Volvo 2006 Annual Report Download - page 79

• The challenges were met, on time,
technically and at budget.
• Delivery target fulfilled
• Ambition partially achieved, but continued
dialog with politicians and authorities are
required to come to a longer-term solution.
• Goal partially fulfilled, but profitability still
unsatisfactory. This was one of the reasons
why Volvo Aero decided to close the engine
overhaul operations in Bromma.
• Further develop Volvo Aero’s technology
offering, to ensure a role in future engine
programs.
• Fulfill commitment in the development and
manufacture of the new GEnx engine.
• Expand Volvo Aero’s component business.
• Increase volumes and improve profitability
in the aftermarket.
• Meet challenges in design and manu-
facturing, particularly regarding the new
GEnx engine.
• Continue precision delivery of engine com-
ponents without losing focus on costs.
• New development assignments for the
RM12 Gripen engine.
• Increase after-market volumes and profit-
ability.
Outcome 2006 Ambitions 2007Ambitions 2006
Net sales per market
SEK M 2004 2005 2006
Europe 3,179 3,406 3,613
North America 3,127 3,612 3,815
South America 138 168 173
Asia 400 284 356
Other markets 81 68 91
Total 6,925 7,538 8,048
Market
Market fundamentals remained strong in 2006.
World airline passenger traffic increased by
4.5% in 2006. Traffic growth varied between
world regions, with airlines in Europe and the
Asia-Pacific region experiencing the strongest
rates of traffic growth during the year, followed
by carriers in the US. The year 2006 was also
another record-breaking load factor year.
The year 2007 is expected to be the first
profitable year for the airline industry since
2000. However, the International Air Transport
Association (IATA) states that airlines must
continue keep load factors high by carefully
managing capacity and by finding further effi-
ciency gains to achieve the USD 2.5 billion
industry profit projected for 2007.
Order bookings for large commercial jets
reached record levels and the total number of
orders at the end of December for new aircraft
was 4,988, corresponding to more than five
year’s volumes at the current rate. The order
intake at 1,882 large commercial aircraft in
2006 was a decrease of 12% compared to
2005, but still among the strongest in modern
time. Airbus and Boeing have delivered 832
aircraft, up 25% compared with the year-earlier
period. The current production up-cycle is
expected to continue to rise driven by the siz-
able backlog and the anticipated return to air-
line industry profitability.
Earnings
Volvo Aero’s net sales rose by 7% in 2006 to
SEK 8,048 M (7,538). The sales increase is
attributable mainly to higher volumes, primarily
in the engine component production.
Operating income amounted to SEK 345 M
(836). The decline in earnings is due among
other reasons to continued profitability prob-
lems in the aftermarket business. This was also
one of the reasons why Volvo Aero in November
made the strategic decision to close the engine
overhaul operations in Bromma, Sweden.
Earnings were negatively affected to the extent
of SEK 258 M for discontinuation costs.
Development in the engine component busi-
ness remained strong, with increased produc-
tion volumes and higher sales volumes for new
spare parts. The positive trend was offset partly
by many production start-ups of new engine
components, which had a negative impact on
capacity utilization in the production plants.
Higher raw material prices also affected earn-
ings negatively.
The operating margin decreased to 4.3%
(11.1).
Business areas 2006 75