Dassault boosts production to reduce order backlogs
Aircraft sales numbers often catch the big headlines, but it is the delivery figures that matter most to aircraft manufacturers. The unpredictable nature of economic cycles, customers’ needs and desires and a company’s many suppliers often cause a disconnect between reported sales and the number of airplanes that actually end up in customers’ hands.
So a couple of statements by Charles Edelstenne, chairman and CEO of Dassault Aviation, at the Dassault Falcon press conference on Monday should come as no surprise. Early in his talk Edelstenne pointed out that Dassault Falcon had logged a record number of sales last year. “We finished 2006 with a total of 158, including the 24 Falcon 7Xs for NetJets,” he said. “That was way beyond our expectations, and raised our order book to more than 300 aircraft and $12 billion.”
A short time later, after explaining that the company had booked 165 firm sales for its new Falcon 7X before it received certification on April 27, he said, “In line with this success, we are increasing our total industrial capacity to 120 aircraft per year in 2009. That is twice the number of last year’s deliveries [61 across the model range] and it requires significant investments in our facilities in France and the United States.”
That’s 158 sales compared with 61 deliveries last year. Obviously, Dassault needs to increase production to keep up with its backlog of 300 aircraft, or it risks losing some sales as potential buyers decide they don’t want to wait several years for their new Falcon and look elsewhere for their next business jet.
This has meant that lead times are being pushed relentlessly to the right, with Falcon 7Xs sold out well into 2012, Falcon 2000s to 2010 and “two positions in the fourth quarter of 2009” for Falcon 900s. “It certainly gives a good impression of the strength of the market,” said John Rosanvallon, president and CEO of Dassault Falcon Jet.
By 2009, production will be split evenly between the 7X, 900 and 2000, at around 40 of each type. “Fortunately, at the high end we sell a significant proportion of new aircraft to pre-existing owners,” says Rosanvallon, for whom urgency is less of an issue. “About 20 percent of sales go to new customers and for them we find interim solutions, which is where things can become a little complex.” He adds that the long lead times have created a “very strong” market for pre-owned aircraft. “There’s a real premium based on availability. We’re trying to help people find solutions through charter, fractional ownership and so on.”
As it increases its production rate, Dassault expects to deliver more than 80 aircraft this year, more than 100 next year and reach capacity to deliver 120 in 2009, explained Rosanvallon. Orders booked are less easy to predict, but he expects the company will sell at least 120. Edelstenne said, “It is too early to make a year-end projection, but 2007 looks promising. We don’t see yet any signs that the market is weakening.”
The customer mix is changing, however, and Western Europe is Dassault’s number two market now, while markets in Russia, Eastern Europe, the Middle East, India and other parts of Asia are expanding.
By far the fastest growth is being seen in Western Europe, which in Dassault’s book includes Russia and the Ukraine. “A good example is the Falcon 7X. At certification in April we said we had an unprecedented backlog of 165 orders, which is incredible for a $45 million aircraft. Of that, a little more than 40 percent are from Western Europe and a little less than 40 percent from the U.S. Five years ago that would have been 60 percent U.S and 25 percent European.”
As for the rest of the world, the brightest area, says Rosanvallon, is Brazil, where 75 percent of new large-cabin business jet sales are for Dassault aircraft. On the other side of the world, Hong Kong is leading sales into China, although while on the mainland “things are changing,” infrastructure and cultural issues continue to hamper sales. “We have sold a single Falcon 900 to CITIC, which is based in Beijing,” he adds.
Rosanvallon still lives in the U.S, which he says reflects the fact that “there are 10,000 business jets in the U.S and only 2,000 in Western Europe. It is still where the new concepts are born. We have to remember the U.S still drives this industry.” On the buyer level, Rosanvallon said the traditional Fortune 500 company customers are still there, but their share of Dassault’s total sales is decreasing from a high majority to about 40 percent. Sales to mid-level companies also now account for about 40 percent, while what he calls “concept buyers” account for 15 to 20 percent. This group includes sales to fractional operators and wealthy individuals, and it is increasing. “We consider this extraordinary because our product line ranges in cost from about $25 million to $40 million,” he said.
This expanding customer base should help smooth out the boom-or-bust economic cycles for Dassault and help the company avoid the traditional problems aircraft manufacturers have with the cyclical nature of the business. In good times, sales go up and manufacturers struggle with too little production capacity while trying to keep their backlog from pushing deliveries too far in the future. During downturns, sales decrease manufacturers struggle to keep backlogs from decreasing so much that they have to idle production lines and lay off valuable employees.