Dassault’s civil sales climb in banner year

 - May 15, 2008, 6:46 AM

At its Saint-Cloud headquarters near Paris, Dassault began presenting its 2001 results with military precision at 9 a.m. sharp on March 6. This was almost ironic as the manufacturer, still famous for its Mirage and Rafale fighters, confirmed its main business is now Falcon business jets, which accounted for 76 percent of last year’s revenues.

In spite of a financially good year, Dassault Aviation CEO Charles Edelstenne expressed concern about the viability of a Falcon order from UAL Corp.’s Avolar frax startup. Last October Avolar inked a contract for 46 firm deliveries and options on a further 76, making 2001 a record year for the manufacturer in terms of Falcon sales.

Last year Dassault received orders for 119 Falcons. Of those, 80 aircraft are for fractional-ownership programs: 46 for Avolar and 34 for Executive Jet NetJets. The remaining 39 came from the “traditional corporate market,” according to Edelstenne. These orders (up from 90 in 2000, the previous record year) accounted for 71 percent of 2001 sales (up from 63 percent), with the remainder from the defense side. Total sales last year reached e4.87 billion ($4.24 billion), up from e4.13 billion ($3.59 billion) in 2000.

Falcon deliveries reached a robust 75 units, up from 73 the year before. They largely contributed to the e3.47 billion ($3.02 billion) revenue, which remained steady compared with the revenue of e3.49 billion ($3.04 billion) in 2000. Falcons last year accounted for 76 percent of revenue, up from 71 percent in 2000. According to Edelstenne, the after-sales business represented 10 to 15 percent of the company’s civil revenues.

Dassault’s operating profit margin has grown from 10.9 to 12.9 percent. “This profit margin comes mainly from our civil business,” Edelstenne pointed out. Net profit now represents 7.9 percent of annual revenues, up from 6.8 percent in 2000.

In terms of backlog, Falcons account for only 39 percent of the e11 billion ($9.54 billion) total. “This is due to longer order-to-delivery cycles in military aircraft manufacturing–three years instead of 12 to 15 months in our civil business,” the CEO explained.

‘Cautious’ over Avolar Order

Last fall, Dassault’s official position regarding Avolar’s mega order was confidence that it would be turned into deliveries. Early last month (before UAL’s announcement and the departure of Avolar architect Stuart Oran) Edelstenne sounded more cautious. “We are ready for any eventuality,” he said. Concerning financial difficulties at United Airlines’ parent and its plans for its frax venture, he said that Dassault executives “do not know much more than what is found in the trade press.” Excluding Avolar, last year’s orders reached 73 units, “which would be a pretty good total anyway,” said Edelstenne, adding that Avolar’s non-refundable deposit was e21.3 million ($18.6 million). He said he is confident the 10 Falcons Dassault has planned to build this year and next for Avolar will find other buyers if the order is canceled.

Edelstenne acknowledged that current plans call for an increase in the Falcon production rate to cope with this large order. “We hope that Avolar will find some investors by that time,” he said. Due to the current situation, Dassault had already postponed a planned production-rate increase to eight Falcons per month and decided to set the rate at seven per month this year (see AIN, December 2001, page 38). It has now decided to go down to five a month next year and in 2004.

The company’s workforce should not increase next year since an early retirement plan will last until 2005, shedding an estimated 800 people. This year the number of newly hired people should be “in the 200 to 300 range, down from 700 to 800 last year,” the CEO said. Dassault’s workforce currently totals about 12,000.

“This month [March] we can see an upturn in the corporate market, but we have to wait a few months to know whether it is a real trend,” Edelstenne noted. He added that deliveries would be close to 70 aircraft this year, but declined to anticipate an operational margin for the year. Falcon production this year is said to be almost sold out, “and no order from EJA is expected this year.”

The number of letters of intent for the new top-of-the-line Falcon 7X has not increased since last September, when Edelstenne said about 40 were in hand. In his most recent address, he said “some” have been turned into firm orders.

Three hundred engineers from 18 companies are currently working in the Falcon 7X “design plateau” in Saint-Cloud in a concurrent engineering organization. “The 7X is a $265 million program, when you include all risk-sharing partners except the engine manufacturer,” Jean-François Georges, Dassault’s senior vice president of civil aircraft, told AIN.

He added that customer-support managers were also participating in the 7X design. Maintenance time and cost have been targeted to be 20 percent below those of current Falcons. First flight of the Falcon 7X is still pegged for early 2005.

Asked about the status of the major 7X-dedicated extension in the Bordeaux-Mérignac facility, Edelstenne answered, “The decision is maintained.” However, AIN has discovered that there will be a four-month delay in groundbreaking. This first step in building the facility was originally planned for the first quarter of this year, but is now pegged for July. Completion is scheduled for July next year, making an additional 269,000 sq ft available for the new business jet. This includes 237,000 sq ft in the assembly hall and 32,000 sq ft in offices.

“Before we launch the 7X production we will use this room for current Falcon manufacturing,” a Dassault spokesman told AIN. The new facility will offer 14 assembly positions, “with the possibility for adding five or six aircraft in the central alley.”

Dassault decided to build this extension because the Falcon 7X will be too tall to fit in its current facilities. Raising the roofs of the existing hangars “is impossible because of the location of a planned additional runway at Bordeaux-Mérignac Airport,” a Bordeaux-based Dassault executive told AIN last September. In addition to the height issue, “Our workload in Mérignac will increase sharply in 2003, due to planned Falcon deliveries and Mirage fighter manufacturing for foreign countries, and our facilities are already cramped,” he said.

Four hangars are currently dedicated to Falcon manufacturing–two for the Falcon 2000/2000EX, one for the Falcon 50EX and one for Falcon 900s. Another two shops are dedicated to “special mission” Falcons and painting, respectively.