NBAA Convention News

Industry Perspective: Dassault Falcon

 - September 20, 2007, 7:05 AM

Like most of the major manufacturers, Dassault reports stepped-up sales demand from markets outside the U.S., particularly those in Western Europe and Russia. But Brazil and China could be the next hot spots, especially for large-cabin, long-range business jets as the economies in those countries continue to strengthen and attitudes change.

For the time being, Dassault is focusing on the introduction of the Falcon 7X and certification programs for the Falcon 2000DX and 2000LX. The 7X’s order backlog stands at more than 160 airplanes, based on sales of 173 through the end of this year’s second quarter. The record sales tally speaks not only to the strength of the market, but also to the capability of the newest member of the Falcon family.
One of the looming challenges will be building airplanes at double the rate of even last year’s all-time production record.

Dassault is also busy defining the characteristics for an entirely new Falcon business jet, a super-midsize airplane that for now is simply codenamed SMS–and steeped in secrecy. While he wouldn’t divulge anything new about the airplane, Dassault Falcon president John Rosanvallon took some time out to discuss the overall market and the company’s plans for the immediate future.

In terms of sales, how is this year comparing with last year’s record order tallies?

We continue to see a very strong market, and I think the most significant element is the growth in the international market. Going back to 2005, which was the first very strong year for us after the market bottom in 2003, for the first time we had about an equal number of sales between the U.S. and the rest of the world. Last year, the split was about 60 percent in the rest of the world and 40 percent in the U.S. This year, this trend is amplified, and we are at roughly a 70:30 split. I think that’s a fundamental change in the business and I think it’s here to stay. It’s essentially positive for us because it means the business space is broader. Just taking the example of Brazil, that market has been a very potent one for us for the last three or four years. And, again, this year we are
having very good success in Brazil.

What is it about Brazil that’s making it a suddenly hot market for business jets?

If you look back, Brazil has always had a large base of small jets and helicopters. The Brazilian economy in the last few years has been the most spectacular in South America. A lot of the companies there have been successful, and that is leading to a need for transportation. São Paulo is pretty far from everywhere, and so these companies now have a need for long-range transportation. We have invested in a presence in Brazil for the last five or six years, and this has earned us a very strong market share there for large-cabin, long-range airplanes.

What other regions are showing growth?

Outside of the U.S., I would say Western Europe continues to be by far the number-two market. Probably the best example of that is the UK and Switzerland, where sales are very strong. Among the emerging markets, I would say about the same magnitude of business is coming from Russia. What’s becoming clear this year is that we are starting to see some real signs of activity in Asia. I think it’s too early to say volume-wise we are matching airline-type sales, but in the last two years we have invested a lot of energy reinforcing our sales organization in Asia. Everybody has been saying for five, 10, even 20 years that Asia is coming. It’s been very long to come, but I would say for the first time, in 2007, I am optimistic enough to say it really is coming.

And when you talk about Asia, how much of a factor is China, and do you foresee that market becoming a source of significant sales?

For the last two to three years, the core of the activity has been focused more around Hong Kong, where the entrepreneurs are more independent. I think it’s also true–I was in that part of the world recently–and I was reading an article in Newsweek or Business Week about the fact that the older generation of Chinese, the guys who are today are in their 70s and 80s, are giving way to the younger generation. The younger generation that is taking over–let’s call them tycoons or entrepreneurs–have an open mind to business aviation. That was not really the case with the previous generation.

So if that’s the case, what are your predictions for the market in China in the next decade?
Last year, China was, let’s say, 2 percent of our business. I think you probably know better than I do, but the order of magnitude for the airlines, I think, is 30 percent, roughly, of their worldwide business. I think it’s fair to estimate, and to hope that in coming years China would represent more like 10 percent of our total business, and that would be a very significant change.

Shifting gears, the Falcon 7X is competing well against the Gulfstream G550 and Global Express XRS. What are your thoughts about how the 7X stacks up in the ultra-long-range, large-cabin category?

Clearly we were not first to market in this segment, but I think the reason we have gained such an incredible backlog is that people understand that the 7X is really a new generation of business jet in terms of efficiency. It’s true that initially our
customers–certainly the first 50 to 70 customers–were essentially Falcon owners, and primarily Falcon 900 owners, but we have seen in the last couple of years more non-Falcon buyers come into the program, and that includes a number of Gulfstream and Bombardier customers who recognize the 7X is a more advanced, more modern airplane than the G550 or Global Express. I think that as the community sees the 7X in operation, the airplane and its capabilities will become known even more broadly.

What factors led to your decision to target the super-midsize segment?
Was it largely customer driven or were you specifically seeking a replacement for the Falcon 50EX?

The situation is a little like it was with the 7X. We focused for a number of years on our core market, and then expanded to the high end with the 7X. We stopped production of the Falcon 50EX, and I would say the market has told us that we should have a Falcon selling in the low $20 million range. Of course, there are a number of existing airplanes in that segment today, such as the Challenger 300 and G200. We are not ready to communicate in detail the characteristics of our super-midsize airplane, but you can expect it will have differences compared with existing airplanes, by bringing characteristics that are pretty similar to the 7X.
What will differentiate the airplane from the competition? Will it incorporate
fly-by-wire flight controls, for example?

Honestly, we are working very hard on this and it’s too early to communicate that. We have not decided what we will say or won’t say, but NBAA is too early for us to give a lot of details about the airplane. We announced at the Paris Air Show that our partner for the engine will be Rolls-Royce, but that is the extent of the information that we can share
at this point.

How concerned are you about your ability to meet the demands of your
production backlog, not only for the 7X but also the 2000DX and LX models?
Apart from sales, the biggest challenge for us is to ramp up production to 120 airplanes per year. Last year we were at roughly 60 airplanes and our plan is to reach 120 by 2009. That’s a very ambitious ramp up and we are in the middle of that now. We have announced the expansion of our Little Rock completion center, which is one of the most challenging aspects of that effort. It will be difficult, but I am confident that the plans we are making now will allow us to get there.