Volvo 2001 Annual Report Download - page 49

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Volvo Aero
Volvo Aero develops and manufactures
high-technology components for commer-
cial aircraft and rocket engines. Aero also
develops, manufactures and maintains mili-
tary engines for the Swedish Air Force. Volvo
Aero offers a wide range of services, including
sale of parts for aircraft engines and aircraft,
sale and leasing of aircraft engines and air-
craft, overhaul and repair of aircraft engines,
and asset management. In addition, Volvo
Aero develops, produces and provides after-
market services for gas-turbine engines and
systems.
The company’s businesses are based on
close cooperation with partners and on
selective specialization in order to be truly
competitive. This is mirrored in the business
concept “Specialized for Partnership” and the
vision of being the “Best Partner.” Volvo Aero
operates in Sweden, Norway and the US.
Total market
The terror attack on September 11 had dra-
matic consequences for air traffic in the
world, particularly within as well as to and
from North America. A gradual recovery was
noted in air travel toward the end of the year,
but levels were clearly lower than earlier.
The fourth quarter was characterized by
continued major economic problems for
most airlines, which were forced to ground
aircraft and reduce personnel to adapt to the
lower demand. Among the exceptions were
a few discount carriers that, in contrast,
could report passenger increases.
As a direct effect of the airlines’ econom-
ic crisis, new aircraft orders were cancelled
during the last quarter and the large aircraft
manufacturers Boeing and Airbus were
forced successively to lower their forecasts
for aircraft deliveries. During 2001, the two
companies delivered a total of 852 aircraft,
97 98 99 00 01
Net sales, SEK bn
7.5 8.6 10.0 10.7 11.8
97 98 99 00 01
Operating income,
SEK M
472 527 584 621 653
97 98 99 00 01
Operating margin, %
6.3 6.1 5.9 5.8 5.5
Net sales as
percentage of
Volvo Group sales
7 %
but the current projections are for a decline
to about 675 aircraft in 2002.
The decline in air travel also affects the
spare parts market to a great degree as well
as the need for engine overhauls, two other
areas in which Volvo Aero is active.
Business environment
Many airlines were already facing a difficult
financial situation prior to the terrorist
attacks of September 11, although the situa-
tion then grew urgent. The sharp decline in
air travel following the terrorist attacks led
to substantial losses in earnings thus serious-
ly worsening the financial problems of the
airlines.
These developments impacted heavily on
all companies linked to the airline industry,
including manufacturers of aircraft and
engines as well as service and maintenance
companies, whose market diminished dras-
tically as air travel declined and many aircraft
were grounded. In total, it is estimated that
more than 200,000 employees within the
airline industry were given notice of dis-
missal during 2001. Volvo Aero in
Trollhättan and Volvo Aero Services in the
US have been forced to serve notice to 380
persons.
Market development
The decline in aircraft production affects
Volvo Aero, whose largest business area
manufactures components and spares parts
for commercial aircraft engines. Orders
received were lower during the last quarter
of the year, but the value of Volvo Aero’s
order backlog was 23% higher at the end of
2001 than in the preceding year as a result of
favorable order bookings at the beginning of
2001.
Financial performance
Net sales for the full year amounted to SEK
11,784 M (10,713) and operating income