Jason Gursky: Scott, I was wondering if you could spend a little bit of time on EA Aviation. Maybe provide us a little bit of an update on how things are going in that business and the development that you’ve got going on there and what the nice couple of years look like for you all on product development revenue and how EBIT’s going to trend for us here over the next few years, given that backdrop?
Scott Donnelly: Sure. So, look, I think there’s, obviously a couple pieces that are in here, right? There’s the Pipistrel business, which I think is doing well. We’re seeing, we saw a significant increase in number of deliveries here in Q1. I think demand for those products is strong. So we feel pretty good about where that is. As I mentioned, we did get an FAA exemption on the ability to do flight training on the Velis Electro, which is fundamentally a training aircraft. So I think that will help us pick up volume as we can now sell those and use those for training in the U.S. domestic market. It’s already been accepted, and we’ve seen nice growth in the international markets. We have a couple of new products that are in that product line that I think will do well.
So I think we feel very good about how the Pipistrel guys are doing and how that’s performing. On the R&D, which is really the dominant piece of what’s driving the financials in that segment, we have the Nexus program, which is progressing well. We’re doing the full integration and testing of the first craft. We’ll probably see — we’re already sort of doing ground testing and evaluation already. We’ll probably see flight tests later on this year on the Nexus front. That program is also, I’d say progressing well. Most of the supplier selections are done. Parts are coming in. We’re starting to build the first airframe. We have expectations that we would probably fly that sometime next year. So that’s really what drives the financials. Now I would say that the level of investment that we’re making right now into those programs is probably going to level off.
So we saw, as we’ve guided, we saw a significant increase from ‘22 to ‘23 and now ‘23 to ‘24. And that level of spending is probably going to level out going forward. So we’ll start to see some EBIT increase contribution on the Pipistrel product sales side. So I think that’s clearly a segment that the investments in Nexus and in the in the newer program are going to continue to have us in a lost position, but it probably stabilizes going out the next few years.
Jason Gursky: And as you think about the size of the market that you’re going after, you’re putting investment dollars against what you expect to be volumes. And so I’m just kind of curious, when do you expect the payback period to start on these investments that you’re making?
Scott Donnelly: Look, as I think this is very much an unknown. I mean, there’s plenty of studies out there and a lot of other noise in this industry that when you look at the eVTOL side of things, that it’s a mega market. The exact timing of that I think is still a little bit to be determined. There’s still plenty of work to do on the technical front from our perspective, technical work, regulatory work, to make sure that there’s viable products to meet that mission. So again, I think there’s plenty of independent third-party data out there that has perspectives about how huge that market could be. Keep in mind guys, our spending here is relatively modest. I think we’re taking advantage of a lot of cost and cost structure and talent and capability that we already have in the company. So if the market proves to be what third-parties would say the market would be, it’s going to be a massive return on investment.
Jason Gursky: Okay, great. Thank you very much.
Scott Donnelly: Sure.
Operator: Next we go to George Shapiro with Shapiro Research. Please go ahead.
George Shapiro: Yes, good morning.
Scott Donnelly: Good morning, George.
George Shapiro: Scott the incremental margin in Aviation, as people were talking about, I mean, like 4%. And I recognize that revenue differences are small, so the numbers can get somewhat distorted. But given that you said inflation will probably pretty much be somewhat similar to the price benefit that you got this quarter, why won’t those incremental’s for the rest of the year run somewhat higher than kind of your objective of 20%?
Scott Donnelly: Well, so George, look, I mean, I think when we look at the cost and what’s going to come out of inventory and what the margin rates are going to look like. It’s — I do think you’re right, we did have a higher conversion on Q1. But that’s certainly, I think, certainly higher than we would expect in the course of the year. So I think at this point, as we look at it, our expectations in terms of what inflation is going to look like what plant performance is going to look like, which as I said is for sure improving through the course of the year, as we get towards the high side of guide there it’s that 20% kind of range which is generally what we’ve guided as a long-term measurement for the business. I don’t know, I think that’s where we’ll be.
George Shapiro: Okay. And one quick one for you, Frank. You bought a lot of stock in the first quarter, like, 1.8% of the outstanding. I guess it was pretty opportunistic, or do we expect that you might buy more than 5% for this year?
Frank Connor: Well, we talked about 5% was in our guidance, but we also talked about the fact that we have a strong liquidity position and we’re going to return excess capital. So I think that we did a fair amount in the first quarter. We’ll continue to buy from here. We’ll probably be on the higher side of that 5% for the year.
George Shapiro: Okay. Thanks very much.
Operator: Next we go to the line of Ron Epstein with Bank of America. Please go ahead.
Ron Epstein: Yes, good morning, guys.
Scott Donnelly: Good morning, Ron.
Ron Epstein: Just maybe circling back on the defense business in the supplemental that just got passed yesterday. Is there stuff in there for you guys? I mean, have you looked, I mean, obviously you’ve looked at it, but can you give us a sense of potentially what’s in there for systems or Bell?
Scott Donnelly: No, there’s not. I mean, we really haven’t been in the guns and bullet business, so most of that stuff is not replenishments of things that we have. I do think there’s opportunities in Ukraine over time when you look at things that are possibilities for balance and other things in systems, but not something that’s directly tied to these supplementals.
Ron Epstein: Got it. Got it. And then kind of back to Aviation. Broadly, how’s the supply chain doing in that? One of the things I’ve heard oddly enough is like window screens, windshields for airplanes or there’s a shortage of those? I mean, is there other stuff like that that’s just kind of random stuff that’s just kind of short in supply?
Scott Donnelly: Well, look, Ron, as we said, the randomness is part of what drives us crazy, right? And they change over time, but you’re absolutely right. Windshields have been a problem now for several years. And it’s, I say, probably getting better. But it’s been a big problem. It’s been a problem for us in terms of production builds. And frankly, it’s been a big problem for us in terms of our customers. If somebody has a damaged windscreen and it’s been an area of a lot of dissatisfaction in the industry, not just for the OEMs like us, but also for our ability to provide, spares and service. It is certainly has been and remains one of the top problem items by category.
Ron Epstein: Yes, when I heard that I was astonished. But yes, I guess the current supplier shutdown the other supplier. So whatever. All right, cool. Thanks, guys. Yes, have a good one. Bye.
Scott Donnelly: Sure. Thanks.
Operator: Next, we go to Kristine Liwag with Morgan Stanley. Please go ahead.
Kristine Liwag: Hey, Scott. Earlier, you mentioned on industrials how you’re seeing incremental weakness in the high-end consumer. Could you talk about the customer profile of those buyers and if there are similarities to the customer profile for products like M2 or Pistons or [Conyers] (ph) and Aviation?
Scott Donnelly: So I don’t know exactly in terms of categorization of that customer per se, but I think that if you look at demand for all the way down to [Indiscernible], right, Cessna 172s, the demand remains very strong and we expect to have strong deliveries even over last year, but availability, the demand environment is very strong for that kind of stuff. And M2s are strong, I mean, these are products that we see strength in terms of demand across the product line. I don’t think they’re the same customer maybe or the same consumer perhaps, but I think if you look, now certainly what we’re seeing and we look at other companies, if you’re in the business of doing boats, RVs, recreational vehicles, PTVs, that consumer has clearly slowed down.
