Volvo 2002 Annual Report Download - page 22

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20/21
Business Areas
Volvo Aero
Volvo Aero develops and manufactures
high-technology components for commer-
cial aircraft and rocket engines. Volvo
Aero also develops, manufactures and
maintains military engines. Volvo Aero
offers a wide range of services, including
sale of parts for aircraft engines and air-
craft, sale and leasing of aircraft engines
and aircraft, overhaul and repair of aircraft
engines, and asset management. In add-
ition, Volvo Aero develops, produces and
provides aftermarket services for gas-tur-
bine engines and systems.
The company’s businesses are based
on close cooperation with partners and
on selective specialization. Volvo Aero
operates world-wide but production is
located in Sweden and Norway.
Tot a l market
For the first eleven months of 2002 world
airline passenger traffic declined by 1.7%
compared with the corresponding period
in the preceding year. However, traffic
was 6% below the same period in 2000.
Total US traffic was down by 4% and
European international traffic by about
5% through November. However, the
Asia-Pacific region has its own dynamics
and international traffic increased by 5%.
Political and economic uncertainties
continue to impact the airline industry
worldwide and airlines are under intense
pressure. The market collapse following
the terrorist attacks of September 11,
2001 is still causing severe stress, espe-
cially for those reliant on the depressed
US market.
Business environment
The reduced airtravel and lower fares in
2002 have caused a deteriorating finan-
cial situation for the airlines. Two leading
US airlines, United Airlines and US
Airways, entered into Chapter 11 bank-
ruptcy protection during the second part
of 2002. According to Air Transport
World, the larger American airlines posted
total losses exceeding USD 11 billion in
2002. The demand for new aircraft has
been reduced significantly. The two air-
craft manufacturers Airbus and Boeing
delivered 684 new aircraft during the year,
down 20%. The decline continues, result-
ing in reduced order bookings for new air-
craft. Boeing reported a decline of 25%.
The decline is expected to continue in
2003 to a level about 15% lower than in
2002. No upturn is expected until 2005.
Market development
The decline in aircraft production and the
lower demand for overhaul of engines
and spare parts affect Volvo Aero. The
order intake in 2002 was down 50%, and
order backlog was 18% lower than in the
preceding year.
Financial performance
As a result of the continued downturn in
the aviation industry, Volvo Aero’s net
sales declined 25% to SEK 8,837 M
(11,784). Operating income deteriorated
to SEK 5 M (653), and operating margin
was 0.1%, compared with 5.5% in the
year-earlier period.
The weak earnings were attributable
primarily to the sharp decline in the after-
market, in which Volvo Aero was hit by the
reduced need for engine overhauls and new