After losing more than 50% of their value in March, the shares of Textron (NYSE: TXT) have completely recovered in recent weeks. The 24% revenue contribution by the U.S. government and positive operating cash flow during the first nine months have been key factors supporting the stock’s recovery. Despite a low demand for the company’s Beechcraft and Cessna aircraft in the past few quarters, the company’s Bell segment continued to observe top line appreciation primarily due to strong demand of V-22 series aircraft. In this article, Trefis details the historical trends in the U.S. Defense budget and the amount allocated to the programs handled by Textron. Our interactive dashboard on Textron’s Revenues: How Does TXT Make Money? highlights the company’s revenues across segments along with the expectations for 2021.
The defense budget has increased by 27% since 2015
The Department of Defense’s top line funding increased by 27% from $560 billion in 2015 to $713 billion in 2020. The share of allocation to the Army, Navy, Air Force, and combined forces stands at around 25%, 30%, 29%, and 16% of DOD’s total budget, respectively. While the Army’s budgeted amount mainly includes spending on military personnel and operational & maintenance tasks (77% of the Army’s budget), the Navy and Air Force spend nearly 40% of their budget on procuring supplies including helicopters, artillery, ships, etc. Interestingly, the U.S. Air Force has increased its procurement budget by 54% since 2015.
V-22 Osprey has been gaining popularity in Navy and Marine Corps
The company’s Bell segment generates a bulk of its revenues from the sales of advanced military helicopters and services to the U.S. government. V-22 Osprey and H-1 helicopters are mainly deployed by the U.S. Navy for assault and rescue missions. While the V-22 Osprey’s procurement budget has increased by 31% from $1.6 billion in 2015 to $2.1 billion in 2020, the H-1 series budget has observed a sharp 77% decline. Given the 6% growth in Bell’s revenues in the past three quarters, the V-22 Osprey is likely to remain a key revenue contributor for the company in 2021.
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