Ken Herbert: Okay, great. Thanks Jason.
Jason Aiken: You’re welcome.
Operator: We’ll take our next question from Robert Stallard with Vertical Research. Your line is open.
Robert Stallard: Thanks very much, good morning.
Jason Aiken: Morning Rob.
Robert Stallard: Jason, on the supply chain, maybe I’m just reading too much into this, it sounds as if it actually got a bit worse than what you talked about last quarter, so I wonder if you can elaborate on what you’ve been seeing, whether there are any specific pinch points that are causing you trouble.
Jason Aiken: Rob, I’m going to guess you’re talking about supply chain in aerospace, and if so, I would tell you that actually we’re seeing modest signs throughout the quarter that things are actually getting better. It’s not, as you’d imagine, a straight line to the finish line on this issue, so there will be some bumps in the road and some curves along the way, but things are starting to trend better. What we saw here was a specific issue in terms of, as I mentioned, G280s in terms of the reduced in-service aircraft production, but on the large cabin aircraft, we are starting to see things trend in the right direction, so I think it’s a little bit maybe in the other direction of what your intuition is pointing you to.
Robert Stallard: Okay, good to hear. Just as a follow-up, I was wondering if you could elaborate on where you stand on supply chain in, I think, mission systems had a few issues, and also in the labor situation at marine, that that seems to have improved.
Jason Aiken: Sorry, it broke up there, Rob, at the end. You said mission systems supply chain and then labor–?
Robert Stallard: At marine.
Jason Aiken: Oh, labor at marine – okay. On the mission systems side, I feel very good about what they’ve done. The supply chain, to be completely candid with you, remains, and I think we expect it to remain what I’d call fragile. I don’t think that that’s going to get back to what we saw pre-pandemic for the foreseeable future, but the fact is the team at mission systems has fully incorporated that new reality into their outlook, and so I expect their future to be a lot more stable and predictable as they’ve incorporated the new normal, if you will, on supply chain on the electronic side for them. In terms of the labor side on marine systems, as I mentioned earlier, I think we’ve seen stabilization in both attraction and retention of labor in the shipyards at a faster rate than we anticipated, so that’s an encouraging sign.
That drives the throughput in the yard, and over time as those new shipbuilders become more tenured, more experienced, more proficient, we would expect at that point, that’s one of the factors that will really drive over time the margin improvement in the shipyard, so it’s an encouraging start for them. We’ve just got to see that play out, because as you know, shipbuilding is a long term venture.
Operator: We will take our next question from Scott Deuschle with Deutsche Bank. Your line is open.
Scott Deuschle: Hey, good morning.
Jason Aiken: Morning.
Scott Deuschle: Jason, can you walk through some of the high level puts and takes for aerospace incremental margins next year, and I guess maybe to ask another way, are the right things to focus on from our perspective the G700 mix, less out-of-sequence work, the learning curve on G700, and then presumably R&D either leveling off or coming down, or is there anything else here that we should be considering? Thank you.
Jason Aiken: I’d say you nailed most of the high level items there for next year, and again the G700 is a bit piece of it. Obviously we’ve talked about how that will come into service with favorable entry level margins, accretive entry level margins for the group, so that’s a big driver. I think the other major one, and you alluded to it, really is the resolution and straightening out of the supply chain issues. One of the things Gulfstream has really worked towards here and planned towards, I think very effectively and we’ll see it over time, is driving the efficiency of the operation with this new family of aircraft. Between the facilities that have been built, the commonality between the airplanes, the ability to service those airplanes efficiently, that is really what we are driving towards and one of the major underpinnings behind the long term trajectory back to the mid to high teens margins for that group.
Obviously timing of when those things get straightened out in the supply chain will be important, because that’s really what’s sort of inhibiting us getting to that point of efficiency. We will see a little bit of modest down-tick in R&D – I wouldn’t call that a major factor, but you should expect to see that tick down a little as we finish up the 700 this year and get through the 800 next year, but again, have 800 and 400 to go, so we’re not out of things yet from an R&D standpoint there. Those are the major puts and takes, I’d say. All in all, we would expect to see revenue–or excuse me, margin continuing on its trajectory again toward that mid to high teens rate. We’ll see improvement here in the fourth quarter, and I expect to see good improvement in 2024.
Scott Deuschle: Okay, great. Then as a follow-up, are there any major company-funded growth capex projects still underway in ’24 and ’25, or is most of that complete this year? If it does complete this year, does the nearly billion dollars of capex included in current Bloomberg incentives for ’24 and ’25 make directional sense, because that’s basically still in line with ’23, I think? Thank you.
