Continuous Program Investment and Flexibility in Lean Times Yield Long-Term Results
Charles Edelstenne, Dassault Aviation’s chairman and CEO, is celebrating qualified success as his firm rebounds with strong sales evenly split between its Falcon Jet and military product lines from the down times of the late 1990s and early 21st century.
“The outlook for the world economy has improved considerably since 2003. For our industry, this is reflected by the increased number of orders won by commercial aircraft makers. . . . Thanks to our flexibility, we’ve emerged unscathed from the trough period of 2003 and now we’re positioned to take advantage of an upturn in the aerospace sector,” Edelstenne said. He held that the geopolitical situation has improved, but that the world economy is feeling the effects of escalating oil prices. He’s also concerned about the lack of parity between the U.S. dollar and the euro, even though Dassault preserved the value of its order book by hedging the dollar even with the euro. “However, the weakness of the U.S. dollar will continue to drag on our profitability in 2005 and beyond,” he explained. In addition, there was an aberrant uptick in 2004 business jet sales in the U.S. because of the availability of bonus depreciation, resulting in 63 sales that year. This year, sales will drop to about 50 to 55 units due to the lack of such tax incentives. Dassault, in contrast, sold only 40 aircraft in 2003.
Edelstenne is confident about the “buoyant U.S. economy,” but said that economic growth in Europe is slower although “the region is nevertheless contributing to the impetus.” The resurgence of the fractional aircraft market is aiding the recovery. NetJets, for instance, is looking at placing new orders.
Dassault’s civil aircraft programs, such as the Falcon 7X (see sidebar), are doing particularly well. The firm’s new $32 million Falcon 900DX, a 4,000-nmi range version of the 900EX and replacement for the aging 3,800-nmi range Falcon 900C, made its first flight on May 13 and it’s slated to enter service by the end of the year. This aircraft has better airport performance, a higher initial cruising altitude and a higher cruise speed, as well as 200 nmi more range, than its predecessor. It fills the niche between the 3,800-nmi range Falcon 2000EX and the 4,400-nmi range Falcon 900EX. Edelstenne, though, declined to give a specific number of orders for the aircraft.
The defense sector looks bright for Dassault because 1970s-vintage fighters are nearing the end of their service lives. Dassault intends to press home its advantage as a non-U.S. supplier or as an alternative supplier for military forces looking for dual source contracts. Saab is not a contender because its multi-role Gripen is too small. He discounted the market share of new fighters that Russian manufacturers can win. However, India and China, among other Asian nations, are buying considerable numbers of the latest Sukhoi SU-30 and MiG 29K fighters.
Edelstenne believes that Dassault can retain its historic 15% share of the fighter market, mainly with updated derivatives of its twin-engine Rafale, the tail end of Mirage 2000 production, plus UCAV sales. Dassault has 120 orders for the Rafale from the French Air Force and French Navy. The F1 first operational block of air-to-air Rafale fighters entered service in June 2004 with the 12F squadron. The multi-role F2 version is nearing completion, and development of the F3 omni-role configuration is under way. Four Rafale B two-seaters have begun initial testing at Centre des Expérimentations Aériennes Militaires (CEAM) at Mont-de-Marsan, and the French Air Force took delivery of the first single-seater on June 3, 2005.
Edelstenne said there’s an international market for 2,940 to 2,950 replacement fighters, requiring nearly a $300 million investment during the next several years. One new fighter will replace two older aircraft because of improvements in technology. He believes Dassault can win a 10% share with Rafale because it represents the “most operationally effective and cost-effective solution for today’s environment,” combining the “best of French technology” and cost savings “achieved in manufacturing engineering” that proved effective during years of limited production. Edelstenne noted that the U.S. JSF cost seven times more to develop and twice as much for each production unit. The Eurofighter Typhoon cost three times as much to develop and 50% more per unit, according to Edelstenne. He declined, though, to mention that both competing aircraft have more range and considerably higher weapons payloads than Rafale.
The nEUROn UCAV also has considerable potential for military sales. The aircraft will be as large as some manned fighters. Edelstenne believes it will put pilots out of harm’s way for air-to-ground strike missions, thereby preventing deaths, injuries and POW situations. Pilots, though, will be needed in the air-to-air combat arena for the foreseeable future, he said.
“TV is the best weapon in our wars. We’re living wars in real time. The goal is to destroy material, not people,” he said.
nEUROn represents the best efforts of a multinational commercial team, with each partner at risk to produce results. “It’s a laboratory for corporate innovation,” he said. Aeronautics and space have historically been “pillars” for the French. With Saab, Volvo, EADS, Hellenic Aerospace and RUAG as partners, Dassault “has a new methodology for cooperation.”
The nEUROn is a $400 million technological development program that officially will be launched June 13. It won’t be ready to enter service until 2012, and then only if the consortium gets a purchase contract. Following the 7X model, the nEUROn development team already is gathering at St. Cloud. Edelstenne denied rumors that Saab is getting cold feet. “It’s totally false — they’re absolutely committed,” he responded. He didn’t, however, rule out a change in the partnership mix, with possible “new partners and new technologies.” --Fred George
