Volvo 2003 Annual Report Download - page 22

20
Business Areas
Volvo Aero
Volvo Aero develops and manufactures high-
technology components for commercial air-
craft and rocket engines. Volvo Aero also
develops, manufactures and maintains mili-
tary engines. Volvo Aero offers a wide range
of services, including sale of parts for aircraft
engines and aircraft, sale and leasing of air-
craft engines and aircraft, overhaul and repair
of aircraft engines, and asset management.
In addition, Volvo Aero develops, produces
and provides aftermarket services for gas-
turbine engines and systems.
The company’s operations are based on
close cooperation with partners and on
selective specialization. In 2003, overhaul
contracts were signed with SAS, General
Electric, MK Airlines, and Skyways Express.
Partnership agreements for the manufacture
of components for the GP7000 engine were
signed with MTU Aero Engines. In addition,
an extension of the marketing and distribu-
tion agreement for Boeing’s surplus inven-
tory for commercial aircraft, was signed with
Boeing in 2003.
Volvo Aero operates worldwide, with pro-
duction located in Sweden and Norway.
To t al market
At the end of 2003, air traffic showed a pos-
itive trend in all regions of the world.
Accumulated, however, 2003 declined com-
pared with 2002, and it was the third con-
secutive year of declining air traffic.
Substantial challenges remain for the air-
line industry. There are positive signs from
the low-cost segment, which has shown
tremendous growth in the US and Europe. It
is also starting to become established in
Asia. This segment continues to put pressure
on the established airlines.
Business environment
Aircraft deliveries decreased in 2003 for the
second consecutive year and the production
of large commercial aircraft will most likely
decrease further in 2004. The aircraft manu-
facturers gross orders were down 5% from
2002 year’s order intake. Since there is a
time lag between airline profits and orders
and deliveries of new aircraft, a recovery in
deliveries is not expected before the end of
2005 or the beginning of 2006. A recovery
in the aftermarket is expected during 2004.
Financial performance
As a result of the continued downturn in the
aviation industry, Volvo Aero’s net sales
declined 9% to SEK 8,030 M (8,837).
Earnings deteriorated to an operating loss of
SEK 44 M, compared with operating income
of SEK 5 M in the year-earlier period. The
declines in sales and earnings were primarily
attributable to a combination of lower vol-
umes, mainly within engine overhaul in com-
bination with strong price pressure and the
falling USD exchange rate. Earnings were
also negatively affected by provisions for
expected losses on contracts amounting to
SEK 170 M.
Despite the severe crisis in the aviation
industry, Volvo Aero’s manufacture of com-
ponents for commercial aircraft engines and
the military operations reported positive
results for the full year. The operating margin
was a negative 0.5% (positive: 0.1).
Production and investments
To align operations to a continued low level,
Volvo Aero is reducing its workforce in
Trollhättan, Sweden. As a consequence 241
persons will leave the company.
99 00 01 03
10 .0 10 .7 11 . 8 8.0
Net sales, SEK bn
99 00 01 03
584 621653 (44)
Operating income/loss, SEK M
99 00 01 03
5.95.8 5.5 (0.5)
Operating Margin, %
Net sales as percentage of Volvo Group sales, %
02
8.8
02
5
02
0.1
0
0
5%