Fellow Shareholders,
In 2018, we returned significant capital to our shareholders through $1.8 billion in share repurchases and dividend payments, including $807 million of net proceeds from the sale of our Textron Tools & Test businesses. Reflecting operational improvements at our Bell, Textron Aviation and Textron Systems businesses, our profits were $1.3 billion, an 8% increase over 2017. Our revenues were $14.0 billion, which represented a 2% decrease over the previous year, largely as a result of the Tools & Test sale.
Developing innovative and exciting new products has been the hallmark of our company and, in 2018, we made progress on many of our product development programs while continuing to deliver great products that surpass our customers’ expectations and fulfill their missions.
Robust New Product Pipeline to Drive Growth
During the year, the Citation Longitude circumnavigated the globe as part of a world tour to show customers its unmatched cabin experience and commanding performance that we expect will set a new standard in business aviation. At the close of 2018, the Longitude was in the final phase of certification with Longitude operators beginning flight training in preparation for deliveries in early 2019.
The prospects for success of the Citation Longitude received a significant boost in October when Textron Aviation’s long-time customer NetJets expanded its Textron relationship, announcing agreements at the National Business Aviation Association (NBAA) show to purchase up to 175 Longitudes as well as an option to purchase up to 150 Citation Hemispheres. The option to purchase the Hemisphere distinguishes NetJets as the launch customer for Textron Aviation’s revolutionary, clean-sheet, large-cabin aircraft currently under development.
The Longitude will join the Citation Latitude in NetJets’ active fleet which, since entering service in August 2015, has become the leader in the mid-size segment with more than 155 aircraft flying globally. For the second consecutive year, the Latitude earned the title of the most delivered business jet in the mid-size category. Across our Citation business jet portfolio, we saw strong orders during the year, increasing Textron Aviation’s backlog $611 million in 2018 to $1.8 billion.
We also advanced our two new turboprop programs, unveiling a full-scale mockup of the Cessna SkyCourier, our twin-engine, large utility turboprop at NBAA, and debuting the full-scale mockup of the Cessna Denali single-engine turboprop at the EAA Airventure show. We anticipate first flights of both aircraft in 2019, and expect they will expand our market reach and attract new customers.
Throughout the year, our Bell V-280 Valor team worked closely with U.S. Army leadership, demonstrating how this next-generation tiltrotor aircraft will define the future of vertical lift. In more than 80 flight hours, the V-280 continued to expand the flight envelope, proving its remarkable agility and performing a multitude of flight test missions with unmatched speed, range, payload, survivability and endurance. As the program continued to progress, the V-280 achieved, and even exceeded, its namesake airspeed of 280 knots. We anticipate flight testing in the year ahead to prove out additional key performance parameters.
In an effort to strengthen Bell’s presence with military customers and policymakers in Washington D.C., we opened our new Advanced Vertical Lift Center in Crystal City, Virginia. Through interactive technologies such as our V-280 flight simulator, augmented reality system and a scenario demonstrator to show how the V-280 meets complex operational requirements, we’re able to share Bell’s vision for the future of vertical lift. We also advanced our Bell V-247 Vigilant, an unmanned aerial system tiltrotor, debuting a full-scale mockup for Department of Defense (DoD) leadership. We’re proud of our success with the V-280 program and our progress on the development of the V-247, and are confident they will meet the current and future requirements of the military.
As we moved forward with these next-generation aircraft, we continued to win new orders for our Bell Boeing V-22 and Bell H-1 aircraft. The U.S. government awarded the Bell Boeing strategic alliance contracts for production and delivery of an additional 63 V-22 aircraft for the U.S. Air Force, Marine Corps, Navy and the government of Japan, along with related supplies and services through 2024. Bell also received a $510 million contract from the DoD for 29 Bell AH-1Z attack helicopters in support of the Marine Corps H-1 upgrade program and a foreign military sales order for 12 AH-1Z attack helicopters for the Royal Bahraini Air Force to assist with their military modernization.
Production of the Bell 505 Jet Ranger X ramped up in 2018, which was the first full year of deliveries for our light, single-engine aircraft. Milestones included the first international deliveries to customers in Europe, Australia, Japan and China. In addition to civilian deliveries, Japan’s Coast Guard became the first governmental agency to take delivery of a Bell 505, receiving four aircraft for use as a basic helicopter trainer, and the Sacramento Police Department took delivery of the first law enforcement-configured aircraft. In less than two years since entering service, more than 100 505s are now in operation worldwide and they have achieved more than 10,000 flight hours.
In early 2018, Bell introduced the new Bell 407GXi, which received U.S., European and Chinese certifications and has since been delivered to customers. The Bell 525 program continued its path toward certification with the ongoing execution of its flight test program.
Textron Systems continued to advance its Ship-to-Shore Connector (SSC) and Common Unmanned Surface Vehicle (CUSV) programs. Our team worked closely with the U.S. Navy on the SSC program and plans to deliver the first SSC craft in 2019. Reaffirming the Navy’s commitment to the SSC program, Textron Systems received contracts in 2018 totaling $420 million to procure long-lead time material for the initial production contract, which is expected to be awarded in 2019. Following Pre-Delivery Inspection and Trials, the CUSV began Development Testing as the U.S. Navy leads underway operations and testing as part of its Unmanned Influence Sweep System program.
As Textron Systems continues its advancements with unmanned products, we acquired Howe & Howe Technologies, a leader in robotic ground vehicles. Howe & Howe has a history of innovation that fits nicely into Textron Systems’ unmanned platforms and control systems. These new capabilities enhance Textron Systems’ ability to provide unmanned solutions for air, sea or land-based applications to meet the current and future needs of our military.
TRU Simulation + Training and FlightSafety International announced in October their intention to form a joint venture that would support the global training needs for our broad and growing product line of business and general aviation aircraft. The joint venture is intended to provide our Textron Aviation customers with an expanded network of training centers, instructors and resources that leverages the capabilities of both organizations to provide best-in-class pilot and maintenance training programs. TRU will be the exclusive supplier of simulators to this joint venture for all Textron Aviation aircraft.
Our pace of new product introductions across our Textron Specialized Vehicles brands reaffirmed our commitment to continue bringing exciting new innovations to our markets. Throughout the year, TSV introduced new products from its Arctic Cat and TUG brands, reflecting the breadth and depth of its product lines. The Arctic Cat M 8000 Mountain Cat Alpha One snowmobile had a successful debut and was named the 2019 Snowmobile of the Year by Snow Goer magazine.
The new TUG ALPHA 4 pushback, launched in July, is now being delivered to customers who appreciate its technology, durability and safety features. Developed with the input of customers, the ALPHA 4 represents the first in a family of new pushbacks to accommodate a wider range of aircraft from regional jets to airliners that “push back” aircraft from the airport gate. Textron Ground Support Equipment also solidified relationships with customers and won new business for its TUG, Douglas Equipment and Safeaero products.
As the demand for hybrid vehicles continues to grow worldwide, Kautex positioned itself in the automotive industry as a leader in the development and production of all-plastic hybrid fuel systems. During the year, Kautex won contracts with major OEMs for these new products, while continuing to refine and develop the technologies to improve the quality and energy efficiency of vehicles.
A Commitment to Continued Growth
Our success as a company has been rooted in a consistent strategy of investments in new products, operational improvements and focus on our customers. We see the enthusiastic response among customers to products like the Citation Latitude and the Bell 505, and we’re excited about the opportunities for the new products in our pipeline as they go through testing and are meeting their performance milestones.
Our teams continue putting in the hard work to improve our operational execution and drive efficiencies throughout our company, while we build sales teams that are focused on developing enduring customer relationships.
Our strong performance in 2018 enabled us to return capital to our shareholders while delivering long-term value. We’re looking forward to 2019 and achieving even greater results in the year ahead.
Scott C. Donnelly
Chairman and Chief Executive Officer