PARIS — Dassault Aviation expects France’s portion of the company’s annual revenues to be cut in half — to around 10 percent — as the government slashes defense, sales of business jets recover, and an expected Indian export win for the Rafale fighter brings in foreign revenue, Executive Chairman Charles Edelstenne said July 26.
France’s share of Dassault’s sales consists mainly of the Rafale jet fighter, delivered at an agreed rate of 11 aircraft a year.
That annual rate — one per month with a break for the August holiday period — was deemed to be the minimum to keep the production line open and keep the 500 companies in the supply chain working.
Over the next three or so years, the French share of sales will likely fall to 10 percent from the present 20, Edelstenne said during a news conference on the company’s first-half sales.
The first factor, a drop in French military spending, is “certain,” he said.
A second factor is a potential recovery in the market for business jets, notably in the United States, which has the world’s largest fleet of small aircraft and which will gradually undergo a renewal of that fleet. Dassault builds the Falcon business jet.
And third, there are “good hopes of winning the Indian contract for Rafale,” Edelstenne said.
Dassault’s forecast for a pickup in business aviation is realistic and the overall financial results were good, a market analyst said.
“A recovery in civil aviation is what we have, too,” said Yan Derocles, analyst at French brokerage Oddo.
On the whole, Dassault’s financial results were good, and a delay of a few weeks for delivery of two Rafales to the French authorities did not pose a problem, Derocles said.
It will take around three years to ramp up production for the Rafales expected to be bought under the Indian program to acquire 126 medium-range multirole combat aircraft (MMRCA). India selected Dassault for exclusive negotiations in January after eliminating the Eurofighter Typhoon on cost grounds.
Of the Indian contract negotiations, Edelstenne said, “It’s taking its normal course.”
Asked whether the abrupt departure of Yves Blanc — until recently the head of international development at the Direction Générale de l’Armement procurement office — would affect export campaigns of the Rafale, Edelstenne said, “No.”
In India, Defence Ministry sources affirmed that Blanc’s departure would have no effect on the MMRCA negotiations.
The officials who drafted the French defense budget assumed the Rafale would sell abroad, but as customers have so far failed to sign up, the French government has had to buy the annual 11 units at an estimated 800 million euros ($983 million).
If India does purchase the Rafale, that will allow France to reduce its share of jets, but it is unclear what level that will be, Edelstenne said.
France has maintained defense spending, but cuts are expected.
President François Hollande on July 13 appointed Jean-Marie Guéhenno as head of a team to draft a white paper on defense and national issues, which will set strategic objectives of the new French administration.
That document will feed into drawing up next year’s budget and the new multiyear military budget law. The Defense Ministry must negotiate with the Finance Ministry, and the prime minister will act as referee.
Edelstenne said he was “not very optimistic,” as the defense minister has already said there is a 3 billion to 4 billion euro funding shortfall.
Asked what he hoped to see in the new defense budget, Edelstenne said “development of new equipment, funding of studies, development of future Rafale standards.”
The French Senate’s foreign affairs, defense and armed forces committee said in a July 25 statement that military spending should not fall below 1.5 percent of gross domestic product (GDP) as the present capabilities are on the border of “insufficiency.”
France spends about 2 percent of GDP on defense, in line with NATO recommendations.
Government leaders have shown political support for arms exports.
“There is a determination to support exports by this government,” Edelstenne said. “I have simply observed, at the political level, each time our highest political representatives met politicians from prospect countries, they raised the subject of exports.
“Whatever the complexion of the government, not to support exports would be suicidal,” he said. “I have no doubt [of] the French government’s support for exports.”
As for his successor, Edelstenne said a decision will be made at the end of the year, as he is reaching the statutory retirement age.
On the financials, Dassault reported a first-half net profit of 179 million euros, compared with 94 million a year ago, up 91 percent. That excluded its 26 percent stake in electronics company Thales.
The net profit margin was 9.3 percent of sales, excluding the Thales stake, compared with 7.1 percent.
Operating profit was 244 million euros, up from 99 million euros, helped by increased sales. The operating profit margin was 12.7 percent.
Sales totaled 1.9 billion euros, up from 1.32 billion euros a year ago. That was comparable to the levels seen in 2010, before a drop in Falcon deliveries hit revenues. The company has delivered 34 Falcons so far, compared with 19. Exports made up 77 percent of sales.
Orders totaled 1.42 billion euros, compared with 953 million, 74 percent of which were in civil aircraft, with 25 Falcon contracts versus 22 a year ago.
Military orders grew to 376 million euros against 147 million, helped by an NH90 helicopter flight simulator contract awarded to the Sogitec subsidiary. The order book stood at 8.2 billion euros.
The net cash position rose to 3.7 billion euros from 3.3 billion.
The company completed repayment of 400 million euros debt taken up to buy the stake in Thales.
Vivek Raghuvanshi contributed to this report from New Delhi.
The French aircraft maker has reported its financial results for the first half of the year, including:
Net profit: 179 million euros ($218.4 million), up 91%
Operating profit: 244 million euros
Sales: 1.9 billion
Orders total: 1.42 billion euros