“The good news is that margins on the G700 are expected to increase by 600 to 700 basis points in lot two and by a similar increment in lot three.”

In context

“eliveries, coupled with higher service revenue. We delivered 37 aircraft, including 11 newly certified G700s in the quarter. This is four fewer than we expected to deliver, but more about that in a minute. Operating earnings of $319 million are up $83 million, 35% over the year ago quarter. The 10.9% operating margin was 120 basis points lower than the year ago quarter. This was driven by G700 deliveries that carried more than expected costs from three things: First, retrofit; second, out-of-station work related to the late arrival of parts; and three, the extended certification period. This cost burden will affect 20 lot one aircraft, which includes five test aircraft that will not deliver this year. So we are through the lot one cost burden for this year within the next four deliveries. The good news is that margins on the G700 are expected to increase by 600 to 700 basis points in lot two and by a similar increment in lot three. By the time we reach lot three production and deliveries, we will have reached a steady state in terms of productivity and predictability. A few comments on predictability. You might recall that I told you we expected to deliver 50 to 52 G700s this year and that the deliveries would be more or less evenly divided over the last three quarters of the year. But we planned 15 for Q2 and deliver 11. So much for predictability. We actually had the remaining four completed and ready to go, but could not get through the preflight delivery testing in time. You might be surprised to learn that each G700 has flown about 30 hours of tests before delivery. Two of the planes also needed a supplemental type certificate because of a very different cabin configuration. That wasn't done by the end of the q”