Recently Dassault Aviation announced a two-year delay to their Falcon 5X program citing continued problems with development of SNECMA’s Silvercrest engine- a clean sheet power plant and the capable company’s first entry into the business jet marketplace.
Normally this would be pretty bad news. But strangely, the news doesn’t seem nearly as bad for Dassault in this case. In fact this time, it seems there may be a silver lining.
Make no mistake; the 5X is a serious program for a proud and talented company. This is a clean sheet aircraft and that means a big investment- of money, time, resources, and credibility. It will also be a key part of the new large-cabin, long-range landscape that has emerged post 2000, including the Falcon 7X and Gulfstream 650- and soon to include the Falcon 8X, Gulfstream 500, Gulfstream 600 and new Bombardier Global’s.
The unpredictable economy being what it currently is, this is not the ideal time to bring a new model aircraft into production. Long development cycles inherently mean that OEM’s live with this gamble every time they launch a new program- and once you push the button, there is no stopping. Unless, of course, the unknown-unknowns start to creep in.
Here’s the essential issue. For the past 20 years, OEM’s have been able to stimulate (and by stimulate we mean create) demand by building new and derivative models. It has been an enormously successful strategy and, in all likelihood, has contributed to industry-wide overproduction and the poor residual value environment we now face.
That last part can’t be overstated. Historically, high residual values have made it easy for buyers to justify new aircraft purchases. But at the moment, inventory levels (new and pre-owned) are high and prices continue to fall. Consequently, and not surprisingly, early indications are that demand for this new generation of long-range aircraft aren’t anything close to what the respective OEM’s had hoped for.
Which brings us back to the Falcon 5X. Normally, being first to market with a new design is a big advantage. It allows the OEM to set prices, build backlog and recoup investment ahead of the competition. However, we aren’t so sure it’s necessarily an advantage right now.
After all, while Dassault won’t be collecting some deposit money they were previously expecting, they will be spending a fraction of the money on development and early production costs this year compared to the original plan. Luckily the delay came before full-scale production began.
Assuming industry-wide sales of new aircraft remain weak in 2016, this could remove a great deal of pressure from the current Falcon product line. High cash burn for R&D during a period of weak sales is the exact opposite of ideal for an OEM. On top of that, certain public comments by senior Dassault leadership would seem to indicate SNECMA is “participating” financially in the delay.
Finally, the delay buys time for the market to (hopefully) improve. If luck prevails and 5X sales ramp up into a growing global market, it will probably equal higher revenue per unit than current conditions would have supported. And Dassault won’t lose as much ground to the competition in the ever-critical battle for market share.
No OEM wants a delay, but if one is going to happen, now may be as good a time as any.