July 25, 2005, The positive trend continues
Volvo Aero’s sales declined by 5% during the second quarter to SEK 1,784 M (1,885). Adjusted for currency movements, sales increased by 2%.
Operating income during the second quarter amounted to SEK 168 M, compared with SEK 181 M one year ago. The operating margin for the period was 9.4% (9.6).
Development and manufacturing of spare parts and components for new civil aircraft engines still largely account for profitability. This applies to the plants both in Trollhättan, Sweden and Kongsberg, Norway. Military sales also developed positively.
Volvo Aero’s after-market sales (Engine Services and Aviation Services) have had profitability problems since the recession. Earnings have gradually improved, however, through rationalization measures and cost reductions, a trend that continued during the second quarter. Within both of these product areas, however, sales were lower than expected.
For the first six months of the year, Volvo Aero reported sales of SEK 3,431 M, compared with SEK 3,447 M in the year-earlier period, a decline of 0.5%. Adjusted for currency effects, sales rose by 7% during the period. Profit for the six-month period was SEK 378 M (290), an increase of 30%. The operating margin was 11% (8).
Airline traffic continues to increase
Global airline traffic continues to increase steadily. In April, the increase was 5%, and by the end of the first four months of the year, the increase was 7%, compared with the year-earlier period according to Airline Traffic Monthly. Growth is greatest in the Asia Pacific region. The load factor was unchanged in April at 74.6%.
Market conditions were difficult for US airlines during the first months of the year, while the recovery among airlines in Europe and Asia Pacific was significantly better. For the first quarter, the major US airlines reported significant combined losses. Oil price increases remain a problem for the world’s airlines, particularly in the US, where extreme price pressure makes it difficult for airline companies to fully compensate for increases through higher ticket prices.
Order bookings for aircraft manufacturers increased very strongly during the first six months of the year. Airbus and Boeing reported orders for a total of 717 large civil aircraft during the period, an increase of 285%, compared with the corresponding period in 2004. The number of deliveries of new aircraft increased by 10% to 344 planes. The rate of production is expected to increase by about 15% during 2006.
Aero’s order bookings remain favorable
At the end of the second quarter, the value of Volvo Aero’s order bookings was about 3% higher than at the same time last year. Order bookings during the first six months were 5% higher than during the corresponding period of 2004.
World’s largest passenger aircraft in the air
In April, an Airbus A380 aircraft flew for the first tie. The A380, which is the world’s largest passenger plane, flew with Rolls Royce engines of type Trent 900, in which Volvo is a program partner. Volvo Aero also delivers components to the other engine alternative, the GP7000. To date, Airbus has received about 150 A380 orders.
During the period, Engine Services signed a number of maintenance contracts, including a contract with Indonesia’s Lion Air. The contract with Lion Air is valued at about SEK 120 M for Volvo Aero.
Volvo Aero also signed a contract with Snecma for series production of nozzles and turbines for the Ariane 5 rocket. This contract, which extends for five years, is values at some SEK 300 M. Deliveries will guarantee Volvo Aero’s base production within the aerospace business over the coming years and also create an important platform for continued development work. Volvo Aero and Snecma also signed a partnership agreement for development of new turbine technology for the space industry.