John Rosanvallon, Dassault Falcon’s president and CEO, has worked at the company for 34 years. He began with the launch of the Falcon brand in the U.S. in the early 1970s and moved to Falcon Jet’s U.S. headquarters in Teterboro, N.J., in 1979, serving as assistant to the president, then as v-p of finance.
In 1994, Rosanvallon returned to the U.S. as senior v-p of sales and marketing, then was promoted to president and CEO of Dassault Falcon Jet and executive vice president civil aircraft of Dassault Aviation.
In the year since last year’s NBAA Convention, Rosanvallon and his team have had to deal with a smaller marketplace and cancellations of new jet orders, yet, overall, Dassault’s Falcon line is relatively healthy. Unlike some competitors that have chosen not to host an exhibit booth, Dassault will be on the floor, albeit with a smaller booth.
Last year, we were hoping the economy wouldn’t get too bad. How has
Dassault Falcon fared during this worse-than-expected recession?
I think we are more fortunate than several of our colleague OEMs,
particularly those at the lower end. As far as production is concerned, we have
substantially reduced the plan we had before the economic crisis, but we still plan to deliver about 80 airplanes this year. That’s more than the 72 we delivered in 2008. Part of the reason is that we had a few airplanes sitting on the fence at the end of ’08 because of some problems with the FAA, and they were delivered in early ’09. But deliveries [are steady] in 2009 because we have continued to ramp up the Falcon 7X. So when you put everything together, we should be around 80 airplanes. So that’s positive. It’s probably unique when you look at the other OEMs.
But Dassault Falcon has had some layoffs.
If you look at France and the U.S., we’ve had some reduction in force and layoffs in the U.S. in 2009, but when compared to the rest of the industry, and in particular those at the lower end, these are much lower figures. There has been some adjustment in France with work in certain factories and some shortened
furloughs but no layoffs. Overall, I think we are doing OK compared to others.
How about the financial situation?
Financially, Dassault continues to be strong. At the end of June, we [Dassault
Aviation] still had a backlog of over $20 billion. Of course, the big part of that is the Falcons. So that’s one reason why I think I can say, yes, this has been tough but, again, it’s relatively speaking; others have suffered more.
Has the decline in used aircraft prices been a problem?
As far as pre-owned is concerned, there has been a significant increase in the inventory of business jets, and this has been true for Falcon. The good news is that during the middle of the second quarter this year, we have seen stabilization of the inventory of pre-owned airplanes–in our case, the Falcon 50 and above. That’s an important factor for us.
Clearly the market was frozen for a while and there were very few transactions happening in late ’08 and early ’09. The prices are what they are, but I think it means that sellers and buyers have realized things were not going to change.
Sellers realized they had to accept significantly lower prices and buyers accepted the fact that we have reached bottom and they should not expect that it could go down much lower.
That’s why in the last four to five months we have seen many more transactions in
the pre-owned market. I would not call it the beginning of recovery yet, but that’s a
definite sign of stabilization of the preowned market. I’ll be comfortable to mention recovery when we see the inventory really start to decrease and the pricing start to go back up.
We went from inflated values due to speculation and long lead times on new airplanes to an undervalued environment due to the large volume available on the market. It will take a while for this inventory to go back to a more reasonable level, but hopefully we’ll see that trend start in the next few months. I estimate that in the next 18 months we can expect that we go back to a more normal inventory level and pricing levels.
Are new orders improving?
We are not giving precise figures yet for the cancellation of new orders. In the last quarter of ’08, we had our first negative quarter–in the 34 years I’ve been with the Falcon program, the fourth quarter of 2008 was the first time cancellations exceeded new orders–and that trend basically continued in 2009. But in the last three to five months we have seen a few pockets of activity on the new aircraft side.
I can mention two examples–one being Asia, especially China, and the other Brazil. China, in particular, if you look at the last five years, has been a small part of the total market for business aviation. One of the difficulties we had before the crisis was we had big backlogs and long delivery lead times, and these people being pretty new to that type of business did not accept [that]. We had lead times on the 7X of up to five years and two to three years on the other models. They were starting to be interested in business aviation in the ’07/’08 time frame and could not accept that type of lead time. The crisis has created short-term availability of some airplanes due to cancellations or rescheduling of orders, and that has been something these new customers–that is, new to the business aviation world–were interested in.
Is Brazil also an important market?
Brazil is particularly important for us because, from the macroeconomic standpoint, it’s one of the most active economies in the BRIC countries. Also, we have invested energy in Brazil for the last 10 years and have been rewarded by a large market share in the large-cabin world. At Labace last August we could see that there was a lot of activity and people who had been pessimistic during the last six
to nine months were confident again and talking about buying airplanes. Labace was a nice breath of fresh air.
Has Dassault Falcon had many white tails?
Those are the type of airplanes I was discussing when I spoke of China,
airplanes that were becoming available and we were reselling. We are in the process of reselling a few, but fortunately we have no large inventory of white tails.
What about spending on customer service infrastructure?
It’s tempting sometimes to reduce costs across the board, but we don’t plan to reduce our efforts in customer service.
Earlier in 2009 we opened a service center in Brazil just outside São Paolo and one in Reno, Nevada. With our fleet expanding in the western U.S. we had a customer requirement. We have authorized service centers, but our customers really wanted to have the Dassault-owned service center, so we have done that. Customer service, having spare parts inventory all over the world, that’s clearly an area where we have not cut.
Is Dassault Falcon still planning on a new jet, the so-called SMS?
Yes, we have taken advantage of this [situation] to take more time to finalize the specifications of our future new airplane and we are not planning to make any announcement yet. We continue to work hard on the next Falcons, so other than
taking more time to do it right, there has been no cut in that area.
Will business aviation grow again or is it resetting at a lower level?
Our production will remain stable probably for the next two to three years, but that’s from a level which is pretty high when you look back. Then we’ll increase again. I think it will take probably four to five years before we reach [the 2008] level again, but we’ll get back there.
The big reason why I think this outlook is reasonable is that, in our case, for the first time we have seen international business exceed the volume in the U.S. in 2005 and the trend continued to grow in ’06, ’07 and ’08. I think the worldwide potential and need for new business jets will continue in the U.S. at a certain rate, probably lower.
But the rest of the world has a lot of needs, and we have just scratched the surface as far as Asia is concerned. I’ve no long-term concern for our industry.
Is industry bashing still affecting business aviation?
Short-term, in the U.S., we have to deal with the bashing and all these issues, even though it has been pretty quiet in the last three to five months. The work of the industry as a whole–GAMA, NBAA, everybody–the work in Congress and the press, has had some positive results. We still need to be careful. There are a lot of misconceptions.
How are you and your team doing?
The Falcon management team both in France and the U.S. has been stable through the crisis. Nobody from the management team has left. Everybody is working hard through this tough time. We enjoy stability more, and it has been true for a long time, but we are going through this crisis and we have good team spirit.