Morningstar | AM Updated Forecasts and Estimates from 24 Jun 2019
Due to leading positions in military jets, Dassault Aviation will benefit from both an improved outlook in mature defence markets and sales opportunities in emerging markets. Dassault, controlled by the Dassault Family with 73% of voting rights, is the leading manufacturer of the Rafale fighter jet with 60% of the equipment value on the aircraft. Other Rafale industrial participants are Thales, with 25% of the aircraft’s value, and Safran. France promotes Dassault as the national champion in fighter aircraft and unmanned aerial systems. As the dominant fighter jet player in the French domestic market, Dassault enjoys a competitive advantage. The firm’s close relationship with the French government forms an intangible asset, and we expect additional Rafale orders on the back of the next six-year French defence procurement plan, as presented at the beginning of 2018. As the selection of a fighter jet manufacturer is often a political decision, the backing of the French government could help support Dassault’s international expansion, and the company has recently landed orders with India, Egypt, and Qatar.Due to leading technology, the Dassault has secured the third-largest market position after General Dynamics and Bombardier in the midsize to large business jets market. Owing to sluggish economic growth and depressed oil prices, demand for new business jets turned downwards in 2015 and 2016. We expect the market to begin recovering at end 2018 and into 2019, which should support growth at Dassault and improved profitability. Dassault enjoys a very sticky customer base, and Falcon aftersales comprise more than 20% of total business jet sales. Strong order intake for the Rafale fighter jet will fuel top-line growth over our five-year forecast period. Additionally, operational leverage and better Falcon pricing levels due to lower inventory levels of used aircraft will lead to improved profitability.Although we appreciate the moaty aspects of the firm's business jet and defence businesses, strong competition from large U.S. companies--such as General Dynamics in business jets and Lockheed Martin and Boeing in fighter aircraft--restricts our moat rating to narrow.Dassault Aviation is a player in the civil and military aviation industry. Co. designs, manufactures and sells combat aircraft under the names Rafale, Mirage 2000, nEUROn and executive jets under the name Falcon (Falcon 7X, Falcon 900LX, Falcon 2000LX) and business jets. Co. produces combat aircraft. Rafale is a fighter aircraft with a "delta-canard" configuration. Mirage 2000 is a combat aircraft operated in environments ranging from deserts to tropical forests. nEUROn is an unmanned combat aircraft vehicle demonstrator. Falcon is used for passenger transportation by entrepreneurs, executives of companies and governments. Co. also offers maintenance services, follow up and repair services.
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