Volvo 1999 Annual Report Download - page 38

Fiscal year 1999
36
Aero
Total m arket
International air traffic, which affects the greater part of Aero’s operations, continued
to grow in 1999, and at a faster rate than in the preceding year.
Air traffic throughout the world increased by 6.3% during 1999, compared with
growth of 2.6% in 1998. The greatest growth, 9.4% and 7.4%, respectively, occurred in
Asia and Europe.
Air travel in the important American market rose 4.6%. The favorable trend is
expected to continue, over the long term as well. At the same time, the trend was
characterized by increased competition in the aviation industry and by reduced
earnings for many airlines, resulting in heavier pressure on prices and declining orders
for aircraft manufacturers.
Sales and m arket shares
Volvo Aero’s sales increased to SEK 9,953 M, 16% higher than in 1998. Strong demand
for commercial aircraft engines was the primary factor contributing to the increase.
During the year Aero received substantial orders from General Electric and GE
Capital Aviation Services, among other customers. Sales were also higher in Volvo
Aero’s American company, The AGES Group.
The contract covering the sale of 28 Gripen multirole military aircraft to South
Africa was of major strategic importance. Aero, which supplies the RM12 engine used
in Gripen aircraft, has approximately 10% of the world market for fighter aircraft in
its class.
Sales within aerospace propulsion were affected adversely by the limited availabil-
ity of satellites for launches. But many more launches of both the Ariane 4 and Ariane
5 rockets – for which Aero supplies exhaust nozzles, combustion chambers and fuel
turbines – are expected during 2000.
At December 31, 1999, the value of the order backlog was 4% higher than at year-
end 1998.
Operating incom e
Aero’s operating income in 1999 rose to SEK 584 M (527), despite greater pressure on
prices throughout the aviation industry. The improvement in income was due
primarily to larger sales of components for commercial engines, where Volvo Aero
Norge AS, which was acquired during the year, contributed SEK 75 M. The profitabil-
ity in the Engine Services and Land & Marine Gas Turbines units continued to be low.
Production and capital expenditures
Production in Components was very close to capacity ceiling throughout the entire year
at the plants in Trollhättan, Sweden and in Kongsberg, Norway. The strain on produc-
tion capacity is expected to persist for some time in 2000.
SEK M 1997 1998 1999
Net sales 7,476 8,584 9,953
Operating income 472 527 584
Operating margin, % 6.3 6.1 5.9
Key ratios Aero
SEK M 1997 1998 1999
Western Europe 3,682 4,231 4,560
Eastern Europe 6 47 16
North America 3,066 3,502 4,557
South America 257 284 193
Asia 264 336 491
Other markets 201 184 136
Total 7,476 8,584 9,953
Net sales/ mark et Aero
Volvo means m y
employm ent, quite
sim ply. I have an
interesting job
within Aerospace
Com ponents where
I work with the
Ariane rocket. But
Volvo also stands
for being part of a
technological
industrial group.
My view of Volvo
Walter Schaffer
Controller,
Volvo Aero,
Sweden