Thursday, July 21, 2011

All is Well for Saab

At this moment, the stockholders at Saab Defence can be very optimistic about the future of the company. The latest six months financial report showed a major increase in profit compared to last year.

Operating income was MSEK 1,065 (402), corresponding to an operating margin of 9.4 per cent (3.5). 2011 included capital gains of MSEK 253, whereas the Group in 2010 had structural costs and negative results from divestments of MSEK 110 and costs related to a terminated contract of MSEK 310.

Saab has also reported the sale of C3 Technologies. A spin-off 3D mapping company. In the short term this will increase the income for the third quarter 2011.

The cash consideration for the divestment amounts to approximately MSEK 1,009 and the transaction will generate a capital gain of approximately MSEK 906. It will have a positive impact on earnings per share fully diluted of approximately SEK 8.1 in 2011.

Unfortunately Saab is, as most other major companies on the stock market, focusing on making the stock holders happy and sharing the income with them rather than re-investing the money into the Gripen NG program. Of course it is always good to make the investors happy and maybe earn some short term money by increasing the value of the Saab stocks. But the aircraft industry is a long term business and need money today. As most other European military aircraft manufacturers, Saab is at this moment very vulnerable. The ongoing production will end in a few years when the last aircraft on order for the Thai, South African and Swedish Air Force has been delivered. There are a number of possible customers for the Gripen C/D with the RTAF - Royal Thai Air Force as the most probable.

But the next version, the Gripen NG or Gripen E/F has yet to find a customer. The Swedish Armed Forces will wait another year. The Brazil Air Force are doing the same and the Indian Air Force are at the moment focusing on Eurofighter or Rafale. How will Saab find money to develop the Gripen NG on their own? Maybe by keeping some of the earnings and reinvesting them into the Gripen NG instead of spreading the all of it to the stock-holders.

But maybe there is another financial possibility around the corner. The civilian production has long been a slow goer. Saab is delivering part to both Airbus and Boeing, but the Boeing Dreamliner is delayed and the Airbus 380 has not sold as much as expected. But now American Airlines is going to buy 460 aircraft from both Boeing and Airbus. Not the new fancy aircraft, but the Airbus 320 and the Boeing 737 in their latest development versions. Airbus has already presented plans on how to speed up the production rate to 60 A320 per month!

Saab is manufacturing parts of the wing structure on the Airbus 380. The knowledge on building these kind of structures come from the military Gripen project. This clearly shows the symbiosis between the civilian and the military production. But up until now maybe the technical advanced development has been on the military side of the production. But maybe this is to be changed?

And Saab also have some very promising technologies that might be part of the updated Airbus 320. As part of the EU project Clean Sky in the sub-project SFWA - SMART Fixed Wing Aircraft, Saab has developed a turbulence "free" wing where major parts are made in one single composite structure with a very smooth layer. In 2014 this new wing will be tested on an Airbus 340. If these tests goes well it is very likely that Saab will manufacture the wings of the next generation Airbus 320, the A30X. The first prototype of the wing was presented in April 2011.

"The production of the integrated wing panel is groundbreaking. The material being used is the latest carbon-fibre composite available on the market. There are stringent, if not extreme demands on the surface quality in terms of permitted steps, play and waviness, and this was the biggest challenge we faced with regard to the composite items," says Thomas Hellström, project manager at Saab for SFWA.

Saab's expertise within aerodynamics has been essential in the development of the wing panel and the team has worked hard to improve the wing's aerodynamic properties in order to maintain the laminar flows so that the air resistance and fuel consumption can be reduced by at least 5 %.

The US DoD is also studying fuel efficiency. Not only to be "green", but also to increase the range of aircraft while decreasing the need for vulnerable fuel transports to operations. Maybe this civilian technology also will be valuable on the military market?

"In addition to traditional performance parameters such as speed, range and payload, we will now consider system energy performance parameters in the requirements and acquisitions process," deputy defense secretary William Lynn said during his speech.

The last years it has been the military sales that has saved Saab civilian production, but maybe it is now time for the civilian production to save the military?

American Airlines is not the only airline company that need to buy new aircraft to replace their ageing fleet. SAS has bought 30 Airbus A320neo, Indian GoAir has bought 72 Airbus A320neo, Indian IndiGo has ordered 180 Airbus A320, China buys 88 Airbus A320 and so on...

Maybe it is not a few big business opportunities that will make the big money for Saab, but many small?

Saab is not the only Swedish winner. American Airlines and the other new orders will also make life good for Volvo, since they are delivering parts of the engines for almost all possible engines that will be delivered with both Airbus and Boeing aircraft.

SvD1, SvD2, Corren

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