Volvo 2004 Annual Report Download - page 32

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Business environment
Aircraft deliveries increased to 605 aircraft
in 2004, compared to 586 in 2003. The
order intake for large commercial aircraft
was quite modest at 434 in the first eleven
months of the year, but there were about
213 order announcements in December.
The aircraft manufacturers have announ-
ced plans to increase production rates in
2005.
Financial performance
Volvo Aero’s net sales declined 14% to
SEK 6,925 M (8,030). The decline in
sales was primarily attributable to a com-
bination of lower volumes, mainly within
engine overhaul, in combination with
strong price pressure and the weakening
US dollar.
During the same period, operating
income was SEK 377 M (loss: 44). The
improved result was mainly attributable to
cost reduction and more efficient utiliza-
tion of production facilities in Trollhättan,
Sweden, and Kongsberg, Norway. A bet-
ter mix of products and higher demand
for new spare parts also contributed posi-
tively to the income. The operating margin
was 5.4% (negative: 0.5).
The most profitable areas continue to
be production of components and spare
parts for commercial aircraft engines.
Profitability remains unsatisfactory in the
aftermarket business.
30 Board of Directors’ Report
Volvo Aero offers a wide range of ser-
vices and products for the commercial,
aerospace and military aircraft industries,
including high-technology components for
engines, sale of parts for engines and air-
crafts and overhaul and repair of aircraft
engines and gas turbine engines. In ad-
dition, Volvo Aero provides aftermarket
services for gas turbine engines and sys-
tems.
The company operates in close cooper-
ation with partners. In 2004, important
contracts on engine programs, such as
the new engine GEnx and the industrial
gas turbine LM2500, were signed with
General Electric.
Total market
2004 is likely to show one of the
strongest air traffic rebounds in history.
Preliminary figures indicate a double-digit
rate of traffic growth for the year. Air traf-
fic in 2005 is expected to increase in line
with historical industry trends.
However, high traffic volumes do not
necessarily mean strong airline profits and
the fortunes of airlines differ substantially.
While the low-cost sector continued to
perform well in 2004, many traditional air-
lines, primarily in the US, continue to face
severe pressure from declining ticket
prices and high fuel prices.
AERO
Net sales, SEK bn
Operating income/loss, SEK M
Operating margin, %
Net sales as percentage of
Volvo Group sales, %
00 01 02 03 04
5.8 5.5 0.1 (0.5) 5.4
00 01 02 03 04
621 653 5 (44) 377
00 01 02 03 04
10.7
11.8 8.8 8.0 6.9
0
0
3%
VOLVO