Delivery rise boosts Dassault Aviation
Financial results for the first half of 2010 appeared to suggest that Dassault Aviation has begun to reverse the severe downward trend its Falcon business jet operations have endured over the past 24 months or so. Nonetheless, announcing a welcome deceleration in aircraft order cancellations on July 29, the French group's management indicated that the apparent strengthening in the market is not yet enough to constitute a full-blown, sustainable recovery for the troubled business aviation sector.
In any case, this year could yet prove to be a momentous one for the French airframer as it prepares to begin the next phase of its long-planned new-generation SMS super-midsize jet development. Already this year it has achieved both U.S. and European certification for its new Falcon 900LX and has also had its 7X approved in the key emerging market of China.
Consolidated orders (once cancellations had been factored out) for the first six months of this year amounted to just two Falcon sales. But this represented a marked improvement on the same period last year when Dassault lost a total of 56 Falcon orders.
Over the course of last year, the company's backlog was reduced by no fewer than 163 canceled Falcon orders (including 65 from the NetJets fractional ownership group and 98 for other customers). Among the other high-profile order cancellations were those forced on beleaguered financial institutions Citigroup and the Royal Bank of Scotland. According to Dassault, excess pre-owned aircraft inventory is still suppressing new aircraft sales.
The more obvious and immediate good news for Dassault from the first-half 2010 results was that it delivered 45 Falcons in the six months through June 30 (almost twice as many as the 26 deliveries it made in the same period of 2009). The company expects to have delivered a total of 85 jets by year-end. Achieving this would mean setting a new company record for annual Falcon deliveries–surpassing the previous record of 77 delivered in 2009 (paradoxically, since that year also marked the peak for order cancellations). This bedrock of order backlog was built up during the recent boom years around the middle of the last decade, when delivery rates were actually lower (51 in 2005, rising to 61 in 2006, 70 in 2007 and 72 in 2008).
The 73-percent improvement in deliveries achieved by Dassault in the first half of 2010 was significantly driven by increased production of the Falcon 2000LX, which effectively doubled output of the 2000-series products from eight to 16 units. All of these deliveries were the new LX type, which is replacing the 2000DX and 2000EX models. The company also more than doubled deliveries of the Falcon 7X, increasing those from nine to 21 units between January and June this year.
In common with other business aircraft makers, Dassault has placed more emphasis on exploiting rising demand in emerging export markets in Asia, the Middle East and South America. At August's Labace show in São Paulo, Dassault Falcon president and CEO John Rosanvallon said the company expects to achieve a 60-percent market share in Brazil with the anticipated delivery of at least 13 new Falcons. Brazil is set to generate $150 million in sales this year alone.
The first-half 2010 results also showed a marked recovery in consolidated sales for the Dassault group. They also showed that, despite business aviation's widespread malaise, Falcon sales actually accounted for a rising percentage (75 percent) of its overall sales (with the rest consisting of defense business, including its Rafale fighter).
Consolidated group sales also appeared to be on the road to recovery so far this year. The first-half 2010 total stood at €1.99 billion ($2.53 billion)–more than twice the €1.3 billion ($1.68 billion) amount recorded in the same period of the previous year.
Operating income for the first half of this year reached €248 million ($315 million), which was 104 percent above the year-ago period. Dassault's operating margin also improved to 12.4 percent during the first six months of this year versus 8.7 percent last year.
Dassault chairman Charles Edelstenne has warned that the group will have to achieve further improvements in productivity to meet the threat posed by U.S. competitors that have relocated some work to lower-cost economies while also continuing to benefit from a dollar-euro exchange rate that favors U.S. exporters.
Last year, at the height of the downturn, Dassault eliminated some 350 positions at its U.S. completions center in Little Rock, Ark., through a mix of layoffs, early retirements and scrapping temporary staff positions. While the company has so far avoided mass layoffs in France, where labor laws make this a much more costly and complicated policy, there has been some reduction in output rates at its factories.