Falcons, much in demand, earn 74 percent of Dassault revenue

 - May 23, 2008, 7:14 AM

This year will be one of the best that Dassault has ever had with its Falcon business jets. As of late October, the French manufacturer had chalked up firm orders for 112 Falcons and taken options for another 101, smashing last year’s record of firm orders for 90 Falcons.

Total firm orders for Falcons for the first six months reached 55 units, up 53 percent over last year. Falcon deliveries for the first three quarters were also up, at 58 units vs last year’s 51. During the first half of this year, operating profits were up 7 percent to E187 million ($168 million), while revenues decreased 3 percent to E1.614 billion ($1.452 billion).

Falcons accounted for 74 percent of these revenues, with the rest shared between the Mirage and Rafale fighters, explained Dassault CEO Charles Edelstenne in a state-of-the-company address at the French airframer’s Saint-Cloud headquarters near Paris. Edelstenne anticipates the revenues will be steady this year and “increase slightly” next year. Last year, revenues were E3.49 billion ($3.14 billion).

Orders from the fractional-ownership industry are significant. During the first half of this year, Executive Jet ordered 56 additional Falcons (including options) for its NetJets fractional-ownership program. The order included 50 Falcon 2000EXs equipped with the EASy cockpit (25 firm, 25 options) and firm orders for six Falcon 2000s.

More recently, Avolar, UAL Corp.’s new business aviation subsidiary, converted its letter of intent for 100 Falcons into a contract for 122 aircraft. Edelstenne said this agreement includes firm orders for 46 Falcons and options for 76 more. The firm orders are for 11 Falcon 50EXs, 30 Falcon 2000/2000EXs and five Falcon 900EXs, and the options are for 11 Falcon 50EXs, 50 Falcon 2000/2000EXs and 15 Falcon 900EXs. Dassault would not give an accurate value for the order, but acknowledged it is in the neighborhood of $2.9 billion, including options.

Asked whether potential financial difficulties at UAL Corp., United Airlines’ parent, were causing some concern at Dassault regarding Falcon payments, Edelstenne said that standard Dassault contracts ensure that “aircraft ownership does not occur until full payment for the aircraft is received,” he explained.

The Economy and Bizav

Commenting on the economic situation after September 11, Edelstenne said that the fractional aircraft sales market has been pretty good in Dassault’s market segment. He mentioned that high-end aircraft were “suffering” in this market, though.

Edelstenne expressed optimism about the effect of the downturn on business aviation. Le Bourget-based charter operator Dassault Falcon Service, a subsidiary of Dassault Aviation, “has recovered from the effects of September 11,” he said. Aircraft order cancellations have not been more numerous than usual, and Edelstenne does not expect “an outbreak of cancellations.” Asked whether aircraft prices may fall, the chairman and CEO acknowledged that “a risk does exist,” but, he said, “the market is now mature.”

“We did not lower our investments,” Edelstenne insisted. For instance, the Falcon 7X development program “is going ahead as [the company] scheduled initially…and we have not changed anything in our plans to build a major extension for the 7X in our Bordeaux facility,” he said.

Edelstenne gave a conservative answer to those who believe business-class airline travelers may come to business aviation after September 11. “I cannot see this as a ground swell, but it could come,” he said. The only action Dassault appears to have taken since September 11 “because of present uncertainties” is on Falcon production rates. “We had been planning to increase production to eight aircraft a month in our Bordeaux-Mérignac plant, but finally decided to set the rate at seven,” Edelstenne noted.