that. Thanks.

Yes. Look, all the businesses did a really nice job of kind of responding to the deceleration on the commercial side of the businesses. So we saw all the businesses frankly perform well in terms of a working capital and inventory management. And so as you said, we saw a strong working capital performance in the quarter. We expect to continue to see good working capital performance in the back half of the year. We’re not going to get into specific guidance, but certainly expect from the second half of the year to be cash flow positive and cash flow positive for the full year.

All right. Thanks very much.

Our next question comes from the line of Carter Copeland with Melius Research. Please go ahead.

Good morning, gentlemen.

Hi, Carter.

Hi. Scott, I wondered if you might kind of help us expand on that in the sales side of Aviation and if there’s anything seasonality or cadence to how that sales cycle works. And really what I’m getting at is so when it is that – not all corporations are up. They have budgeting cycles and there’s a lot of variability across the corporate complex. When is it that you think your sales teams will get a real honest look at any potential change in demand? Is that something that happens this year or is it more like next year?

That’s a very good question, Carter. So as I said, the level of activity and orders that are closing have been stronger on the light side, right. King Air 250s right now are very strong. M2s are strong. So they’re more private businesses, high-net worth individuals’ sort of customers. Those corporate customers that are more of our latitude and longitude, there’s a lot of dialogue going on. There’s conversations, but you’re right. They have their budgeting cycles. Obviously, a lot of companies have been watching their CapEx very closely just as we have been. So I think it really – the pace of how the economy recovers and provides certainty is going to be really important to seeing that segment of the market start to actually put down deposits and sign deals. So I wish I could give you a lot better insight in that. We’re watching the economy like everybody else. We certainly are encouraged by how things have kind of moved out there over the last couple of months, but we need to see that continue to progress and start to head back to some degree of normalcy. That’s why I think we look at more of the latter part of Q3 into Q4 and even probably deliveries out in the beginning of 2021 as the corporate piece of America starts to make CapEx commitments again.

Great. Thanks for the color. And one for Frank. I wonder if you could just give us the EAC adjusted cumulative adjustments in the quarter, just any detail on that would be helpful as always.

Yes. The net, we were 17 million favorable, so a bit down from a year ago on a year-over-year basis. Favorable was 46, unfavorable was 29.

Awesome. Thanks for the details, guys.

Yes.

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

Good morning. Frank, just one clarification and I’ve got a follow up. The 53 million of idle facility cost led to 27 million negative impacts. So what was deposit of 26 million if I just subtract those two numbers, unless I’m reading it improperly?

So, George, there’s a lot more moving pieces than that, right. So we do spike out the idle facility. Obviously that’s a significant number. To net that down to where the overall performance number has a lot of parts to it, right. There’s a lot of cost savings obviously that we derive through the furloughs and through the quarter. A lot of that frankly helped to offset what would have been a more challenging idle facility cost. There’s a number of other impacts in there that you would kind of expect in a much lower volume environment. So it’s not just a matter of take the total performance – it’s not just to one thing. There was a lot more cost savings than that, but there was a lot of sort of other noise in the quarter I guess you would say.

It netted out to a pretty significant positive relative to the idle facility cost that you took.

Yes, for sure. And that’s a result of a lot of the furloughs, the savings that were driven by the fact that we took out a lot of cost both direct and indirect through the furloughs while the plants were shutdown, and obviously now that has transitioned from the furloughing. Unfortunately where we had to make permanent adjustments for which we took the restructuring to align the cost on a go-forward basis.

Okay. And then just a follow up to David’s question. So the 1.4 billion in backlog that you say that for Aviation, did that include some additional NetJets orders that were reversed out in the first quarter?

There was no change in the NetJets backlog in Q2.

Okay. Those are my questions. Thanks.

Next, we’ll go to the line of Peter Arment. Please go ahead. Your line is open.

Good morning, Scott and Frank. Scott, just circling back on your comments about the Aviation on the aftermarket side. If we look at kind of the jet flight activity as kind of you’ve mentioned, it does kind of look like a true V [ph] from what we saw the falloff from March and now July. How did aftermarket perform kind of exiting the quarter? I know it was down. Frank mentioned 31% in the quarter and just kind of your expectations for what we should expect for the second half?

Yes. It was down total of 31% for the quarter, Peter, as we mentioned. But if you look at the progression of biz jet cycles in both North America and Europe, our big markets, there was a pretty marked change from April to June. And so I would expect that the aircraft showing up and part consumption and service work will kind of lag that a little bit. So even though we certainly saw activity pick up pretty significantly through the quarter, particularly as we guide into June, we certainly expect to see that start to positively impact the service business in Q3 and Q4. There’s just a lag between those aircraft utilization rates picking up and service activity picking up.

Okay, that’s helpful. And then just a quick one. Are you seeing any further kind of supply chain disruptions at all that’s meaningful or anything to call out?

Nothing that I would say is material, Peter. It’s a food fight every day. You still have suppliers that have a flare up or a shutdown or whatever. But, look, it’s stuff our guys manage through it every day and we’ve had some impacts across all of our different businesses, right. There’s an issue with a supplier here or there and we just kind of manage and work our way through it on a day-by-day basis.

I appreciate the color. Thanks.

Next, we’ll go to the line of Robert Stallard with Vertical Research. Please go ahead.

Thanks very much. Good morning.

Good morning.

Good morning.

Scott, one for you. You mentioned that Aviation is now at a better run rate, a run rate you’re happy with. I was wondering if you could give us an idea of how that run rate compares to where you were at the start of the year and maybe sort of a percentage change versus where it was then, where it is now. And I’ve got a second follow-up question as well.

Robert, I think again there’s not huge visibility, right. But I think if you look – the way we think about it right now given the fact that we had the plant shutdown for a couple of weeks and the adjustments that we’ve made looking more towards end of the year and 2021 rates, we’re going to be down somewhere in the 30% or so, probably 30%, 40% down in terms of deliveries in 2020. The run rates, would anticipate that you’d probably get half that reduction back as you go into 2021. But there’s a long way between here and 2021. But that’s sort of how we’re thinking about setting production rates at this stage.

That’s great. And then one for Frank. You were paying down some debt in the quarter. Have you got any plans for further debt reduction in 2020? It was a bit unusual in the rest of aerospace you’ll see adding liquidity and paying things back.

Well, you’ll recall in the – earlier in the year we did a debt offering to essentially pre-fund kind of our 2020 maturities and so that paydown of debt was effectively just the paydown of that. We have another 350 million of debt coming due in November that again we have effectively kind of already refinanced. So kind of other than that, we feel like kind of we’re in good shape from a debt structure standpoint but that’s what we have in front of us.

That’s great. Thank you very much.

Next, we’ll go to the line of Seth Seifman with JPMorgan. Please go ahead. Your line is open.

Thanks very much and good morning. I wonder when you just talked about the run rate in Aviation and the decline in '20 and expected pickup in '21, should we expect that to include a mix shift along the lines of what you talked about toward smaller. And then as part of that, I guess I was a little surprised when you mentioned not seeing as much pick up on the longitude, latitude side if NetJets is in fact starting to come back and talk about taking some more deliveries, and so maybe if you could talk about the dissidents there?

Okay. The mix as I said, right now we’re seeing the pickup in activity is more oriented towards the smaller aircraft. We certainly do expect it to shift to a better mix – not a better mix but a different mix of larger aircraft as the year progresses. I think with respect to NetJets, again, we are working with these guys every day, so we’re factoring in what we believe their demand is going to look like. Look, we didn’t put stuff into the backlog in Q2. Obviously the dialogue with them continues and I would certainly expect to see backlog for larger aircraft through NetJets to pick up in the third and fourth quarter.

Okay, great. Thanks. And then just as a follow up and in industrial, if you could talk about sort of the relative loss between autos and specialized vehicles and kind of the path back to profitability for each? It sounds like maybe autos has a pretty clear path at Caltex and is that the case, and if you could talk a little bit about vehicles.

Well, we don’t go down into the op profit by the individual businesses. But obviously in Q2, we saw the vast majority of our plants in the Caltex world shutdown and there was just no demand. The global auto OEMs had all shut down, so we shut our plants down. As I said, we’re back at least globally running around that 75%. If you look – and again, guys, remember we base our data base on what IHS is looking at. And in terms of our forecasting we don’t really make this stuff up. So we expect to see that utilization in those plants pick up in Q3 and Q4. But there’s no question that – again, given where things are right now, Q2 was a really tough quarter for Caltex when you got your plants shut down around the world. So plants have now picked up. They’re operating – they’re back performing and continue to see that volume. So that will be a really significant contributor in terms of change of profitability in industrial as you go into Q3 and Q4. In the case of the vehicle business, look, I think we performed well in the quarter in the vehicle business. The Golf and the PTV markets remain robust. We did see a significant uptick in retail activity, particularly in June on the outdoor power sports markets as those markets came back up. And the good news is, as a result of all that we’ve turned those factories back on and are starting to produce 2021 model years given the demand in the market. So I think there will be improvements sequentially in both businesses, but from a relative basis it was a tough quarter in Caltex when your plants are shut down.

Thank you very much.

Next, we’ll go to the line of Pete Skibitski with Alembic Global. Please go ahead.

Good morning, guys. Scott, coming into the second quarter at Systems, I guess I thought TRU and Lycoming would be big revenue headwinds for you, and I imagine TRU had to be. But collectively, is it just that the headwind from those units were just more than offset by this ISR services business? Is that just kind of almost like a secular growth driver at this point?

Yes, the unmanned business continues to grow and do really well for us. It was the largest offset in there. Marine & Land was a little bit of driving – look, a year ago this was I think our last quarter where we had the last of the ANA and the TAPV programs, but the Ship to Shore side was strong and obviously we expect to continue to roll through the course of the year. So for sure, a significant headwind obviously with the simulator business shutdown, but the rest of the business is rolling and again performing well.

Okay, that’s great. And then ATAC, any color that you can give in terms of how big that unit can be with all the wins it’s kind of collecting?

So the two task orders that we are awarded is about – we said about $240 million over the next four and half years. So if you look at that, that’s about $50 million a year of revenue and we expect it to be good margin. Look, we’ve invested in the aircraft. We have the assets. Our team’s done a great job. There’s already 10 of the aircraft that are TRU airworthiness and flying and ready to go. So we should be starting to see that revenue in Q4 of this year associated with those programs.

Okay. I appreciate the color.

Our next question comes from the line of Jon Raviv. Please go ahead. Your line is open.

Thank you. Good morning. When we talk about the long-term growth opportunity in business jets, it’s the kind of market where you need the cost of entry to be lower to attract a lot more people in there. So just thinking and sort of long term about that business, what does that business model look like in that kind of role? How much of profit comes from aftermarket versus OE today, and how might that change going forward if there is truly more of us – if truly more of us start flying around on the smaller planes?

Well, I think in general the aftermarket business has always been the more profitable part of all of these aerospace businesses, and I don’t see that changing. Look, I think as we look at the dynamic, which again we’ll see how this plays out. But as we see a lot of people entering into the business jet or business aviation marketplace, I think our portfolio is a very good place to serve that, right. We have a very strong lineup of product at that entry level, whether it’s jet or turboprop through the King Air family and the M2 and CJ line. And then as people look into the larger, whether it’s in that XLS space or in latitude or longitude, I think we’ve got very, very competitive product and I even think our portfolio has ever been better. So the strength of that entry point is what we’re seeing the most activity picking up right now, but I clearly would expect that like everything you’ll see people migrate into those mid-sized aircraft as well.

Thank you, Scott. And then as the follow up on capital allocation, it truly were in a tough time right now and you’re having to conserve cash largely. But how do you think – you’re still in a pretty good position. So how do you think about capital allocation going forward maybe later this year? I know in '21 you have a little more visibility. The asset in the context of sometimes down markets where you guys are down 30% deliveries from your competitors, down 30% deliveries in biz jets. Sometimes those markets are right for some consolidation. So any thoughts on capital allocation and biz jet consolidation in that context going forward?

Well, look, it’s probably a little early to talk about that. I think we’re very happy with where we are from a cash standpoint in our balance sheet right now. Obviously there are actions that we’ll continue to take to continue to strengthen that and derisk that on a go-forward basis. In terms of consolidation, I think everybody says consolidation makes sense in this industry. Do I see that happening any time in the near term given valuations and sort of all the uncertainties, it’s kind of hard to imagine. That’s something that’s on the near-term horizon. But right now, obviously, we’re very focused on making sure the company is in good shape and healthy and weathering through this, and I think we’re demonstrating so far that we’re in very good shape.

Thank you, Scott.

Sure.

Our next question comes from the line of Noah Poponak with Goldman Sachs. Please go ahead.

Noah, are you there?

Possibly you have your mute button on.

Hi, guys. Can you hear me?

Yes, we got you.

Okay. Sorry about that. It sounds like NetJets is – clearly we’re seeing it, but I’m curious. In the new orders just in the quarter, did you absolutely have real deal customers that came in and said, I don’t want to fly commercial or I’ve always been on the fence and the risks I – perceived risks of flying commercial are pushing me over that fence I’ve always sat on. I’m trying to get a sense for how real that trend is from not wanting to fly commercial to flying private versus being more anecdotal?

I think as we said before, I think it’s very real. But remember, it starts with Charter and Club and Hour and then moves into fractionals and before whole ownership, right. Somebody that’s never been on a business jet before doesn’t buy a new airplane, right. There’s a progression here which is I think kind of the normal entry of anybody going into business aviation. They’re not going to jump in with a large equity position. They’re going to start to see it by utilizing it and get some experience with it on a sort of by the hour and progress to fractionals, and that’s sort of the normal process that we see. So I think when you talked to folks that are out there operating and it’s across everything. It’s Charter companies that are flying older aircraft, it’s guys like Wheels Up that are very strong Club membership models, it’s the NetJets and again I think NetJets is seeing both the folks that are interested in cards but also fractional shares. So you see people migrating to these known brands as well that are new to the business. So I don’t think anecdotal. I think it’s quite real. But again, from our perspective, it starts more in a non-equity mode and sort of migrates through the path towards ownership, whether that’s in a fraction or ultimately in a whole aircraft owner.

Okay, that’s pretty interesting. In Bell commercial, is it – do you have visibility or desire here on the call to share similarly to how you just did with Cessna in terms of how you see the production loading in for the back half of this year and then into 2021 on Bell commercial units?

Look, it’s a totally different market, right. So it doesn’t share a particular analogy around that. I think when you – the only area where we’ve seen lighter activity has been in aircraft that we sell on a more short cycle. It’s a high-net worth individual, it’s more of a discretionary spend, which is some of the 505, which we’ve seen lower volume and we’ve talked about seeing lower volume. I think we’ll see lower volume through the balance of the year. But a lot of the other aircraft are going into EMS. They’re going into police, training, power, public. That piece of the market tends to have a longer lead time and sort of a different acquisition process. Look, I think we’ll – there’s no doubt that you’ll see some softening in the commercial side but nowhere near as dramatic as you see in the fixed-wing market. And obviously the other part of Bell which is a very strong defense business where utilization is high, deliveries are good, aftermarket’s very strong. So it’s hard not to feel good about where Bell’s position both in terms of the performance as well as opportunities for the future.

Yes, I appreciate that color. It’s actually really helpful. But I was actually just asking if you would provide the directional rate of change in commercial units you see for this year and next year the same way you did for Cessna there?

No, I would not. Other than giving some color on it, you’re going to be lighter on 505s for sure and we’ve adjusted production accordingly. But now the rest of the market is better visibility.

Okay. I just wasn’t sure if my question didn’t come across, but I understand now. Thanks very much.

Ryan, do we have another caller in the queue?

Our next question comes from the line of Ron Epstein with Bank of America. Please go ahead.

Good morning, guys.

Good morning.

Good morning.

Maybe a quick one and then a follow up. Do you guys have any whitetails at aviation right now? Are all the tails sold? And do you have any used aircraft floating around?

We haven’t used the whitetail word in a very, very long time. So as you know for years now, we build to a forecast and that’s kind of what we continue to do. So if you’re inquiring about wanting to buy an aircraft, I’m sure I can help you.

I wish I could in another life.

Ron, look, obviously we do everything we can do to match supply and demand. The adjustments that we’ve made by having the factory shutdown, that obviously helped align to a lower demand environment that we’ve been seeing and the adjustments that we’ve made to the run rate on our production through the balance of the year and into 2021 is all aimed at making sure that we’re building the number of aircraft that we expect to be selling. And we’ve gotten pretty good at it, so we’ll keep doing. We’ll adjust along the way obviously up or down, but that’s certainly our objective. But the one thing I would say, I unfortunately remember the whole creation of the whitetail years ago was because you saw these massive cancellations. And look, we haven’t seen that, right. The customers that were in our backlog have stayed in our backlog and we talked about the situation on the fractional side and now we’re seeing that improve as demand comes into the marketplace. The good news here is unlike previous cycles, the two big dynamics you don’t see different, you don’t see this flood of incoming calls saying, hey, I want to cancel my airplane. People want to keep their airplane. It was on order. And also I’d say on the use side, you don’t see this flood of aircraft going into the used market. The used or available for sale remains at very low levels. We’re seeing lower volume obviously just given the nature of the pandemic here over the last few months. And again, that lack of aircraft flooding into the used market, which a number of years ago obviously put huge price pressure in that light segment, we’re actually seeing a little bit of an uptick in some of the pricing on the used because there’s not a lot of them out there that are very new aircraft. So I think that market remains healthy, which is good.

Okay, that’s great. Thank you for the color on that. And then maybe just one much bigger picture question. As we listen to a lot of these calls with different management teams, there’s a lot of focus on resize and cost cuttings so on and so forth for obvious reasons. But when you think about Textron from your seat and you look past the pandemic, are there any opportunities here to make some fundamental changes at the company to make the company stronger when we get out of the pandemic either from a portfolio reshaping point of view or some other things that you just couldn’t do if it was business as usual because everybody was so busy, right? Does this give you an opportunity to like to take a breath and look at the company and make some changes that you maybe couldn’t have done or wouldn’t have been easy to do when you’re trying to get airplanes out the door or gas tanks out of door and so on and so forth?

Look, specifically at Aviation and I think this is more about recognizing that over the last few years we’ve had very high R&D levels, right, as we brought latitude and then particularly as we brought longitude into the market. So we were already situated in a position where we had gone through a very large R&D phase. We still have things like SkyCourier and Denali that are on the roadmap, but these are much smaller programs and something of a magnitude of a longitude. We’re also getting back to doing a lot of upgrade programs to our existing aircraft that are out there. So I think from our perspective, this is – as we look over the next couple – two, three years, I think we’ve got a great portfolio. We have a lot of things like the SkyCourier which should have a lot of growth and is a great product that’s coming along really well. And then we’ve got upgrade programs which are not as R&D intensive but keeps refreshing that product line. So certainly we’re taking out costs associated with that lower run rate on production going forward at least through late this year into 2021. We can adjust accordingly obviously if we see a stronger demand. So I would say in terms of Aviation, I don’t see such a dramatic change beyond probably that R&D profile. In looking at a couple other businesses, obviously as we’ve seen the slowdown, we are doing some things around restructuring and fundamentally changing the business going forward, the things we’ve talked about with the air transport side of the business, some of the things in the vehicle side where we’re consolidating some of our operations, we can do other operations just making them run more efficiently and those cases I think absolutely we’re in a better position as we come out of this downturn than we were from a fundamental structural cost standpoint, we’re in a better place going forward.

Okay, great. Thank you.

Okay, Ryan. That does it for questions in the queue and we will end the call.

Okay. Ladies and gentlemen, that does conclude today’s conference. I’d like to thank you for your participation. You may now disconnect.