July 21, 2016 / 5:37 PM / in a year

UPDATE 3-Dassault cuts Falcon jet delivery forecast as H1 profit falls

(Adds Bombardier comment, U.S. position on F-35 capability)

By Tim Hepher and Cyril Altmeyer

PARIS, July 21 (Reuters) - Dassault Aviation cut its delivery forecast for Falcon business jets by 17 percent after posting lower first-half operating income and revenue on Thursday, hit by a price battle in the economically sensitive business jet market.

The family-controlled maker of business jets and Rafale warplanes said it would deliver 50 Falcon jets in 2016, down from a previous target of 60, and 55 deliveries in 2015.

Chief Executive Eric Trappier said the first half had been marked by economic and geopolitical uncertainty, including the decision by UK voters to leave the European Union, prompting some buyers to defer taking decisions on purchasing luxury jets.

“There is strong pressure on prices across the whole range,” he told a news conference, adding that Canadian rival Bombardier was “certainly the most aggressive in cutting prices.”

A spokesman for Bombardier responded, “We are in a very competitive market right now. We don’t believe any single (manufacturer) is impacted any more than another, and all are facing the same pressures.”

Trappier also said ample availability of second-hand planes was piling pressure on prices.

Dassault Aviation’s first-half operating profit fell to 125 million euros($137.66 million) from 144 million as revenue slipped to 1.662 billion euros from 1.675 billion.

The French company slowed down R&D spending.

Analysts were on average expecting stable operating profit of 143 million euros on sales of 1.51 billion.

Weakening or sluggish economies around the globe are taking a toll on business jet sales, forestalling an incipient recovery that had raised the hopes of planemakers last year.

“We are getting ready for low levels for some time ... in terms of production,” Trappier said.

Falcon revenues fell to 853 million euros from 919 million as Dassault delivered 15 jets, three fewer than the first half of last year. New orders for the jets fell to 22 from 25.

Dassault said it expects to deliver its first Falcon 8X version in the fourth quarter as planned.

The Falcon 5X has already been pushed back to 2020 from 2017 due to problems in developing the Silvercrest engine at France’s Safran and Trappier said Dassault was now in talks to receive penalty payments

The company reaffirmed its full-year revenues were expected to fall in 2016, compared with 2015, which had been boosted by a Mirage 2000 fighter modernisation project in India. ($1 = 0.9080 euros)

On the defence business, Trappier said Dassault had concluded detailed discussions over the sale of 36 combat jets to India and was waiting for a final Indian decision.

He also said Dassault is responding to a new request for information from Canada for a possible fighter purchase but that it remains unclear whether Ottawa is ready to buy non-U.S. jets.

He took a swipe at the Lockheed Martin F-35 fighter previously chosen by Canada, which staged its first major international appearance at air shows in Britain last week.

“It may not be the airplane for them,” he said, adding that the displays, while popular with UK aviations fans, had demonstrated a lack of manoeuvrability needed for air defence.

U.S. officials say the F-35 is as manoeuvrable and capable as most current jets, despite some studies that showed a gap. But they argue the jet will probably never see air-to-air combat because of its superior radar and stealthy coatings which allow it to see enemy jets long before they could be engaged. (Additional reporting by Andrea Shalal. Editing by Jane Merriman, Susan Thomas and Alexandra Hudson)

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