Textron Inc  (NYSE: TXT) Q1 2020 Earnings Call Transcript

Textron Inc  (TXT) Q1 2020 earnings call dated Apr. 30, 2020

Corporate Participants:

Eric Salander — Vice President, Investor Relations & Treasurer

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Frank T. Connor — Executive Vice President and Chief Financial Officer

Analysts:

Sheila Kahyaoglu — Jefferies — Analyst

George Shapiro — Shapiro Research LLC — Analyst

Robert Stallard — Vertical Research Partners LLC — Analyst

Peter Arment — Robert W. Baird & Co — Analyst

Carter Copeland — Melius Research — Analyst

Jon Raviv — Citi Investment Research — Analyst

Ronald Epstein — Bank of America Merrill Lynch — Analyst

Robert Spingarn — Credit Suisse — Analyst

David Strauss — Barclays — Analyst

Seth Seifman — J.P. Morgan — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Textron Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Vice President, Investor Relations, Mr. Eric Salander. Please go ahead.

Eric Salander — Vice President, Investor Relations & Treasurer

Thanks, Greg, 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 website.

With that I’ll turn it over to Scott.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Thanks Eric, and good morning, everybody. First, I’d like to recognize that we’re all operating in extraordinarily challenging times, while facing numerous disruptions to our daily routines.

On behalf of our Company, I’d like to share our deepest sympathies for all those who’ve been affected by this global pandemic and we join in thanking those who’ve been working to keep us safe through the crisis, particularly those on the front lines and the healthcare community. As we respond to the COVID-19 pandemic in the uncertain time in the world, our number one priority remains the health of our workforce and ensuring that we have a safe work environment during this unprecedented time.

Our employees have stepped up across communities and are constructing plastic face shields and cloth face masks at Aviation and TSV; producing hand sanitizers at Bell and gathering essential items for those in need at Kautex and Systems.

We continue to work in understanding and accessing the impacts of COVID-19 is having in our business. While we still have limited visibility in these times, particularly with respect to how long this crisis will affect our markets. We’re implementing actions across the company to manage and mitigate the impact this pandemic is having on our operations.

Given the diversity of our segments and end markets, the impacts of COVID-19 have had a wide range of effects on our business operations. For instance, the U.S. government has taken several actions to continue to reinforce the importance of our nation’s defence industrial base and has deemed the defence industrial base as part of the nation’s essential critical infrastructure.

Looking at our defense business, Bell and Textron Systems have maintained a steady operational cadence throughout the health crisis and we expect them to continue to do so. Bell executed very well in the quarter, with increased revenue from higher military volume and a 14% operating margin.

On the commercial side of the business, we delivered 15 helicopters, down from 30 in last year’s first quarter. We did see several deliveries push out of the quarter resulting from customer’s inability to accept aircraft due to COVID-19 related travel restrictions.

During the quarter, Bell hit another major milestone in its pursuit of the army’s Future Vertical Lift programs when it was down selected for the next phase in both of these strategically important aircraft acquisition programs for the future of army aviation.

On the future long-range assault aircraft program, the Bell V-280 Valor was one of the two competitors selected for the competitive demonstration and risk reduction phase over the next 18 months, with the expectation that the army will award a preliminary design contract in Q4 of next year. V-280 is well positioned to entering this final phase of the acquisition selection process, as it now have been in flying for over two years while continuously demonstrating its speed, agility and versatility in both piloted an autonomous flight.

On the future Attack Reconnaissance Aircraft program, the Bell 360 Invictus team was selected as one of two competitors for the design, build and testing of a prototype rotorcraft. The Bell 360 Invictus offering includes the proven high performance rotor system and fly-by-wire controls from our 525 Relentless, an affordable, sustainable and highly lethal design.

At Systems, while overall operations were strong for the quarter with higher volume across most of our product lines, lower operating margin of 7.9% in the quarter and was comparable to the 9.1% was unfavorably impacted by our simulation product line related to the downturn in commercial aviation. We’ve announced furloughs and suspended operations at our simulator manufacturing facility in Montreal as airlines and training centers have significantly reduced their outlook for the acquisition of training devices amidst this health crisis.

In the quarter, Textron Marine & Land Systems delivered the first ship-to-shore connector craft 100 to the U.S. Navy and craft 101 is scheduled to enter builders’ trials in the second quarter. Also on ship-to-shore connector, the $820 million follow on production contract for the next 15 craft was fully definitized in mid-April. This is a critical milestone and we believe demonstrates the Navy’s commitment to the program. This now brings the total number of craft to build at Textron Systems to 25 of the 73 craft program of record.

Textron Aviation, we announced employee furloughs in late March to address expected lower demand for new aircraft and related service activities. In the quarter, revenues were $872 million down $262 million from the first quarter of last year. We delivered 23 jets, down from 44 last year and 16 commercial turboprops, down from 44 in last year’s first quarter.

Entering the quarter, we expect lower unit deliveries from both the change in the mix of aircrafts sold and the availability of completed aircraft as we work to recover our composite manufacturing operations following the accident that we experienced at the end of 2019.

During the quarter, we also experienced delays in aircraft deliveries due to customer’s inability to accept their new aircraft in Wichita, based on COVID-19 related travel restrictions. We expect these aircrafts will deliver as the travel restrictions begin to lift.

Looking to the market; aftermarket, revenues were down about 3% as compared to last year’s first quarter. Service activity was strong through the first two months of the quarter but began to slow in March as effects of the pandemic on air travel continues to expand.

Moving to backlog, there was a $290 million decrease from the fourth quarter balance of $1.7 billion, primarily due to a revised demand outlook from a fractional jet customer resulting from the pandemic. As government travel restrictions and other social distancing guidelines were implemented, we experienced a pause in sales activity as face to face meetings and demonstration flights came increasingly difficult to conduct. These actions led to the decline of retail order activity in the quarter. On the new product front, the Cessna SkyCourier completed engine ground runs in March and is on track for first flight in the second quarter.

Moving to Industrial; revenues of $740 million were down $172 million from last year’s first quarter largely related to lower volume in our fuel systems and functional components product line. Auto manufacturers began to shut their factories in response to the COVID-19 crisis at the end of January beginning in China. As a Tier 1 supplier to the industry, Kautex closed their facilities accordingly.

In China, the Kautex facilities have recently come back online and are ramping up based on demand signals from the customers. In Europe and the Americas, the auto OEM shutdown began in mid-March and are expected to last through early May in most cases with our facilities restarting accordingly.

Textron Specialized Vehicles began employee furloughs in March to address the lower expected demand across our business. Our ground support equipment business has been impacted particularly hard as commercial air travel has slowed and airlines have pulled back on equipment purchases. Production has been suspended and we will continue to monitor the demand outlook.

In outdoor Powersports distribution channel, including both retail stores and dealers has been impacted by the crisis as consumer spending has significantly slowed and many dealers and stores have been required to close to government shutdown orders and other operating restrictions. Production of the off-road products has been temporarily halted.

Golf and PTV are continuing to operate with some inefficiencies driven by required social distancing guidelines as they work to meet customer commitments. The team is doing a good job of working through these difficult times.

In summary, COVID-19 has had a significant impact on employees’, operations, suppliers and customers across each of our segments. With the continuing uncertainty around the pandemic, we are confident in the actions that we’re taken to protect our workers and maintain our businesses while continuing to meet our customer commitments.

With that, I’ll turn the call over to Frank.

Frank T. Connor — Executive Vice President and Chief Financial Officer

Thanks, Scott, and good morning everyone. Revenues in the quarter were $2.8 billion, down $332 million from last year’s first quarter, largely driven by lower volume at Textron Aviation and Industrial. During this year’s first quarter, we recorded $39 million in pre-tax special charges related to the impairment of intangible assets at Textron Aviation and Industrial due to economic disruptions caused by the COVID-19 pandemic.

Excluding those charges, adjusted net income was $0.35 per share, down from $0.76 per share in last year’s first quarter. Segment profit in the quarter was $156 million, down from $294 million in the first quarter of 2019.

Manufacturing cash flow before pension contributions, a non-GAAP measure, reflected a use of cash of $430 million, which was in line with our first-quarter expectation. Let’s review how each of the segments contributed starting with Textron Aviation.

Revenues at Textron Aviation of $872 million were down $262 million from a year ago, primarily due to lower volume and mix of $260 million, largely the result of lower Citation jet volume of $154 million and lower commercial turboprop volume of $99 million. The decrease in Citation jet and turboprop volume largely reflected a decline in demand related to the pandemic, disruption in our composite manufacturing production due to a plant accident that occurred in December of 2019, and delays in the acceptance of aircraft related to COVID-19 travel restrictions.

Segment profit was $3 million in the first quarter, down from $106 million last year, primarily due to the lower volume and unfavorable impact of $23 million from performance, which includes $12 million of idle facility cost recognized in the first quarter of 2020 due to temporary manufacturing facility closures and employee furloughs, resulting from the COVID-19 pandemic. Backlog in this segment ended the quarter at $1.4 billion.

Moving to Bell; revenues were $823 million, up $84 million from last year, primarily on higher military volumes, slightly offset by lower commercial volume, principally due to delayed deliveries as a result of COVID-19 travel restrictions. Segment profit of $115 million was up $11 million, largely on higher military volume, partially offset by the unfavorable impact of $8 million from performance and other.

The performance and other included $25 million in lower net favorable program adjustments, partially offset by lower research and development costs. Backlog in this segment ended the quarter at $6.4 billion.

At Textron Systems, revenues were $328 million, up $21 million from a year ago, primarily due to higher volume across most of our product lines. Segment profit of $26 million was down $2 million as unfavorable performance was largely offset by higher volume. Backlog in this segment ended the quarter at $1.4 billion.

Industrial revenues of $740 million were down $172 million from last year, primarily related to lower volume at our fuel systems and functional components product line, as Scott discussed earlier. Segment profit was $9 million, down $141 million from a year ago, largely related to lower volume.

We also realized approximately $13 million of unfavorable performance in the first quarter due to manufacturing facility closures and employee furloughs, resulting from the pandemic that was mostly offset by other favorable performance. Finance segment revenues decreased $3 million and profit decreased $3 million.

Moving below segment profit, corporate expenses were $14 million and interest expense was $34 million. During the quarter, we initiated a number of financing activities to enhance our liquidity position, given the uncertainty in the marketplace, we issued $1.25 billion of debt that included $105 million of commercial paper $650 million of 3% 10-year notes to refinance current year debt maturities and a $500 million of 364-day term loan credit agreement that was fully drawn on April 2nd. To further enhance our liquidity position, we received $377 million in proceeds from borrowings against corporate-owned life insurance policies with no stated maturity.

Prior to the onset of the health crisis, we repurchased approximately 1.3 million shares in the first quarter at an overall cost of about $54 million. Consistent with the covenant in our new $500 million term loan we have suspended share repurchases until the outstanding balance under this agreement is repaid.

At Finance, we have an upcoming debt maturity in December of 2020 for $150 million and we expect to refinance that note later this year. Within this current environment, we’re focused on our cash preservation. We’re working closely with our leadership teams across our businesses on a weekly basis to efficiently manage our working capital and eliminate discretionary expenses. We’re also evaluating all capital expenditures and deferring those projects that are not critical at this time.

From a liquidity perspective, we believe we have sufficient funds to meet our obligations and fund our operations despite the uncertain environment. We understand the importance of managing our cash balances and we’ve taken actions to enhance our liquidity profile. Our cash balance at the end of the quarter was $2.4 billion and we maintained an undrawn revolving credit facility of $1 billion which matures in October of 2024.

With that, I’ll hand it back to Scott.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Great. Thank, Frank. While we’ve suspended our earnings guidance for the year due to the uncertainty around the COVID-19 pandemic, I would like to briefly touch on the outlook for each segment.

At Industrial, our fuel systems and functional components product line is obviously reliant on automotive production recovery. It’s still too early to tell how the crisis will impact retail auto sales and ultimately automotive OEM production. But today we are experiencing recovery in China and based on current industry expert forecasts and dialog with our customers, we expect to see Europe and the Americas resume production in the second quarter, with production ramping in Q3 and Q4.

In the vehicle business, TSV has experienced significant disruptions in the markets. Consumer discretionary aspect of the outdoor Powersports business remains difficult, but we are taking actions to minimize our costs and manage working capital through the downturn.

At Aviation, while we continue to take some orders, the normal pace of interaction with customers has obviously been slowed. We’ve suspended most new aircraft production through the end of May, while continuing to deliver aircraft on existing orders and provide customer’s aftermarket services and support.

While it will vary by region, we expect to see our sales team start engaging with customers in the latter part of Q2. For our aftermarket business, we expect overall flying hours to begin to pick up in Q2, leading to an increase in activity in our parts and service business in Q3 and Q4.

Systems is predominantly defense oriented segment and we believe it will remain on track to meet our expectations for the year. At Bell, given the strength of the defense business, we expect performance will be consistent with our expectations for the full year.

To wrap-up, we’ve demonstrated our ability to execute through significant market disruptions in the past, and we’re confident that we’re implementing the necessary actions to address this crisis as well.

At Industrial, we are committed to our strategy we have in place to strengthen our retail channel through our Bass Pro partnership and Snowmageddon presale event within the Powersports business.

At Kautex, we continued to collaborate with our OEM customers as we invest in new technologies for plug-in Hybrid Electric Vehicles and Battery Electric Vehicles to position the business for ongoing opportunities as the automotive industry continues to evolve to the next generation of cars.

At Aviation, while clearly difficult situation, we do believe this cycle has fundamental differences from the challenges we experienced in the 2008-2009 downturn. The secondary market for pre-owned Citation aircraft is much stronger today as compared to 2008, with significantly fewer aircraft for sale and a dramatically lower number of aircraft under 10 years old.

As such, we do not view the pre-owned market as an impediment to the sale of new aircraft. The private aviation environment is also different in a couple of ways. We don’t see the negative perception associated with the use of private aircraft that was brought on during the 2008 financial crisis.

Conversely, we believe that private aviation will be viewed more positively today from a health perspective as business travel restarts with the resumption of the economy. We also enter this cycle with a much stronger and more highly differentiated product portfolio, having introduced Latitude and Longitude. Additionally, we have a pipeline of new aircraft with the SkyCourier and Denali that will help to drive future growth in new markets.

Our defense businesses are well positioned with our current production contracts in addition to recent awards on development programs at both Systems and Bell that represent opportunities for significant growth in the future.

At Systems, we achieved important milestones on existing programs like the ship-to-shore connector program as well as unmanned aircraft and surface vessel programs. Also, we believe the recent award of a development contract under the robotic combat vehicle medium program coupled with awards on several weapons programs present promising opportunities for future growth in this segment.

And finally, the recent awards on the FLRAA and FARA Future Vertical Lift programs are the result of our commitment to invest in new products and technologies for future growth. These awards will [Indecipherable] us to continue to work with our army customer to address their specific weapon system requirements and to support the Army Futures Command acquisition strategy to accelerate the deployment of these important programs to the war fighter.

That concludes our prepared remarks. So, operator, we can open the line for questions.

Questions and Answers:

Operator

Okay. [Operator Instructions] Your first question comes from the line of Sheila Kahyaoglu. Please go ahead.

Sheila Kahyaoglu — Jefferies — Analyst

Hi, good morning, Scott and Frank. Thank you for the time.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Good morning.

Sheila Kahyaoglu — Jefferies — Analyst

I just want to start out on a positive note because I’m sure we’ll hear tons about Aviation profitability later, but in terms of the down-select for the Future Vertical Lift Programs, these were two big milestones. How do you think about the timeline from here? And given the OTA nature of these contracts, how do we think about R&D or should spending levels be pretty consistent?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Well, it’s a good question, Sheila. I think the timelines obviously are different for the two programs, FLRAA, which is pretty mature. I mean we’ve been flying for over two years now on the V-280, I think this phase that we’re entering into under the OTA, the customer has basically who, by the way, has very much stayed totally consistent with their schedules and delivering on announcements, rewards and staying on their timeline.

As basically said, this is an 18-month process, so the expecting the next selection and entry into the next phase in the fourth quarter of next year is a relatively short time frame. Obviously what’s important for us in this window is to continue to reduce risk, work with the customer on taking the foundation of what we’ve created on the V-280 and making sure that we accommodate the requirements to turn this into a weapon system. Obviously it has to accommodate mission systems and sensors and weapons into the future.

The other thing working obviously in this space, which is very important for us we’re investing in a brand new manufacturing technology center. So we’ve been able to demonstrate what the craft can do. Now we have to demonstrate that it can be very affordable and that it can meet the kind of great volumes that they need, when they go into EMD and on into production.

So that’s what needs to happen here in this 18 month window. And again I think the customer has demonstrated that they’re on track and meeting everything they’ve said in terms of timeline. So we feel pretty good about that.

FARA is in a different place. Obviously, this is kind of — we’re starting to go from the paper design and proposal which — for which we were down selected. We’ve already started to build critical components for this program. We’ll have a couple of years, little over two years to fly this thing and then it will go through a similar process as FLRAA went through on under the JMR program and have a fly off.

So that’s out there a few years. But again, the customer has been great about staying on their timelines and I think we feel good about both those programs, which, as you say, are huge opportunities if we are ultimately selected for the next phase of those programs.

[Speech Overlap] R&D — so, I’m sorry, on the R&D part Sheila. So at this point — so R&D spending at Bell, on a gross basis, will be up pretty significantly. Both of these programs are one-third Bell, two-third customer cost share. So, on a gross basis, we’ll see an increase in R&D, but on a net basis, because we’re going from largely purely company funded on these programs to a cost share, you’ll actually — you should see a reduction in net R&D.

And remember, none of this goes through the revenue line because of the cost share nature of the contracts, we’ll incur that gross R&D and in that, customer contribution will be netted out against that.

Frank T. Connor — Executive Vice President and Chief Financial Officer

And Sheila, the timing and the scope of what we’re now been awarded is consistent with what was in our guidance, we had anticipated these down-selection in our guidance.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Yeah. We have both FARA and FLRAA in our original operating plan.

Sheila Kahyaoglu — Jefferies — Analyst

Okay, thank you. And then, if I could ask one on Aviation. GD and Embraer were pretty adamant, there was no demand deterioration, but your prepared remarks makes sense if you can’t meet a customer face to face, it’s hard to sell an aircraft. I was just sort of surprised that the backlog ticked down from that fractional customer. I thought that would be one area that might actually see a pickup in terms of fractional usage.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Well, that’s a good question and I think that remains to be seen. So look, I mean it’s not a secret, this is NetJets, right. They are our partner in the fractional market. It’s been a great relationship. These guys are a hugely important part of our business in terms of going to market and addressing that fractional customer base.

So what happened? Obviously the NetJets sales force saw the same thing we saw, right, which was people sort of stopped as the pandemic hit. And so what we’ve done with NetJets is kind of gone through — they are still taking quite a few deliveries this year on both Latitude and Longitude. They have aircraft out there that are sold and customer commitments and we continue to operate and work with them.

But they also said, look, until we see the sales turn back on, aircraft — other aircraft that we would have expected to take delivery this year, we’re going to take out of the book. So I think what will really happen here in terms of the fractional market is not unlike our whole aircraft sales force is once the people are able to get out and engage and continue to work, we’ll see how that really plays out.

I think when I talk to Adam they’re seeing a lot of inquiry and lot of activity in both jet card as well as prospective fractionals because a lot of customers — and frankly, the good news is a lot of customers who have not been business aviation users in the past, are thinking about what happens when the economy turns on and they need to start to get back out on the road to see whether it’s customers or suppliers or factories, plants.

We expect that you’re going to see a lot of new people come into this and we’ve seen that in discussions with Adam and the NetJets guys. We had the same discussions in the club membership and managed model with Wheels Up and Kenny Dichter.

So I’d say it’s anecdotal at this point, but we certainly — there is some reason to have some optimism here around the fact that we’re seeing a lot of activity through those channels that are new players, new folks that we are seeing potentially coming into the business aviation industry.

Sheila Kahyaoglu — Jefferies — Analyst

Okay, thank you very much.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of George Shapiro, please go ahead.

George Shapiro — Shapiro Research LLC — Analyst

Hi, good morning.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Good morning, George.

George Shapiro — Shapiro Research LLC — Analyst

Just to follow up on Sheila’s question. So if you looked at 0.64 book-to-bill, I mean how much was that reduced because of NetJets coming out, because it would seem like NetJets’ deliveries were going to be a reasonably high percentage of the total this year?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

George, we didn’t have any other cancellations other than what I just talked about around the NetJets side of things. So we didn’t see other cancellations come out. One of the challenge of course is we didn’t see a lot of new stuff go in, because sales activity pretty well came to a halt and — look it’s not zero, I mean, and frankly, even as we come through here in April, deals are getting closed.

There is customers out there who certainly had been engaged with us for some time who’ve been looking at the aircraft, who probably had demo rides and they’re now saying okay it’s time to move and go ahead and put the order in. but it’s a very difficult environment to go out there and develop new customers at this stage of the game until we can really get out there and get face-to-face.

Folks can do demo rides, they can get to Wichita and look at interiors.

As you know, it’s a pretty involved sales process. But those were — the contributing pieces were the cancellations on the fractional side and just frankly, the lack of a lot of new order activity on the retail side.

George Shapiro — Shapiro Research LLC — Analyst

And how many deliveries weren’t you able to make because of the travel restrictions?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

It was — I mean total number of aircraft in jets was — I mean it was a Longitude, a couple of M2s, a CJ, there were a couple of King Airs, four or five Caravans, a dozen 172s. It was a relatively small numbers, but it was pretty much across the whole portfolio. But when you start talking about Longitudes and CJ3s, it’s not true from a revenue standpoint.

George Shapiro — Shapiro Research LLC — Analyst

And then maybe one for Frank. The Bell margin was particularly high, especially the lower EACs. You said the R&D — lower R&D offsets some of it. I mean, do I assume it offset half of it or so and do the margins really substantially tick down in subsequent quarters because of, just to be able to get close to your guidance, which is the high-end of being 12%.

Frank T. Connor — Executive Vice President and Chief Financial Officer

Yeah, I mean was it was a good quarter for Bell. R&D will continue to increase over time as we move through the year. And as Scott said, our expectation for Bell overall is that it’s kind of on track, consistent with our original guidance for it.

George Shapiro — Shapiro Research LLC — Analyst

But I mean, it requires some substantial reductions in subsequent quarters to get down to even your high-end of 12%.

Frank T. Connor — Executive Vice President and Chief Financial Officer

Yes. And as you know Bell has done better than our guidance for a number of years here and we’ll see how the year continues to develop.

George Shapiro — Shapiro Research LLC — Analyst

And then one last one for you, Scott. Unless I missed it in your commentary about each of the sectors, you didn’t give commentary on Systems, maybe that’s because you don’t know where simulation is going to go, or did I just miss it?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Well, I think, George, in Systems, things are generally going very well, right. Their ship-to-shore connector program has hit a couple of important milestones in terms of that program starting to deliver the craft. Getting the milestone of the first sales of 100 across the goal line was very important, 101 is not far behind it. We continue to work through those issues on the — I mean there is still more craft to deliver, obviously on the development contract.

Definitization of the production contract for the next 15 craft was a very big deal. We’re continuing to see increased hours on, for instance, our fee-for-service unmanned aircraft programs. We’ve had a lot of key milestones on our unmanned surface vessel Programs that’s moving into the next phase, which is very good. We did win, you know we got into development contract but an important, on the RCV medium. And as I said, all the weapons programs GBSD.

So I think both the performance under the current programs that we have are looking very good. Critical new programs that we need to win and execute on are looking very good. The only soft spot really in the Systems world right now is particularly the air transport market on the simulation and training side, which is — again we’ve shut that down and we just don’t have any demand on the airline side, which is understandable.

These guys aren’t going to be laying out any kind of capex and do an upgrades and the things that are kind of normal flow business in that, in that business right now. But outside of that, both current execution, current programs, as well as important new wins were quite strong in Systems in the quarter.

George Shapiro — Shapiro Research LLC — Analyst

Okay, thanks very much.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Sure.

Operator

Your next question comes from the line of Robert Stallard. Please go ahead.

Robert Stallard — Vertical Research Partners LLC — Analyst

Thanks so much. Good morning.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Good morning.

Robert Stallard — Vertical Research Partners LLC — Analyst

Scott, on Aviation, I just want to clarify really what’s going on at the moment. It sounds like the plants are at a low level of activity. And if that’s the case, when things come back, do you expect volumes to be moving back to say where they were at the start of the year or do you anticipate being a fraction of what it was previously?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Robert, you’ve asked the big question, alright. So what we’re doing right now Aviation is just completing a four week — or has just completed a four week furlough. We’ve extended that another four weeks. So what’s built in right now is an eight week shut down. There is some minimal activity in terms of completing aircraft that were already under order for delivery. But for the most part, the production lines themselves are shut down, the furlough included, across the whole workforce.

We are bringing teams back in and getting the new product programs for the SkyCourier going. But — and the reason we’re doing this Robert is we just don’t have good visibility into what that production rate needs to be for the balance of the year. We always gauge that based on looking at our sales teams and understanding order flow and what’s going on in terms of the normal progression of customers moving from enquiry all the way through to taking in order and we’re sort of — we don’t have that right now, right.

So, we’re basically doing the furloughs to buy time to see the economy start to pick back up for people to be able to travel and understand where they are, so that we can gauge what do we need to set that production run rate for the balance of the year.

So that’s — I mean that is the big question, okay. So — and again, I think there’s a lot of reasons to be optimistic around what business aviation, what role it plays as you come out of this pandemic and people do need to travel and they want to do it safely and from a health standpoint and they don’t know what’s going to be going on the commercial airline side about how quickly that comes back, what the routes, availability, you know all that sort of stuff.

So — and we certainly see anecdotal things that would indicate that there is reasons for optimism, but you also have to weigh that against business confidence and people and how do they feel about expanding that capex to acquire that aircraft. So this remains to be seen and that’s why we’re doing what we’re doing, right. So the furloughs are mechanism to buy us some time and have better visibility so that we can set what we believe our appropriate levels of production, as we frankly finish 2020 and how we think about 2021.

Robert Stallard — Vertical Research Partners LLC — Analyst

Yeah, makes sense. And as a follow-up, Frank, your raised some debt against the insurance policy this quarter. As far as I know, it’s pretty unusual. Can you give us an idea of what the sort of cost of debt was on this debt and why you went down this avenue versus more plain vanilla stuff?

Frank T. Connor — Executive Vice President and Chief Financial Officer

Yeah. Well, we did this back in ’08, ’09 also. It’s a ready source of cash, it’s got a slightly higher cost to it than kind of a more normal borrowing it was, but we did it at a time frankly where we were seeing very significant dislocations in the financial markets. The Fed had not yet acted the way it’s acted. People kind of were not — we were seeing access to the markets dry up and we just want to make sure that we had plenty of liquidity in anticipation of a potential downside to frankly what we’ve seen so far.

So it’s a bit of an insurance policy against our insurance policies and it is a source of liquidity. The reason that we did it at the time is there is a scenario where if we request that cash value, it can take — the insurance companies have up to six months to provide it and so we want to make sure that we got in front of any type of delay, if there was really a liquidity disruption in the markets.

Robert Stallard — Vertical Research Partners LLC — Analyst

Okay, thank you very much.

Operator

Your next question comes from the line of Peter Arment. Please go ahead.

Peter Arment — Robert W. Baird & Co — Analyst

Yeah, thanks, good morning, Scott, Frank. Scott, I guess unprecedented times, I mean how are you — have you been doing a lot of assessments of the supply chain. How do you assess the risks or disruptions that you’re seeing across your business?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

It’s a good question, Peter, and look, I think it’s a day-to-day fight, right. I mean we haven’t seen any major issues. But without a doubt, there is such a patchwork of different rules and degrees of shutdown in different states that we track this every day. And so we haven’t seen anything that’s an unsolvable problem, but we’re it managing every day. You know you have a supplier that’s down for a week or so, and we work around that.

So — and again, we’re not — for sure, Aviation is largely shut down, the vehicle — I mean a lot of our stuff is already shut down. But Bell operates every day. Systems is operating every day. We do have the golf lines on PTV back up and operating. And while we see small flare-ups on supply base issues we’re able to resolve those and frankly that goes for our own operations, Peter, right.

It’s — you’re operating under unusual circumstances and some inefficiencies here and there, but I think it’s a, these are tactical issues and the guys have done a really nice job of staying on top of it and kind of working through it every day.

Peter Arment — Robert W. Baird & Co — Analyst

Yeah. And just quickly on Aviation, just can you update us where you are on the post the composite facility the accident there, where things stand there?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Yeah, sure. Look the guys, again, did a fabulous job. We basically have the composites operation back up a 100%. So at this stage of the game, we’re kind of working on the catch-up activities. We’ve been doing some operations in there to catch up on critical components. So there’s still work we need to do to bring all of our sort of in-house organic capability back up to speed, particularly on the autoclaves. But the composite lay-up facility and all that detail work is fully back up and operating, but we’re having to ship stuff mostly cross town.

Spirit, we’re using a lot of their autoclave capacity. So Tom and his guys have made that available to us, so we’re running in at a 100%. So I think that’s a problem that’s largely behind us. Although as we said, we’ll — we still have some inefficiencies because of having to use autoclave capacity across town, but ultimately we’ll get new ones in place and be able to get back to normal operations. But for now it’s okay.

Peter Arment — Robert W. Baird & Co — Analyst

Appreciate the color. Thanks.

Operator

Your next question comes from the line of Carter Copeland. Please go ahead.

Carter Copeland — Melius Research — Analyst

Hey, good morning guys.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Good morning.

Carter Copeland — Melius Research — Analyst

Frank, I wondered if you could help me understand the — in the Bell result in the quarter, I assume the FLRAA booking. You were able to book some revenue associated with work that have been done to date and just maybe help us understand how that did in terms of the results and how we’re thinking about the phasing revenues and margins from here because I imagine that was a big event for those guys?

Frank T. Connor — Executive Vice President and Chief Financial Officer

Well, it doesn’t impact revenue. What it does impact is net R&D. So again, kind of — there is significant gross R&D effort going on at Bell vis-a-vis both FARA and FLRAA, but particularly on FLRAA. We had invested in advance of that award and so we did see some benefit in the quarter associated with the award and effectively the government sharing that offset then our gross R&D effort that resulted in a lower net R&D effort. That’s why I said, kind of earlier that we’ll see net R&D at Bell rise as we move through the year as a result of both increased effort, but also not having some of that catch up that benefited the first quarter.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Cater, we got a couple of question on this, just so people understand, this does not go through revenue, right. It is a cost share. It was in our plan. We still had lower R&D in Q1 because of what we expected to be ramping in the level of — significantly ramping the gross R&D through the course of the year, which will happen to execute on FLRAA and FARA and our net piece will also ramp through the year as a result. But it’s not something you’ll see you go through the revenue line.

Carter Copeland — Melius Research — Analyst

Okay. All right, thank you, that’s very clear. And then, just as a follow-up Scott, I wondered — I appreciate the commentary, the differences in the forward outlook for Aviation. But if you, can you kind of parse that — how you’re thinking about the forward outlook for jets versus turboprops and how that may play out differently? I appreciate the color. Thanks guys.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Again, a good question. I wish we had better insight to it. Turboprop was hit pretty early in the year because we do so much in Asia, and as Asia kind of works their way through this, we’re hoping we’ll start to get some better insight into what’s going on in the Asian market, which will particularly be impactful, I think on the turboprop side of things.

On the jet side of things; again, I think if you — my thought around this thing, and again, talking to Adam and Kenny and the Wheels Up and NetJets, you see the kind of enquiry and customer activity that they’re seeing, most of this particularly as new people come into this market, it’s most likely they start in sort of that either Charter Club membership, jet card, but we’re going to see it and we are seeing some of it in fractional and I think ultimately you will start to see it in managed aircraft, right, where people conclude that look a whole aircraft makes sense for me.

And again, it’s just like everybody else in this industry, it’s based on how many hours a year are you — do you need to fly to determine what makes sense for you in terms of which of those kinds of products, if you will, are going into business aviation. But it’s — from my perspective, all these things are important, right.

So driving utilization, even if it’s in Memberships and jet cards is more flying, which is more service as customers do more equity-based. And again whether that’s a fractional or it’s a whole managed aircraft; again that’s — that’s obviously very good for us. I just — we just don’t know what the timing of that progression looks like.

And I’m not sure we’ll get a lot better. And look, we love that we are that Wheels Up and NetJets are seeing this kind of activity and new customers coming into the market. We’ll have to give it some time here to see how that sort of trickles through the whole enterprise, if you will.

Carter Copeland — Melius Research — Analyst

Great. Thanks, Scott.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Sure.

Operator

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

Jon Raviv — Citi Investment Research — Analyst

Hi, good morning and thanks for the time. Scott, you mentioned how Textron has historically been able to manage through these sorts of crisis and issues and certainly appreciate that you’re in a much stronger spot, much different spot today than just over a decade ago. But how are you thinking, I mean just sort of pooling from the history of the company and your previous experience, how are you thinking about how you want the company to emerge once this is all done?

Is it maybe de-emphasizing certain parts of the business or de-emphasizing others. Appreciate that defense is clearly a lot more sticky kind of no matter what happens. How are you thinking it you know with the perspective of your long career? How you want Textron to emerge on the other side?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Well, look, I think part of where we are today versus where we are is, our balance sheet’s in a much better place obviously. We don’t have some of the challenges that we had a decade ago. I think our investments in new products positions us better than we’ve ever been as you play through the cycle. I mean the fact that you have the FARAs and FLRAAs at Bell, and you’ve got the Longitudes to certify, the Latitude a very strong product. Things like SkyCourier in the pipeline.

You look at what’s going on in our Systems business, the things that we’ve done around investments in the unmanned side, both in the air vehicles, the surface vessels and now the investments we’ve made here recently both organic and through the acquisition of Howe & Howe on the land side. I just think we’re much better positioned and that’s going to continue to be our strategy in those businesses is how do we make sure that that we have the kind of product and service networks that are — make us a more robust business?

And I mean this is a cycle that no one ever could have imagined, obviously, but I absolutely believe that we’ll come out of this in a better place than we’ve ever been. I mean things that we’ve been investing in for years to position us are happening as we speak. And I think it’s a shame a thing like a Longitude gets certified and 60 days later, the market stops.

But look, that’s a transient. I mean this too shall pass. Things like the FARA and FLRAA down-selects. And while it’s unfortunate that that happened right smack dab in the middle of a global economic shut down, but that’s — again that’s a transient. These are programs that have the potential, and obviously we need to stay very focused and execute very well with Army customer in order for us to be the guy that ultimately gets selected to go forward on production and we have to keep focused on working hard to make that happen.

But these are — I see these things that are happening, obviously in the nature of this pandemic is a very transient thing. Now look, there is other businesses where we will look very hard at, are there opportunities to consolidate some things and say “Look if I got some plant that are closed, are there more efficient ways to operate, manage.” But we’re looking at all those things.

So, but I think the bottom-line is, this is a terrible moment in time and trust me, it’s not fun in running businesses where your plants are shut down, but this is a transient. And I think we’re in a radically different position than we were a decade ago in some of our most important end markets. When you think about the Aviation side, it’s just a totally different dynamic, coming out of this than coming out of that ’08, ’09 cycle.

Jon Raviv — Citi Investment Research — Analyst

Yes, thank you for that perspective. And then, just thinking about Bell, which seems to be obviously a good new story in the quarter on the military is very strong. Just thinking about the next couple of years there though, obviously we know that the V-22 numbers come down, but I know you’ve talked about the aftermarket type work bullying that somewhat. So can you just remind us of the sort of trajectory of Bell military? And then also what are we seeing in Bell commercial right now, especially with something like the 525?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

So look, Bell Military, obviously very solid for the quarter and we expect it to stay that way. As we’ve talked about before, we are definitely seeing a transition here over the last year or so and we’ll continue to see that going forward where unit volumes are sort of flat to down a little bit and they’re not just a function of the program of record on things like V22 and H1, but there has been significant growth in the aftermarket.

Both of those platforms are heavily utilized. Their fleets have grown and the government frankly is looking for us to play a bigger role in sustaining and maintaining and frankly starting to upgrade some of those fleets. So I think we’re well positioned for that and that was born out here in the quarter right. So we’re seeing solid growth in the aftermarket on those things and that will help sustain that business and keep it, frankly, in a good place as we transition to whatever those next new platforms. May be, obviously focused very much on the FLRAAs and the FARAs of the world.

On the commercial side of Bell, we do a lot of parapublic and international sales. Those are largely holding up. Obviously like all these businesses, sales activity right now is lower on some of the things like a 505, for instance, which is a shorter cycle sale, a lot more individuals and small corporate type things. So I expect that to be a little softer.

But this is a very small amount of revenue and margin associated with that. It’s a fabulous product. But it will go through a cycle not unlike a general aviation sort of business, but so much of the 412, 429, 407 is parapublic, EMS, a pretty well diversified set of end markets, which will be a little more resilient to a cycle like that.

With that being said, we are, of course, looking at those order rates and we’ll make any production related adjustments, as appropriate. That’s obviously a very big service business as well, which again is very solid and was up in the quarter. People are — people are flying in those markets.

Jon Raviv — Citi Investment Research — Analyst

Thank you.

Operator

Thank you. Your next question comes from the line of Ron Epstein. Please go ahead.

Ronald Epstein — Bank of America Merrill Lynch — Analyst

Hey, good morning guys.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Good morning, Ron.

Ronald Epstein — Bank of America Merrill Lynch — Analyst

Maybe just — following up on the Bell question, have you seen much of an impact or is it too soon what energy prices have done, given oil completely collapsed. Has that had any impact on Bell yet? Do you expect it to, how you’re thinking about that?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Ron, as you know, we don’t have a huge part of the business that’s oil and gas related. It’s — there is a number of deals that are sort of in the pipeline that are kind of 412 or 429 related. There is a couple of things that were, as I said, that were in the pipeline that we haven’t heard about yet, but it’s because couple of these countries are just totally shut down.

So whether it affects their strategy or not, I don’t know. As you know, a lot of operators and I don’t think this will change in that industry, do put limits on how many hours aircraft have, and ages of aircraft to meet their standards to provide service to the oil and gas fields. So there is — that drives demand. I mean, there is regular turnover with a lot of these key customers.

And remember Ron, we’re not — today, we don’t do a lot of the big offshore stuff right. It’s the Gulf. It’s a lot of the near shore sorts of operations and those tend to be the lower cost fields which I think are the ones that are more likely to hang in there. I think it’s safe to say right now, you’re not going to see a whole lot of deepwater big dollar investments to get at some of the more expensive oil. So — but people are still producing and they’re still going to have to run their operations so — I mean I don’t think it’s a good thing for the oil and gas market for sure, but it’s not one that which we have a huge exposure.

Ronald Epstein — Bank of America Merrill Lynch — Analyst

Got you. And then, maybe just as a follow on. Textron Finance right, obviously is a shadow of what it once was, particularly in the last downturn. But sadly the golf industry has been put on ice for a while here. I mean, have you seen that impact finance because I still, there is still some golf properties kind of wrapped up in there and has that impacted finance and how has that impacted E-Z-GO?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Yeah. So two things. So, first of all, we have zero golf in TSV now. There are no golf properties. The last of that got sold off actually and account closed out and gone last year. So we are officially out of the golf course finance business. So we have no exposure there.

Golf, as you know Ron, the cars themselves are primarily, almost all are leased. So as clubs reach the end of their leases. They do they do roll and end those leases. I mean you can do a six months extensions and some stuff like that for sure, but the demand in the Golf side of the business right now remains very strong. As you know, we introduced the lithium-ion stuff a while back and that’s been a fabulous product for us. Demand is very strong.

This year, we introduced a brand new, we think, market leading gas product, which is a segment — we haven’t been a big player for a long, long time. We’ve seen a nice uptick in demand driven by that. So the golf business is running. Now my only challenge on golf right now is just build enough golf cars and the difficulty there is — you know our cars are doing a great job. They’re working.

I was down in Augusta a few weeks ago with them and we’re running — we’re running the golf line but what used to be every 2.5 minutes we can produce a golf car, we’re running at about seven minutes right now and that’s because of the social distance, right. We’ve got to our production work cells where we usually have three or four folks at every station doing assembly work. I can only have one person in that area at the moment based on the guidelines. So — but we’re running two shifts, making them and shipping them as fast as we can.

Ronald Epstein — Bank of America Merrill Lynch — Analyst

Okay, great. Thank you.

Operator

Your next question comes from the line of Robert Spingarn. Please go ahead.

Robert Spingarn — Credit Suisse — Analyst

Good morning.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Good morning.

Frank T. Connor — Executive Vice President and Chief Financial Officer

Good morning.

Robert Spingarn — Credit Suisse — Analyst

Yeah, I want to ask a question. This could either be for you Scott or for Frank. But I wanted to talk about the fact — follow on from really all the earlier questions. We’ve talked a lot about supply side disruption from COVID-19 what it’s been doing to factories and furloughs, and obviously it’s very difficult to work through. But I was hoping we could balance this with the demand destruction that might be here and I thought it might be helpful to look at your delivery exhibit and focus on jets delivered, which were down around half first quarter to first quarter and then the same for the commercial helicopters. Can you quantify or parse out how much is factory shut down, how much was the accident. How much is perhaps weakness in demand that crept into the quarter defaults or what have you, can we talk about that?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Sure, I can give you some color on it, I mean at Aviation, it’s roughly a third a third and third, let’s say, right. I mean there is stuff that we expected that we would not be able to deliver, based on the interruptions on our composite facilities, which again is a transient and we’re back to 100%. We’re still playing some catch-up there, but I think we’re getting that back under control.

There is about a third of it were aircraft where people just couldn’t take delivery of aircraft given travel constraints and there is probably another third of stuff that we would have expected, orders that would have closed in the quarter and aircraft that would have delivered that you just aren’t closing because we’re not out selling.

And I think those largely will — clearly the ones that couldn’t deliver on the travel restrictions will push out into the subsequent quarter. The order activity needs to pick up as we can get back to sales and clearly we’ll get caught up on the impact due to the composite stuff. So and I’m not going to go through all the direct numbers, but it’s roughly split amongst those things all of which I think are transient. Now it terms of what…

Robert Spingarn — Credit Suisse — Analyst

They’re all supply side right, not being able to show up to pick up your airplane is a COVID-19 problem, the factory shut down, the accident and so forth. So it sounds like on the demand side, you haven’t really seen it yet other than the cancellation of some backlog, but has anybody defaulted. We heard from a competitor that there were some defaults in the quarter.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

No. So, just to be clear, I mean, I think, again we’re winning these things in supply and demand. There are certainly were some lower volume in the quarter because of people reacting when the whole pandemic thing first got announced, right, orders that were progressing that you would have expected that you would close things in normal business and convert orders in sales didn’t happen, right.

So there is certainly some impact in the quarter on the demand side. What that means in the future is hard to predict because we’re really not back doing all lot of sales activity. So on — and as I said, on the cancellation front, no, we did not get phone calls cancelling aircraft. In fact, we called people even in cases where they said “Hey, I can’t get there.” and we said “We’ll look, you’ve got to put additional cash” and they do it, right.

So I mean people want aircraft and we saw that same dynamic at Bell. So it wasn’t a matter of people calling and cancelling. It was people not being able come pick it up in and take delivery. So the only cancellations was – again, we talked about the fractional side and I think that again that’s, I don’t — I don’t view — remember for us, NetJets is a very important. Their sales force sells a lot of our aircraft.

And so if their sales force can’t go out and sell aircraft, that’s a problem for NetJets and for us. So I don’t see that dynamic of what they’re seeing as being different than the dynamic of my own sales force, right, which is having a hard time engaging in the way they would normally engage with customers and I expect that will, that will turn once the sale teams can get back out there and go about their business.

Robert Spingarn — Credit Suisse — Analyst

You see what I’m getting at Scott is what I’m worried about is that it’s not so much that the sales people can’t logistically get deals done during this thing, but that the demand is actually worse than we think and I know you’ve characterized this period differently than the prior two downturns. But it’s hard to ignore the fact that the prior two downturns, the light mid-jet segments were down 50% over a couple of years.

And I’m just wondering if there is a hidden demand destruction that we’re looking at here because we’re going into a period of austerity, which generally accompanies these recession recoveries, people sharpen the pencil. There is a little less willingness in the boardroom to buy the airplane and I’m curious to see if you’re seeing any evidence of that yet.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

No. Look, we’re not out there selling. So I mean we don’t. I mean you might be right, I don’t know. For sure, I’m not putting you on my sales team. But this is the great unknown, guys. And again, all I can do is your facts and your perspective, if you looked at what happened coming out of 08, ’09 are undisputable. I mean I completely understand. And there was — we’ve got a lot of things were going on in ’08 and ’09, right. You had a massive destruction of wealth. You had huge volumes of aircraft that have been built in the four, five proceeding years.

So you had tons of virtually brand new airplanes, only a couple of years old with very low hours, which were the same model of airplane that you were — still in production with that you were selling against. And not to be underplay, there was a huge political bias in that ’08, ’09, ’10 timeframe of people hiding their business jets, right.

I mean it was a, just a — such a different dynamic. But again, these are all just opinions. We don’t know and I don’t want to — I want to be very clear. This is why we can’t forecast yet and why we’re trying to buy some time to get enough of this behind us to get a better perspective on what’s going on in the market and what that demand environment will look like before we make permanent changes one way or the other to our production rates.

Robert Spingarn — Credit Suisse — Analyst

Okay, and…

Scott C. Donnelly — Chairman, President and Chief Executive Officer

We just don’t know. I’m not disagreeing with you. I mean I understand your perspective. I just don’t know.

Robert Spingarn — Credit Suisse — Analyst

Yeah and I’m not trying to be overly negative. I am simply looking at what’s happened before and the fact that we — and it is unknown, but we could be in a period of austerity coming out of this thing and I would think that might matter.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Well, if that turns out to be the case, it will matter and we will absolutely react accordingly. But as we sit here today, we just don’t know. There is bull cases, there is bear cases and there is stuff in the middle and that’s — all we’re trying to do guys is get to a point where we can have a much better fundamental understanding of what that demand environment looks like to make decisions on how to run the business going forward.

Robert Spingarn — Credit Suisse — Analyst

Okay, thank you for the color.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Sure.

Operator

Next question comes from the line of David Strauss, please go ahead.

David Strauss — Barclays — Analyst

Thanks, good morning.

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Good morning, David.

Frank T. Connor — Executive Vice President and Chief Financial Officer

Good morning.

David Strauss — Barclays — Analyst

Scott, I think NetJets has been out there publicly saying that not only from you all, but total industry deliveries they are now looking at roughly 25 this year versus the plan had been 60. Is that decline, I guess, percentage-wise roughly in line with what you’re looking at versus what your initial plan was with NetJets?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

I would say that’s in line with us. And I think what Adam put out is consistent with the conversations we’ve had and what I talked about in terms of how we work with them to revise our outlook and backlog for the balance of the year. So what they put out there is absolutely consistent with the dialog that we’ve had and the work that we’ve done to realign that delivery. So there — as he indicators, look there are still quite a few deliveries here for the balance of the year, but it reflects the market as they see it today. And again, I am not sure if that’s how the market is going to look 30 days or 60 days from now, but it’s how it looks today.

David Strauss — Barclays — Analyst

And with that in mind, how quickly can you pivot if they — if they come back to you and turn things back on, how quickly can you pivot and increase deliveries back towards NetJets?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

Well, obviously, particularly for Latitudes and Longitudes we had a pretty good visibility, again based on that backlog and where we’re going. So these aircraft are there, right. I mean they’re not all 100% completed, but — and in some of them we’re waiting for some of these composite parts, but we could clearly increase number of deliveries in those categories of aircraft based on that. So I’d be, that’d would be a problem we would be perfectly happy to work on.

David Strauss — Barclays — Analyst

Okay. And then, Frank, any sort of help you can give us with thinking about working capital from here? Obviously, it was a big use in Q1. I would assume that was mainly at Industrial and Aviation, but how might working capital play out from here through the rest of the year?

Frank T. Connor — Executive Vice President and Chief Financial Officer

Yeah, I mean overall working — net working capital was not a big use in the quarter. Obviously cash flow was kind of — when I talk about that, I mean year-over-year. So that similar in terms of our normal seasonality. From a cash flow perspective, I think we would expect that we would see some use of cash in the second quarter and then we’d be positive in the back end of the year. I mean there are a lot of variables around this obviously, given the uncertainty that we’ve been talking about.

But assuming we see some restart of the economy and businesses get back going and our factory start up and our expectation, again, is some use of cash flow in the, in the second quarter, and then positive cash flow in the back end of the year and kind of normal liquidation of inventory reflecting in that as we move through the year. We have certainly decelerated things coming in and that will allow for good liquidation of inventory in the back half of the year.

David Strauss — Barclays — Analyst

Yeah, thanks guys.

Operator

Your next question comes from the line of Seth Seifman. Please go ahead.

Seth Seifman — J.P. Morgan — Analyst

Good morning. So think I got one more here. Maybe you spoke Scott about ship-to-shore at the beginning, I think, and the number of craft that you built. So with a fair number of those builds and probably starting to get down the learning curve is there — is there a cash profile there that we should kind of be aware of in terms of some collections that you guys can make as those craft get delivered and kind of when does that happen?

Scott C. Donnelly — Chairman, President and Chief Executive Officer

I don’t know if there’s anything there dramatic Seth. I mean obviously we’ve been — keep in mind one of things is we’ve been operating on undefinitized contract on the production now for quite some time. So in fact about half of the program has been executed under that. So now we’re fully definitized, but there is nothing there that would make it look very different than what you’d expect in terms of revenue, cash collection. The payment terms are quite standard for a government contract at this point, so…

Seth Seifman — J.P. Morgan — Analyst

Got it, got it. Okay, great, thanks for all the color this morning.

Eric Salander — Vice President, Investor Relations & Treasurer

Okay, Greg that will do it for now.

Operator

[Operator Closing Remarks]