Dassault Aviation: Good prospects

European defense stocks have been soaring in recent weeks, buoyed by the prospect of a significant increase in European military spending. This trend is benefiting Dassault Aviation, whose results are also very good. The order book is overflowing, but it won't be easy to ramp up production.

An excellent year for Dassault Aviation. In 2024, the Rafale manufacturer increased its sales by 30% to 6.23 billion euros. Net income rose by 33% to 924 million euros.

In 2024, the French Group delivered 21 Rafales and 31 Falcons. At the same time, order intake was solid, with 30 Rafales and 26 Falcons. As a result, the order book set a new record at 43.2 billion euros. This represents a book-to-bill ratio of 1.74.

Dassault Aviation holds a 25.05% stake in French defense company Thalès. This stake contributed 375 million euros to net income, compared with 259 million euros a year earlier. Thalès has published excellent results for 2024. The share price has risen by 75% since January 1, taking its market capitalization to over 50 billion euros. This values Dassault's stake at around 12 billion euros.

European defense boom

Like the European defense sector as a whole, Dassault Aviation 's share price has been soaring in recent weeks, buoyed by projected increases in European countries' military spending. While Europe has long relied on American security guarantees, and many countries have not even reached the famous 2% of GDP defense spending required by NATO, targets of 3 to 3.5% of GDP are now being mooted. Earlier this week, the European Commission announced a program to mobilize an additional 800 billion euros over 5 years.

All this should benefit European manufacturers, since the aim is not simply to spend more, but also to strengthen the European defense industry. This is an opportunity for Dassault. The Rafale has already been an export success for several years. But European armies are mainly equipped with American fighters, F16s or F35s. Several hundred aircraft are currently in service on the old continent, compared with just 150 Rafales. In the longer term, Dassault is also involved with other European manufacturers in the development of the SCAF (air combat system of the future). This project is scheduled for 2040.

If the order book is full, ramping up production is a real challenge, requiring investment from Dassault and its entire subcontracting chain, which includes some 500 companies. For years, defense manufacturers have been pointing to the lack of visibility, in the absence of sufficient orders, which prevented them from investing more and therefore producing more. This seems to be changing. But increasing production will not be easy. Industrial time is always a long time. In particular, more staff will have to be hired and trained.

The other risk for the group is the tariffs that Donald Trump could impose on European countries. This could affect Falcon sales in particular. According to CEO Eric Trappier, Dassault sells between a third and a half of its jets in the United States. But sales depend essentially on the Rafale (64% of sales in 2024). And the prospects are solid in this area.

For 2025, Dassault Aviation expects further sales growth, to 6.5 billion euros. It hopes to deliver 40 Falcon and 25 Rafale jets. These forecasts could be even higher if the European announcements are rapidly translated into action. Finally, although Dassault has risen by 45% since January 1, the valuation is still at reasonable levels.