Saab: A potential game changer for Aeronautics

The Swedish prime minister and the Ukrainian president signed a letter of intent yesterday. The potential deal is worth ~130-200 BNSEK and could add ~18 BNSEK to the topline by 2029, with scope for margin improvement. The potential deal supports our estimates and would reinforce them significantly if it materializes. However, the details, likelihood, and timing remain uncertain. A signed contract could trigger upward revisions, depending on size. For now, we keep our estimates unchanged and monitor the situation.

Letter of intent signed for a deal of up to 150 Gripen E

Ukraine and Sweden said today that Ukraine intends to buy 100 to 150 Gripen E fighter aircraft. A letter of intent signed by the Swedish prime minister and the Ukrainian president supports the likelihood of a deal taking place. Using a unit price of ~140 MUSD including equipment, support, and training, in line with prior export packages (Thailand and Brazil), the implied contract value is ~14-21 BNUSD, or ~130-200 BNSEK, about as big as the size of Saab’s entire order book.

Ukraine Gripen deal could double 2029 revenue and improve profitability

This is not entirely surprising, as a former Swedish defense secretary has said talks with Ukraine began years ago. Even so, the potential order would be unprecedented for Saab and would materially reinforce the long-term visibility for Aeronautics. Saab has 100 Gripen E/F on order, of which an estimated 12 have been delivered, implying a backlog of ~88. Adding 100-150 units would take the backlog to ~188-238 aircraft. At a ~20 per year rate, that equals 9 to 12 years of production visibility. Aeronautics’ current Gripen E/F output is ~10 per year with headroom to ~20, with further investments being made to increase capacity even further, but the start of production for any new order depends on contract timing. If production starts next year and ramps over two to three years to full capacity, the full P&L effect would likely show from 2029 onwards. That said, reaching full capacity would also require the buyer to call for fast deliveries, which depends on, for example, financing and pilot training throughput.

From a financial standpoint, doubling the delivery rate would take Aeronautics’ 2029 revenue to ~36 BNSEK (~18 BNSEK LTM), assuming the division consists mainly of Gripen sales with services, equipment, support, and training (80-90% in our estimation). The exact mix is not disclosed. Moreover, if scale efficiencies are realized with increasing volumes, a new steady-state EBIT margin range could be ~6-8%, in our view, compared to the ~5-6% seen in 2021-24. Under a full capacity scenario in Aeronautics, with 2029 revenue of ~36 BNSEK, EBIT would be ~2.2-2.9 BNSEK. This would add ~400-1100 MSEK to our 2029 group EBIT estimate of ~14.5 BNSEK. We already expected Aeronautics to run at ~75% of capacity by 2028 with a 6% EBIT margin, so the news reinforces our already positive long-term view on the division.

Our fundamental stance unchanged for now

The news does not change our fundamental view, as no order has been placed. The potential order is material, but the details, likelihood, and timing remain uncertain given Ukraine's funding dependencies and export approvals. Until there is an official contract signed, we keep our estimates unchanged.