Invitation · Purchase Rights For each Investor share held, whether of class A or B, one (1) purchase right will be received. Four (4) purchase rights will be required to purchase

Invitationto Acquire Shares in

Saab AB(publ)

through the Exercise of Purchase Rights

In this document (”the Document”), references to “SEK”, “kronor” or “krona” (in the singular) are to the lawful currency of Sweden; and references to “U.S. dollars”or “$” are to the lawful currency of the United States and references to “pounds sterling” or “£” are to the lawful currency of the United Kingdom. The Saab Groupprepares consolidated financial statements expressed in Swedish kronor. Solely for the convenience of the reader, this Document contains translations of certain U.S.dollar amounts into Swedish kronor at specified rates. These translations should not be construed as representations that the U.S. dollar amounts actually representsuch kronor amounts or could be converted into kronor at the rate indicated or any other rate. Unless otherwise stated, the translations of U.S. dollar into Swedishkronor have been made at the official closing rate at December 31, 1997 of $1 to SEK 7.87 and the translations of pounds sterling have been made at the official closingrate at December 31, 1997 of £1 to SEK 13.12.

In this Document, unless the context requires otherwise, references to “Saab AB” or the “Company” are to Saab AB (publ) and references to “Investor” are to Inves-tor AB (publ). References to “Saab” are to the five business areas Military Aerospace, Space (60 percent owned), Training Systems, Commercial Aircraft andCombitech all together. Military Aerospace comprises the business units Gripen, Saab Dynamics AB (“Dynamics”), Ericsson Saab Avionics AB (“Avionics”) (49.9 percentowned), General Military Programs, Future Products & Technology and CSM Materialteknik AB (“CSM Materialteknik”) (50 percent owned). Commercial Aircraftcomprises the business units Collaborative Programs and Customer Support. References to the “Saab Group” or the “Group” refer to Saab, together with RegionalAircraft and Saab Aircraft Finance Group (“SAFG”). References to the “Board of Directors” refer to the Board of directors of Saab AB. See “Financial Overview” fora presentation of the Group’s operating structure and “Legal Structure of the Saab Group” for a presentation of the Group’s legal structure.

This Document is, in all essential respects, a translation of the Swedish document prepared in accordance with Swedish regulations. In the event of any differencebetween this translation and the Swedish original, the Swedish document shall govern.

This Document does not constitute an offer of, or any invitation by or on behalf of Investor AB or anyone else to purchase any shares in Saab AB, and may not beused for, or in connection with, any offer to, or solicitation by, anyone in any jurisdiction or under any circumstances in which such offer or solicitation is not author-ized or is unlawful. Persons into whose possession this Document may come are required to inform themselves about and to observe such restrictions.

Neither the purchase rights, nor the shares delivered upon exercise thereof have been registered or will be registered under the United States Securities Act of 1933,as amended (the “Securities Act”) or the securities laws of Canada and they may not be offered or sold in the United States or to U.S. Persons (as defined below) orin Canada or to residents of Canada except pursuant to an exemption from the registration requirements of the Securities Act or the securities laws of Canada,respectively.

Exercise of the purchase rights in the United States or by U.S. Persons or in Canada or by residents of Canada may, however, constitute a transaction requiringregistration under the Securities Act or the securities laws of Canada, respectively, or an exemption from such registration requirements. Accordingly, unless other-wise determined by Investor AB in its sole discretion and effected in a manner that complies with U.S. securities laws or the securities laws of Canada, the purchaserights may not be exercised in the United States or by any U.S. Person or in Canada by any resident of Canada.

Except as aforesaid, Investor AB will treat as invalid any exercise (i) that appears to Investor AB or any of its agents to have been executed in or despatched fromor paid for with funds transferred from the United States or Canada, (ii) that provides an address in the United States or Canada, for delivery of any notice of con-firmation or for the person exercising rights pursuant to such exercise form, (iii) which does not make the representation set out under the caption headed “Impor-tant Information” in the exercise form or (iv) which Investor, in its discretion, otherwise believes to be from the United States or from a U.S. Person or from Canadaor from a resident of Canada.

As used herein, “United States” means the United States of America, its territories and possessions, any state of the United States and the District of Columbiaand “U.S. Person” has the meaning set forth in Regulation S under the Securities Act.

Unless otherwise determined by Investor in its sole discretion, the purchase rights attributable to shareholders with a registered address in the United States orCanada will not be credited to the accounts of such shareholders with, or the accounts of such shareholders’ direct participants in, VPC. Instead, Investor will directits agents to sell such purchase rights in the market during the period May 28 – June 11, 1998, in each case for the benefit of such persons if a premium over theexpenses of sale can be obtained, and any net proceeds after deduction of compulsory withholding tax for foreign shareholders will be distributed pro rata to thepersons entitled thereto, except that no payment will be made of any individual amount of less than SEK 50 which amounts will be retained for the benefit of Investor.

Disputes regarding the offering in accordance with this Document shall be settled exclusively pursuant to Swedish law and by Swedish courts.

TABLE OF CONTENTSSummary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Invitation to Acquire Shares in Saab AB . . . . . . . . . . . . . . . . . . . . . . . . 7Background and Reasons for the Offering . . . . . . . . . . . . . . . . . . . . . . 8Terms and Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Tax Issues in Sweden. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Company History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Financial Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Management’s Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . 23Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Business Overview and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40The Business of Saab . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Actions Relating to Regional Aircraft and Saab Aircraft Finance Group (SAFG) . . . . . . . . . . . . . . . . . . . . . 55The Business of Regional Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60The Business of SAFG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65Major Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Regulatory Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70Special Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71Share Capital and Ownership Structure . . . . . . . . . . . . . . . . . . . . . . . 73The Relationship Between the Saab Group and Investor . . . . . 77Board of Directors, Group Management and Auditors. . . . . . . . 78Information from Saab AB Articles of Association . . . . . . . . . . . . 81Legal Structure of the Saab Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82Statutory Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Interim Report January – March 1998 . . . . . . . . . . . . . . . . . . . . . . . . . 111Auditors’ Examination Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

FUTURE FINANCIAL INFORMATION

The Saab Group will make available audited annual reportscontaining financial statements for the parent company and theGroup relating to the preceding fiscal year. The Group will alsomake available unaudited quarterly reports.

Interim report covering second quarter 1998 operationsAugust 11, 1998

Interim report covering third quarter 1998 operationsOctober 1998

Report covering full year 1998 operationsFebruary 1999

1998 Annual ReportMarch 1999

1999 Annual General MeetingApril 1999

IMPORTANT INFORMATION AND DEFINITIONS

SUMMARY OF THE PROPOSALThe Board of Directors of Investor passed a resolution on May 7, 1998 to offer Investor shareholders the opportunity toacquire through the exercise of purchase rights 47,719,099 shares of class B in Saab AB, which corresponds to 44.8percent of the share capital and 29.0 percent of the voting rights. The resolution was passed with support from theauthorization received by the Board of Directors of Investor at the Annual General Meeting of Investor on April 20, 1998.

Purchase Rights For each Investor share held, whether of class A or B, one (1)purchase right will be received. Four (4) purchase rights will berequired to purchase one (1) share of class B in Saab AB.

Offering Price SEK 45 per share

The Investor Share Quoted Exclusive of Purchase Right May 19, 1998

Application Period May 26 – June 16, 1998

Trading in Purchase Rights May 26 – June 11, 1998

Listing Around June 18, 1998

Simplified Procedure Shareholders in Investor who receive up to 99 purchase rights willhave the opportunity to divest the purchase rights free ofcommission. Application must be made not later than June 16, 1998.

Note! After the expiration of the application period unexercised purchase rights will become invalid and thus will have no value.

Saab Group I 1

Summary

100 shares

in Investor

A shareholder that on the record date May 22, 1998 owns 100 shares in Investor . . .

. . . will without any action taken receive 100 purchase rights.

The 100 purchase rights will entitle the holder to acquire 25 shares in Saab AB during the period May 26 – June 16, 1998 upon payment of a total amount of SEK 1,125 (SEK 45 per share).

100 purchase

rights

25 shares

in Saab AB

103 shares

in Investor

A shareholder that on the record date May 22, 1998 owns 103 shares in Investor . . .

. . . will without any action taken receive 100 purchase rights. As four purchase rights are required to entitle the owner to acquire one share in Saab AB, the other three purchase rights will not entitle the owner to acquire a share in Saab AB.

The 100 purchase rights will entitle the holder to acquire 25 shares in Saab AB during the period May 26 – June 16, 1998 upon payment of a total amount of SEK 1,125 (SEK 45 per share).

The other three purchase rights will instead, automatically and free of commission, be sold . . .

. . . whereupon the proceeds will be paid out to the shareholder.

100 purchase

rights

25 shares

in Saab AB

3 purchase

rights

TIMETABLE

19 2018 21 22 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4 5 6

May 28 - June 16 Application period for the

simplified procedure.

June 18 Estimated first day

of listing of Saab AB.

Beginning of July Payment of proceeds from the

simplified procedure.

May 19The Investor share

quoted exclusive of right to participate in the

offering.

Around May 26 Notification sent to

direct-registered shareholders regarding the number of purchase rights

received and an application form.

May 18Last trading day of the Investor share inclusive of right to

participate in the offering.

May 22 Record date at VPC for

determining which shareholders

are to receive purchase rights in Saab AB.

May 26 – June 11 Trading in purchase

rights.

May 26 – June 16 Application period for acquisition of shares in

Saab AB.

BUSINESS OVERVIEW

The Saab Group comprises Saab, Regional Aircraft andSaab Aircraft Finance Group (SAFG).

SaabOnly a handful of companies in the world are capable ofdeveloping and manufacturing complex military aircraftsystems. Saab is one of those companies and it pursuesthese activities with profit.

Saab is active primarily in the aircraft, space anddefense industry and supplies advanced products andsystems based on sophisticated information technology.The business areas which comprise Saab are MilitaryAerospace, Space, Training Systems, CommercialAircraft and Combitech. A significant part of the productrange is marketed internationally.

Saab's products have always been at the forefront oftechnological development. Saab's capabilities in totalsystems integration, i.e. the integration of hightechnology products to achieve complex systemssolutions, is the foundation for the success of thebusiness.

Military AerospaceGRIPEN

The Gripen, also known as JAS 39 Gripen, is today theworld's only fourth generation fighter in operativeservice. “Fourth generation” aircraft describescharacteristics that, to a large extent, are based onadvanced information technology. As of March 31, 1998,53 Gripen aircraft were in service in the Swedish AirForce.

The Gripen is capable of three types of missions – fight,attack and reconnaissance. Loaded with the appropriateweaponry, it can change its mission while airborne,quickly and flexibly adapting to new combat situations.

The Swedish Armed Forces have through theSwedish Defence Material Administration (the “FMV”)has ordered a total of 204 Gripen and furtherdevelopment programs. These orders provide a backlogfor Saab with deliveries scheduled through 2007, whichwill generate substantial revenues during a long period.Furthermore, the Swedish orders form the strategic basefor export of the Gripen. The total backlog withinMilitary Aerospace amounts to approximately SEK 22billion as of December 31, 1997.

Saab has expanded its marketing capabilities andbroadened its international network through the jointventure with British Aerospace. The two companiescooperate in the areas of marketing, adaptation,manufacturing and support of the Gripen tointernational markets.

British Aerospace's marketing organization providesthe opportunity to market the Gripen on a broadinternational market. At the same time, the Gripenprovides British Aerospace with an importantcomplement to its own product range.

Being the only fourth generation fighter currently inoperative service, the Gripen has an advantage in theinternational market. In markets believed to beaccessible, it is estimated that there will be demand forover 2,000 aircraft in the next 10–15 years. Saab aims totake at least a 20 percent share of this market.

2 I Saab Group

SUMMARY

Military Aerospace

Gripen Dynamics Avionics (49.9%)

Other

Training Systems

Space (60.0%) CombitechCommercial

AircraftSAFG

Executive management and corporate functions

Regional Aircraft

THE SAAB GROUP

The figure shows the current structure of the operations of the Saab Group. The Group’s operating structure differs from the legal structure. See “Legal Structure of theSaab Group”. In 1997, the Board of Directors decided to cease the manufacturing of regional aircraft.

DYNAMICS

Dynamics develops and manufactures weaponry andelectronic systems for the army, the navy and the airforce. Its product range includes primarily guidedweapons and electro-optical systems. Such a product,with strong market potential, is the RBS 15 anti-shipmissile. Dynamics also takes part in several jointEuropean defense programs.

The systems and products developed by Dynamicsprovide an important value-added to the Gripen, butthere is also an international market for these systemsand products.

AVIONICS

Advanced avionics systems are an integral part ofmodern fighter aircraft. Together with EricssonMicrowave Systems AB (“Ericsson MicrowaveSystems”), Saab develops and manufactures variouselectronic warfare systems, display and reconnaissancesystems and other military electronic products andsystems. Saab and Ericsson Microwave Systems own 49.9percent and 50.1 percent of the Company, respectively.

Today, Avionics’ sales are primarily made to theSwedish Air Force, but exports are expected to increase.

OTHER

Other activities in Military Aerospace include GeneralMilitary Programs, Future Products & Technology andCSM Materialteknik.

The General Military Programs business unit isresponsible for further development, modifications andother qualified services for the Gripen's predecessors,including the Lansen, the Draken, the Viggen and theSaab 105.

The Viggen aircraft was first delivered in 1971 but hasbeen continuously upgraded and developed. Today, theViggen constitutes the backbone of the Swedish AirForce. The updated version of the Viggen is a competitivethird generation aircraft. Saab expects that upgrade anddevelopment programs will provide important futurerevenues.

Future Products & Technologies and CSMMaterialteknik are primarily active in areas such asresearch and development.

Sales in Military Aerospace amounted to SEK 4,480 million in1997.

SpaceSpace has established itself as an importantmanufacturer of subsystems for the international spaceindustry. Its products include on-board computers, datahandling systems, antennas and antenna systems,

microwave electronics and satellite separation systems.The Space activities are conducted through a companyof which Saab AB and Ericsson Microwave Systems,respectively, own 60.0 percent and 40.0 percent.

Today, Space’s customers are primarily governmentalbodies, such as the European Space Agency (“ESA”),and other government-funded international projects.However, the fast growing market for commercialsatellites offers new possibilities primarily in thetelecommunications area, a field that is beingsuccessfully explored by Space.

Sales in Space amounted to SEK 594 million in 1997.

Training SystemsTraining Systems is a world leader in military trainingequipment, specializing in laser simulators, graphicsimulators and target equipment. The laser simulatorsare designed to carry out true life exercises in the fieldwith existing weapon systems at low costs and withlimited impact on the environment. In 1997, some 94percent of sales were exports, with its products beingused in over 20 countries. Major customers include thearmed forces of the United States, the United Kingdomand Germany.

The military training equipment market is nowshrinking, although there are niches with a growingdemand that compensate for the decline. One suchniche, in which Saab actively markets systems solutions,is training centers for qualified live outdoor training.

Sales in Training Systems amounted to SEK 668 million in1997.

Commercial AircraftCommercial Aircraft is focusing on supply ofsubsystems and partnership in collaborative programswith large aircraft manufacturers. In these activities,Saab can take advantage of the technological andcompetence synergies between military and civilaircraft.

Saab's experience from military and regional aircraftmanufacturing is an advantage in this context. Saab hasreceived orders from Boeing, British Aerospace andAerospatiale and is currently also taking part in thefeasibility study on the new Airbus project A3XX.

Since January 1, 1998, the operations of CommercialAircraft have included Customer Support for the morethan 500 Saab 340 and Saab 2000 regional aircraft inoperation around the world.

Sales in Commercial Aircraft exclusive of Customer Supportamounted to SEK 244 million in 1997. Going forward,Customer Support’s annual sales are estimated to amount toapproximately SEK 500 million.

Saab Group I 3

SUMMARY

CombitechThe strategy of Combitech is to develop andcommercialize spin-offs from Saab’s military operations.Dynamics, Space and Training Systems, today businessareas within Saab, were originally developed inCombitech.

In 1997, Combitech was reorganized. A number ofcompanies were divested in order to streamlineoperations and re-focus Combitech’s strategy. TheCombitech product portfolio currently includes anumber of competitive products such as level gaugingequipment, airborne survey systems, traffic controlsystems, as well as multichip modules for electronics indemanding environments.Sales in Combitech amounted to SEK 1,073 million in 1997.

Regional AircraftSince the business’ origins in 1980, the Group’s regionalaircraft have captured substantial market shareworldwide. The business has, however, not beenprofitable and the demand for turbo-props has not beensufficient.

In December 1997, the Board of Directors made thedecision to discontinue the manufacturing of regional

aircraft. The last regional aircraft will be delivered inmid-1999.

Provisions have been taken by the Group in order tocover losses generated by the remaining manufacturing,expected costs relating to the discontinuation ofoperations as well as to ensure that Saab can provideCustomer Support for the existing fleet of aircraft. Theprovisions were calculated so that Regional Aircraft isnot expected to impact the results of the Groupnegatively in the future.

Saab Aircraft Finance Group (SAFG)SAFG manages a portfolio of some 300 Saab-manufactured regional aircraft on lease to 27 customersin 17 countries.

Leasing commitments for the aircraft in the portfolioextend for many years. Following the decision to ceasemanufacturing of regional aircraft, the book value ofSAFG’s portfolio was adjusted through a provision toreflect the estimated market value of the portfolio. Inaddition, SAFG received a capital injection from itsparent, Saab AB. After these actions were undertaken,the equity in SAFG amounted to SEK 1,500 million atyear-end 1997.

4 I Saab Group

SUMMARY

EU excluding Sweden 16.6%

Other 7.5%

North America 21.0%

Other European countries 6.2%

Sweden 48.7% Space 5.9%

Combitech 10.6%

Regional Aircraft 30.1%

Military Aerospace 44.4%

Commercial Aircraft 2.4%Training Systems 6.6%

1997 Group Sales by Market Area 1997 Group Sales by Business Area(1)

(1) Figures include intra-group sales.

SUMMARY OF STRATEGY ● Continue supplying the Swedish Armed Forces with

leading products

● Actively pursue export opportunities for the Gripen andother products

● Maintain market leadership in key niche markets

● Take advantage of systems integration skills

● Seek continued technological excellence

● Fully exploit information technology

● Actively participate in the restructuring of the aerospaceand defense industry

● Strengthen growth and profitability through commercial-ization of defense technology

FINANCIAL OBJECTIVESThe Group sets separate financial objectives for each ofSaab, Regional Aircraft and SAFG. The objectives forSaab are:● In the next few years, preserve and improve under-

lying profitability (i.e. before reversals of Gripen lossrisk reserves and before export development costs).

● In the long term, achieve an operating margin beforedepreciation of at least 15 percent and of at least10 percent after depreciation and a return on equityof at least 15 percent.

● In the long term, achieve an equity/assets ratio thatshould exceed 30 percent.

DIVIDEND POLICYIn accordance with the Group’s long term dividendpolicy, the Board of Directors intends to propose anannual dividend which in the long term shouldrepresent approximately 20-40 percent of the Company’snet income.

Saab Group I 5

SUMMARY

6 I Saab Group

SAAB1993 1994 1995 1996 1997

(in SEK million, unless otherwise stated) (pro forma) (pro forma) (pro forma) (pro forma) (pro forma)

Sales 3,707 3,784 4,804 5,638 6,866Operating income before depreciation(1) 603 637 858 947 934Operating income (1) 400 418 618 610 557Operating income 400 418 618 910 870

Operating margin before depreciation(1) 16.3% 16.8% 17.9% 16.8% 13.6%Operating margin(1) 10.8% 11.0% 12.9% 10.8% 8.1%

Order bookings 3,401 3,304 3,819 5,337 14,106Order backlog 18,810 18,314 17,452 17,185 24,388

Total assets 16,938 19,427 16,582Capital employed 6,158 7,623 5,994Net liquidity(2) 9,107 10,750 4,873Shareholders’ equity 3,578 5,110 3,091

Return on capital employed(1) 22.0% 18.4% 17.5%Equity to assets ratio 26.0% 31.6% 21.9%

THE SAAB GROUP1995 1996 1997

(in SEK million, unless otherwise stated) (pro forma) (pro forma)

Sales 7,925 8,159 8,674Operating expenses –8,324 –9,006 –8,569Items affecting comparability (3) –1,219 –5,421Operating income –399 –2,066 –5,316

Of which Saab(1) 618 610 557Income after financial income and expenses 271 –1,572 –4,845Net income 148 –1,385 –3,790

Order bookings 6,053 7,736 16,612Order backlog 20,509 20,042 27,122

Total assets 28,137 31,388 32,780Capital employed 8,719 8,975 6,440Net liquidity 10,824 14,070 11,921Shareholders’ equity 5,829 6,324 3,091

Return on capital employed (4) 5.0% neg. 8.8%Return on shareholders’ equity (4) 2.5% neg. 2.4%Equity to assets ratio 23.3% 22.5% 10.2%Net income per share, SEK 1.4 neg. neg.Shareholders’ equity per share, SEK 54.8 59.4 29.0Price/book value per share 1.6

(1) Exclusive of reversal of loss risk reserve for the base contract for the Gripen of SEK 300 million in 1996 and SEK 313 million in 1997.

(2) After subtraction of short and long term intra-group liabilities to Regional Aircraft and SAFG.

(3) “Items affecting comparability” relate to provisions taken in relation to regional aircraft activities. See “Recent Actions Relating to Regional Aircraft and Saab Aircraft Finance Group (SAFG)”.

(4) Exclusive of “Items affecting comparability”.

For principles regarding the preparation of pro forma accounts see “Financial Overview – Financial Overview andPrinciples for the Preparation of Pro Forma Accounts”. For definitions of key ratios, see page 22.

SUMMARY

Saab Group I 7

The Board of Directors of Investor passed a resolution on May 7, 1998 to offer Investor shareholders the opportunity toacquire through the exercise of purchase rights 47,719,099(1) shares of class B in Saab AB, which corresponds to 44.8percent of the share capital and 29.0 percent of the voting rights. The resolution was passed pursuant to theauthorization received by the Board of Directors of Investor at the Annual General Meeting of Investor on April 20, 1998.

For this reason, in accordance with the conditions in this Document, the shareholders of Investor are invited toacquire shares of class B in Saab AB using purchase rights. One purchase right will be received for each Investor share,whether of class A or B, held as of the record date May 22, 1998. Four purchase rights will be required for the purchaseof one share of class B in Saab AB for SEK 45.

In connection with the offering, the Board of Directors of Saab AB has applied for the Company’s class B shares tobe listed on the O-list of the Stockholm Stock Exchange.

Reference is otherwise made to this Document which has been prepared in connection with this offering to theshareholders of Investor and the application for listing of shares of class B in Saab AB on the O-list of the StockholmStock Exchange.

Stockholm, May 8, 1998

Investor AB (publ)

The Board of Directors of Saab AB is responsible for the description of the Saab Group which is provided in thisDocument. The Board of Directors of Saab AB confirms that, as far as it is aware, the details in this Documentcorrespond to actual circumstances and that nothing of material significance has been omitted that could affect theperception of the Saab Group created by this Document.

Linköping, May 8, 1998

Saab AB (publ)

The Board of Directors

(1) The amount is based on the assumption that no additional conversion of Investor’s outstanding convertible debentures are called within such time frame that in doing so the emitted shares

entitle the holder to receive purchase rights.

Invitation to Acquire Shares in Saab AB

8 I Saab Group

Investor is the largest Swedish industrial holding company and is listed on the Stockholm Stock Exchange and quotedon SEAQ International in London. As of March 31, 1998 Investor’s market capitalization amounted to approximatelySEK 82 billion. Net asset value in Investor amounted to approximately SEK 104 billion as of the same date.

The business concept of Investor is to create shareholder value through long-term active ownership and activeinvestment operations. The average total annual shareholder return has exceeded 20 percent during the last 25 years.In addition to Saab AB, Investor has significant holdings in other internationally active and expansive companies, suchas Astra, Ericsson, Incentive, Scania, ABB, Stora, Atlas Copco, S-E-Banken, SKF, WM-data, OM Gruppen, SAS andElectrolux. Investor also owns 50 percent of the automobile manufacturer Saab Automobile (50 percent owned byGeneral Motors).

Investor has been a stakeholder in the business currently constituting Saab since 1939. Saab-Scania AB became awholly-owned subsidiary of Investor in 1991. In 1995, the Saab-Scania Group (”Saab-Scania”) was divided into twoseparate businesses. The reorganization was undertaken in order to increase the focus on Saab AB’s and Scania AB’srespective activities by establishing two separate business management structures and Boards of Directors but also tofacilitate the broadening of future ownership in each of the two companies.

In connection with 1997 year-end closing, Investor announced its intention to investigate the opportunities of abroadening of the ownership in Saab AB. The Board of Directors of Investor AB received an authorization at the AnnualGeneral Meeting of Investor on April 20, 1998 to pass a resolution giving Investor’s shareholders, through a dividendof purchase rights, the opportunity to acquire shares in Saab AB. Further, on April 29, 1998, British Aerospace enteredinto an agreement with Investor to acquire shares corresponding to 35.1 percent of the share capital and 35.0 percent ofthe voting rights in Saab AB for SEK 3,500 million subject to appropriate authorities having given relevant approvalsto the sale and the shares of Saab AB having been listed on the Stockholm Stock Exchange. See “Share Capital andOwnership Structure – The Shareholders’ Agreement between Investor and British Aerospace”. On May 7, 1998 theBoard of Directors of Investor passed a resolution to offer Investor shareholders the opportunity to acquire, throughthe exercise of purchase rights, 47,719,099(1) shares of class B in Saab AB, which corresponds to 44.8 percent of the sharecapital and 29.0 percent of the voting rights. After the offer, assuming purchase rights are exercised and the transactionwith British Aerospace is approved by relevant authorities, Investor will own 20.1 percent of the capital and36.0 percent of the votes in Saab AB.

In 1997, the Saab Group has focused its activities by the decision to cease the manufacturing of regional aircraft. TheBoard of Directors of Investor believes that the Saab Group, following these actions, will have increased opportunitiesto concentrate its efforts in the areas of superior future growth. A broadening of the ownership in Saab AB, which givesthe Saab Group direct access to the stock market and a visible market value, is to the benefit of Saab AB as well as toInvestor. The Board of Directors of Investor believes that the partnership with British Aerospace, which is one of theleading players in the international aerospace and defense industry, strengthens Saab’s position and increases Saab’sopportunities to participate in the expected restructuring in this area.

The offering is a further step in Investor’s strategy of diversifying the ownership of its wholly-owned subsidiaries,with the aim of facilitating the valuation of the Investor share. The proceeds from the sale of Saab AB shares will beused in Investor’s continual effort to create shareholder value by developing its main holdings and searching for newinvestments with good growth potential. Investor intends to remain an active long-term owner of Saab AB followingthis offering.

Stockholm, May 8, 1998

Investor AB (publ)

(1) The amount is based on the assumption that no additional conversion of Investor’s outstanding convertible debentures are called within such timeframe that in doing so the emitted shares entitle the holder to receive purchase rights.

Background and Reasons for the Offering

Saab Group I 9

PURCHASE RIGHTS

Every ordinary share in Investor, whether of class A or B,shall entitle the holder to obtain one purchase right. Foursuch purchase rights entitle the holder to acquire oneshare of class B in Saab AB.

RECORD DATE

The record date at Värdepapperscentralen VPC AB(“VPC”) for determining which shareholders are toreceive purchase rights is May 22, 1998. The Investorshares will be quoted excluding rights to receivepurchase rights from May 19, 1998.

OFFERING PRICE

The offering price per share amounts to SEK 45. Nocommission in conjunction with the purchase of sharesof class B in Saab AB, through the exercise of purchaserights, will be charged in Sweden.

APPLICATION PERIOD

Application to acquire shares of class B in Saab AB shallbe effected from May 26, 1998 up to and including June16, 1998.

INFORMATION TO DIRECT-REGISTEREDSHAREHOLDERS

This Document is distributed to direct-registeredshareholders in Investor beginning on or about May 12,1998. To direct-registered shareholders or representativesof shareholders who on the aforementioned record dateare registered in the share register maintained by VPC onbehalf of Investor, a preprinted issue statement from VPCand an application form will be sent on or about May 26,1998. The issue statement includes among other thingsthe number of purchase rights received. Those who wereregistered on the special list maintained in connectionwith the share register as holders of pledged shares andothers will be notified separately. A VP-notice thatreports registration of purchase rights in theshareholder’s share account (VP account) will not bedistributed.

SHARES HELD BY NOMINEES

Shareholders whose shares in Investor are nominee-registered with a bank or any other nominee will notreceive any issue statement through VPC. Applicationand payment should instead be effected in accordancewith instructions from the nominee.

AUTOMATIC SALE OF EXCESS PURCHASERIGHTS

Shareholders whose holdings are not evenly divisible byfour will have, apart from the number of purchase rightsdivisible by four, between one and three excess purchaserights. These excess purchase rights will in connectionwith the record date be removed from the shareholders’VP-account and sold centrally immediately thereafter atthe prevailing market price by Skandinaviska EnskildaBanken. The payment will be forwarded by VPC to theshareholders concerned. No commission will be chargedfor the automatic sale of excess purchase rights.

After the removal of excess purchase rights, allholders of purchase rights will have a holding evenlydivisible by four. If shareholders wish to acquirepurchase rights to be able to purchase additional sharesof class B in Saab AB, the acquisition should be of anumber divisible by four.

APPLICATION FOR ACQUISITION OF SHARESAND PAYMENT, SWEDISH SHAREHOLDERS

Application for acquisition of shares of class B in SaabAB must be made by simultaneous cash payment at anybranch of Skandinaviska Enskilda Banken orHandelsbanken or at a branch of any other Swedishbank. Application must be made using the applicationform which will be sent to recipients of purchase rightsaround May 26, 1998 and accompanied by theappropriate payment. A receipted copy of theapplication form constitutes a dealing note.

APPLICATION FOR ACQUISITION OF SHARESAND PAYMENT, NON-SWEDISH SHAREHOLDERSApplication for acquisition of shares of class B in SaabAB must be made by submitting the application form toSkandinaviska Enskilda Banken.

In connection with the submission of the subscriptionform to Skandinaviska Enskilda Banken, payment byS.W.I.F.T. or telex denominated in Swedish kronor (SEK)and payable in Sweden must be attached.

Skandinaviska Enskilda BankenIssue Department SE-106 40 Stockholm, SwedenAccount no: 17 5865 10 041 76S.W.I.F.T.: ESSE SE SSTelex: 15 000 essebs s

At payment, the applicant’s name and address as well asreference “Saab” must be given.

Terms and Conditions

10 I Saab Group

OBTAINING SHARES

Application for acquisition of shares will be registeredconsecutively with VPC, normally approximately fivedays after payment. Registration of shares on theaccount of the respective shareholder will take placecommencing June 11, 1998. Thereafter, VPC will send aVP notice, confirming that registration of shares ofclass B in Saab AB has been made in the purchaser’s VPaccount.

TRADING IN PURCHASE RIGHTS

Trading in purchase rights will take place from May 26,1998 up to and including June 11, 1998. SkandinaviskaEnskilda Banken, Handelsbanken, other banks andbrokers will assist with the purchase and sale ofpurchase rights.

TRANSFER ACCOUNTIn the event that the purchase rights are registered in atransfer account with VKI (VPC’s Account OperatingInstitute), the transfer account will be converted into aVP account operated by the respective bank or broker inconnection with trading in purchase rights.

DIVIDEND

The shares carry rights to participation in Saab AB’sprofit in respect of the 1998 financial year and onwards.Payment of any approved dividends will be handled byVPC. See “Financial Overview – Dividend Policy”.

STOCKMARKET LISTING

Application has been made to the Stockholm StockExchange for the Company’s shares of class B to belisted on the O-list of the Stockholm Stock Exchange. Itis expected that trading of the shares on the StockholmStock Exchange will start on or about June 18, 1998. Onehundred shares will be recommended as a trading block.

SIMPLIFIED PROCEDURE

Shareholders who, in connection with the distribution ofpurchase rights in Saab AB, receive not more than 99purchase rights (corresponding to a total of not morethan 99 Investor shares) will be offered an opportunityto sell, without being charged a commission, up to 96purchase rights through a simplified sales procedure.(Up to three excess purchase rights will be soldautomatically. See “Automatic Sale of Excess PurchaseRights” above.) The price for shares sold through thesimplified procedure will depend on the listed marketprice for the shares of class B in Saab AB and will bedetermined as described below. Shareholders who wishto take advantage of this procedure and sell suchpurchase rights should apply for such procedure nolater than June 16, 1998.

Applications must be submitted on the preprintedapplication forms that are being sent to shareholdersdirect-registered as holding not more than 99 Investorshares. Application forms will be sent to the registeredshareholders starting on or about May 27, 1998.Application forms will indicate the number of Saab ABpurchase rights registered in the individualshareholders’ VP account. Shareholders whose holdingsare registered in the name of a nominee is assumed toreceive information on the simplified sales procedurefrom the nominee in accordance with its procedures.

Application forms, duly completed, should be sent tothe following address:

Skandinaviska Enskilda BankenPublic Issues Department, R L3SE-106 40 Stockholm, Sweden

or submitted to any branch office of SkandinaviskaEnskilda Banken or Handelsbanken.

Application forms must be received by SkandinaviskaEnskilda Banken or Handelsbanken not later thanJune 16, 1998.

The price of the purchase rights is determined asfollows. Skandinaviska Enskilda Banken will, inconjunction with the expiration of the applicationperiod, exercise the purchase rights registered in thesimplified procedure to acquire shares of class B in SaabAB. Immediately following the listing, the acquiredshares will be divested at market price, assuming thatthe listed market price of Saab AB exceeds the purchaseprice per share. An amount corresponding to thedifference between the total amount received uponSkandinaviska Enskilda Banken’s sale of the shares andthe amount paid per share will thereafter be

TERMS AND CONDITIONS

Please note that an application to acquire shares ofclass B in Saab AB must be received bySkandinaviska Enskilda Banken no later than June16, 1998. After the end of the application period,unexercised purchase rights will become invalidand thus will have no value. After June 16, 1998,unexercised purchase rights will be removed fromthe holder’s VP account without notification.

Saab Group I 11

TERMS AND CONDITIONS

apportioned equally to all purchase rights registered inthe simplified procedure. Shareholders who utilize thesimplified sales procedure will receive the same priceper purchase right divested.

Settlement will be made in the form of settlementnotes that will be sent to shareholders who have utilizedthe simplified sales procedure. Settlement notices will bedistributed as soon as possible following the sale of theshares. This is expected to occur in the beginning of July,1998. Payment will be made in accordance withinstructions in the settlement notice. If the holding isheld in the name of a nominee, a settlement notice willbe sent to the nominee.

DIRECT-REGISTERED SHAREHOLDERS ABROADDue to VPC’s obligation to withhold tax on the value ofpurchase rights distributed, foreign direct-registeredshareholders are subject to the following:

Purchase rights are registered with VPC but will notbe at the owner’s disposal until an amountcorresponding to the withholding tax is paid to the taxauthorities. The shareholders can, as further describedbelow, either exercise the purchase rights or instructSkandinaviska Enskilda Banken to sell the purchaserights received.

In order to exercise the purchase rights, payment mustbe made for the shares purchased as well as theapplicable withholding tax amount. The payment willprimarily be used to cover the withholding tax. In case

the amount paid in is not sufficient to cover both thewithholding tax and payment for the shares, allpurchase rights will not be exercised. As describedunder “Application for Acquisition of Shares andPayment, Non-Swedish Shareholders” above,unexercised purchase rights will become invalid andthus will have no value.

In case the amount paid in exceeds the sum of the cashpayment and the withholding tax, reimbursement willoccur, however not for amounts less than SEK 50.

Information on the taxable value per purchase righton which the withholding tax should be calculated willbe available at Skandinaviska Enskilda Banken, PublicIssues Department, as from May 29, 1998.

The purchase rights may be sold throughSkandinaviska Enskilda Banken, whereby thewithholding tax will be deducted from the proceeds andpaid to the tax authorities. A corresponding withholdingtax deduction will be made at a sale in the simplifiedprocedure.

The exercise of purchase rights by shareholders notresident in Sweden may be restricted by the laws of thejurisdictions where such shareholders are resident. Suchshareholders should inform themselves of and observeall such restrictions. Investor reserves the right in its solediscretion to treat as invalid any exercise of purchaserights that does not comply with relevant securitieslaws.

Should you have any questions with regard to the offering or wishto receive additional prospectuses, please call +46 8 441 56 37

12 I Saab Group

Set forth below is a brief discussion of some of the tax issueswhich become relevant in the context of the present offer. Thisdiscussion does not cover situations where the purchase rightsconstitute current assets in a business or are held by apartnership. In addition, this discussion does not cover thespecial rules and regulations which apply to certain categoriesof companies, such as investment companies, mutual fundsand companies which are subject to a special yield tax(avkastningsskatt).

INCOME TAX FOR SHAREHOLDERS RESIDENTIN SWEDEN FOR TAX PURPOSES

For shareholders in Investor receiving purchase rights toacquire shares in Saab AB, the value of the purchaserights is taxable in the same manner as a dividend if thepurchase rights are utilized or sold.

With respect to natural persons, dividends are taxedat a rate of 30 percent in the income category “capital”.No preliminary tax deductions will be withheld inrespect of purchase rights dividends. For legal entitiesthe dividends are taxed as ordinary business income at arate of 28 percent.

For shareholders in Investor who exercise their rightsto acquire shares of class B in Saab AB, the taxable valueof the purchase rights is equivalent to the quoted valueof the purchase rights when the offer is accepted. If thetime of acquisition cannot be ascertained, the taxablevalue of the purchase rights is generally determinedbased on the market price of the purchase rights duringthe period of application. The taxable value of thepurchase rights will thereafter be included in the

acquisition cost of the shares of class B in Saab AB.Investor intends to apply to the Swedish National TaxBoard for a recommendation for guidance in thecalculation of the taxable value of the purchase rights.The decision by the Tax Board will be made publicthrough advertisement in the press.

For shareholders in Investor selling their purchaserights, the proceeds received will be taxed as a dividend,less any costs incurred.

WITHHOLDING TAX FOR SHAREHOLDERSRESIDENT OUTSIDE OF SWEDENShareholders resident outside of Sweden, for taxpurposes or domiciled abroad, must pay a withholdingtax in Sweden in respect of dividends. The tax which iswithheld at source applies both in respect of dividendsin the form of purchase rights and cash dividends. Thewithholding tax rate is 30 percent. This tax rate isgenerally reduced pursuant to treaties with othercountries for the avoidance of double taxation. InSweden, it is normally VPC or, for nominee registeredshares, the nominee, who makes the deduction forwithholding tax.

For foreign shareholders direct registered with VPC,statutory withholding tax will be withheld from cashobtained in the sale of purchase rights, or paid byshareholders who exercise their rights to acquire sharesof class B in Saab AB, see “Terms and Conditions”.

For nominee registered foreign shareholders,payment of withholding tax is settled in accordance withthe routines applied by the nominee.

Tax Issues in Sweden

The summary presented above of certain Swedish tax consequences as a result of the offer is based upon current legislation andis only intended as general information. The tax treatment of each individual holder of purchase rights or shares is dependent,in part, on such person’s individual situation. Each holder of purchase rights should consult with a tax advisor regarding thespecial tax consequences which may arise for such person as a result of the offer, including the applicability and effect of foreignincome tax regulations, provisions contained in double taxation treaties, and any other rules which may be applicable.

Saab Group I 13

Svenska Aeroplan Aktiebolag, later known as Saab AB,was established in Trollhättan in 1937 to conductactivities within the aircraft sector. In 1939, Saab ABmerged with the Aeroplane division of AktiebolagetSvenska Järnvägsverkstäderna, an aircraft manufacturerbased in Linköping with Investor as one of thestakeholders in the company. In 1944, Saab AB was listedon the Stockholm Stock Exchange. In 1969, Saab ABmerged with Scania-Vabis AB, a manufacturer of heavytrucks and buses, to form the listed company Saab-Scania AB, which during 1990 divested 50 percent of itsautomobile business to General Motors. Saab-Scania ABbecame a wholly-owned subsidiary of Investor in 1991through a public offering. In 1995, Saab-Scania AB wasdivided into two subsidiaries, Saab AB and Scania AB.The remaining share ownership in Saab Automobile wasthen transferred to Investor. Scania AB was listed on theStockholm Stock Exchange in 1996.

Saab AB has since focused on the development,manufacturing and marketing of a range ofsophisticated military defense and aerospace equipmentas well as other high technology products for civilian use.

Saab has co-operated with British Aerospace since1983 and for three years both companies have manageda joint venture for sale of the Gripen on the internationalmarket.

PRODUCTS

In 1938 the Swedish defense forces ordered twoprototypes of a bomber and reconnaissance plane whichlater became the Saab 17. The maiden flight of the Saab17 took place in 1940. Four further maiden flights of newmilitary aircraft followed during the 1940s: the bomberand reconnaissance aircraft Saab 18, the fighter andattack aircraft Saab 21A, the fighter and attack aircraftSaab 21R and the fighter, attack and reconnaissanceaircraft Saab 29. The Saab 29, known as the “FlyingBarrel”, was Western Europe’s most modern jet aircraft

during the 1950s and was proved in battle in the CongoCrisis.

By the end of the 1940s, Saab had embarked on acivilian post-war program and produced the passengeraircraft Saab 90 Scandia, the travel and training aircraftSaab 91 Safir, and the automobile Saab 92. At about thesame time, the development of guided missiles wasundertaken. The first missile (then known as aerialtorpedo) was ordered by the Swedish Navy, and the firstsuccessful firing was made in 1947. Saab has since beenthe supplier of a large number of guided missileprograms to both the Swedish Air Force and the SwedishNavy.

Saab has designed and manufactured severalinternationally renowned military aircraft: theabovementioned Saab 29 “Flying Barrel”, the fighter,attack and reconnaissance aircraft Lansen; the fighterand reconnaissance aircraft Draken, the first Swedishaircraft to exceed the speed of sound in level flight; thetraining aircraft Saab 105; and the attack, fighter andreconnaissance aircraft Viggen, currently the backboneof the Swedish Air Force. Saab’s latest military aircraftproduct is the Gripen, the world’s first fourth generationfighter aircraft, which has been supplied to the SwedishAir Force since 1993.

In 1980, Saab AB and the U.S. Fairchild Industriesformed a joint venture to develop and produce aregional turboprop aircraft, the Saab 340, which begandelivery in 1984. In 1985, the cooperation with Fairchildceased, and Saab took over the project. To date,approximately 450 Saab 340 have been delivered tonearly 40 airlines worldwide. Development of the Saab2000, a larger turboprop, was commenced in 1988.Deliveries began in 1994, and to date, approximately 50Saab 2000 regional aircraft have been supplied to severalairlines. In 1997, the Board of Directors decided to ceaseproduction of regional aircraft. See “Actions Relating toRegional Aircraft and Saab Aircraft Finance Group(SAFG)”.

Company History

14 I Saab Group

The Saab Group develops, manufactures and sells arange of sophisticated military defense and aerospacesystems and equipment as well as other high technologyproducts for civilian use.

The Board of Directors decided in December 1997 todiscontinue the manufacturing of the Group’s regionalaircraft, the Saab 340 and Saab 2000, in mid-1999 as aresult of worsening industry conditions andaccumulated losses in its regional aircraft activities inrecent years.

The Group today comprises Saab, Regional Aircraftand SAFG. Saab, which comprises the business areasMilitary Aerospace, Space, Training Systems,Commercial Aircraft and Combitech, focuses on corebusinesses of defense and space operations, civilianapplications of military technology, collaborativeprograms with civil aircraft manufacturers, andCustomer Support to the existing fleet of approximately500 Saab-manufactured regional aircraft. Operationsgoing forward concerning the remaining manufacturingof the regional aircraft Saab 340 and Saab 2000 will beconducted by Regional Aircraft. SAFG will continue tomanage the Group’s leasing portfolio of approximately300 Saab-manufactured aircraft.

The diagram below depicts the current operationalstructure of the Saab Group, which differs from its legalstructure. See “Legal Structure of the Saab Group”.

FINANCIAL OBJECTIVES

The Group sets individual financial objectives for each ofSaab, Regional Aircraft and SAFG.

Saab represents the core business of the Group. Thefinancial objectives of Saab take into account anassessment of both short-term and long-term expectedprofitability.

In the last few years, Saab’s operating profit andoperating margin have been positively affected byreversals of a loss risk reserve related to thedevelopment and production of the first batch of theGripen pursuant to the base contract (”the BaseContract”). Such reversals thus do not relate to currenttrading activities. See “Management’s Discussion andAnalysis of Financial Condition and Results ofOperations – Loss Risk Reserve for the Gripen BaseContract”. Income in 1997 has been impacted by costsrelated to the development of the export version of theGripen. Such costs are expected to increase in the nextfew years and as a result the operating margin will benegatively affected. However, the operating profit isexpected to be positively impacted by export activities ofthe Gripen in the subsequent years. See “Management’sDiscussion and Analysis of Financial Conditions andResults of Operations – Future Export of the Gripen”.

Financial Overview

Military Aerospace

Gripen Dynamics Avionics (49.9%)

Other

Training Systems

Space (60.0%) CombitechCommercial

AircraftSAFG

Executive management and corporate functions

Regional Aircraft

THE SAAB GROUP

Saab Group I 15

Saab’s objective is to maintain and improve theunderlying profitability of its operations, as adjusted forreversals of the loss risk reserve related to the BaseContract for the Gripen as well as costs related to thedevelopment of the Gripen export version. In thelongterm, Saab aims to achieve an overall operatingmargin before depreciation of at least 15 percent and anoperating margin after depreciation of at least 10percent.

The equity of the Saab Group was negatively affectedby the provisions relating to the regional aircraftactivities made on December 31, 1997. However, theCompany expects the equity of Saab to increase in thenext few years. The Company’s objective is an equity toassets ratio exceeding 30 percent in the long-term. Saab’sequity to assets ratio, calculated as shareholders’ equitydivided by total assets after deduction of utilizedadvance payments, was 21.9 percent as of December 31,1997.

Earnings and return on equity for Saab will beaffected in the short-term by the factors described above.In the long-term, Saab aims to achieve a 15 percentreturn on equity, based on the current interest rateenvironment.

Provisions in Regional Aircraft were calculated tocover currently estimated losses generated by theremaining manufacturing, the expected costs related tothe discontinuation of the operations and ongoingCustomer Support for the remaining fleet of aircraft. Thesize of the provisions were calculated so that RegionalAircraft activities are not expected to negatively affectthe profitability of the Group in the future. See “ActionsRelating to Regional Aircraft and Saab Aircraft FinanceGroup (SAFG)”.

Following the decision to cease producion of regionalaircraft, SAFG’s leasing portfolio has a finite life. In viewof the business’ finite term, the Company decided totake a write-down on future operations of SAFG,adjusting the book value of the portfolio to its estimatedmarket value. On December 31, 1997, Saab AB madesuch provisions and in addition, SEK 1,500 million ofcapital was contributed to SAFG. The return on theinvestment in SAFG will be the result of twocomponents: i) an interest income on the capitalcontribution to SAFG of SEK 1,500 million; and ii) amarket rate return on the assets of the portfolio over itslife through reversals of provisions in event that theoperations develop in accordance with or better thanassumed. See “Actions Relating to Regional Aircraft andSaab Aircraft Finance Group (SAFG)”.

DIVIDEND POLICYIn accordance with the Group’s long-term dividendpolicy, the Board of Directors intends to propose that theCompany pay an annual dividend that in the long termshould represent 20-40 percent of net income. Paymentof future dividends will depend on Saab AB’s and theGroup’s financial position, earnings and other factorsthat the Board of Directors considers relevant.

The first dividend that the Board of Directors intendsto propose will pertain to the operations for the financialyear 1998, provided that funds for a dividend areavailable.

FINANCIAL DATA AND PRINCIPLES FOR THEPREPARATION OF PRO FORMA ACCOUNTS

The following financial data is based on the consolidatedincome statements and the consolidated balance sheetsof the companies comprising the Saab Group. Theinformation covers the financial years 1995, 1996 and1997 as the Group was created in its present form in 1995through the separation of Saab-Scania into two separatebusinesses. However, certain operational informationfor the fiscal years 1993 and 1994 is set forth in thefinancial overview and in other parts of this Document.The Board of Directors believes this presentation offinancial information is sufficient to give an adequateview of the results and financial position of the Group.

As a result of changes in Swedish accountingstandards, the Group changed its accounting policy withregard to leasing contracts in 1996. In order to providerelevant and comparable financial information, 1995financial information has been adjusted accordingly.Also, the Annual Report of the Group for the financialyear 1996 did not include SAFG as the business was tobe transferred to Investor. As a result of the decision in1997 to discontinue production of regional aircraft bymid-1999, such transfer did not take place. As a result,the financial information for 1996 has been prepared proforma, to thus also include SAFG.

In connection with the decision to ceasemanufacturing of regional aircraft, extensive provisionswere taken in order to cover the losses generated by theremaining manufacturing, expected costs related to thediscontinuation of production and ongoing CustomerSupport operations for the existing fleet of aircraft. Theprovisions amounted to SEK 4,079 million before tax(SEK 2,937 million after tax) at December 31, 1997.

In addition, a study on the customer financingoperations in SAFG was carried out in 1997. As a resultof this study, SAFG’s portfolio was adjusted through a

FINANCIAL OVERVIEW

16 I Saab Group

provision of SEK 1,342 million at December 31, 1997 togive a total provision balance of SEK 2,728 million ($350million). In 1997, SAFG also received a capital injectionamounting to SEK 1,500 million. See “Actions Relatingto Regional Aircraft and Saab Aircraft Finance Group(SAFG)”.

No pro forma adjustments have been made in the1995 and 1996 financial data for the provisions and thecapital injection on December 31, 1997.

In addition, in 1997, the real estate property inLinköping where the headquarters and major part of theoperations of the Group are located was revalued by twoindependent appraisers. Based on these appraisals, theproperty was valued upwards by SEK 695 million with apositive impact on the Group’s equity of SEK 500 millionafter deduction of deferred taxes of SEK 195 million. Therevaluation will result in an additional annualdepreciation of SEK 35 million (SEK 25 million after tax).The revaluation implies that the property is nowreported at its estimated market value on the balancesheet.

After the provisions and the revaluation of realestate, the Group had a total shareholders’ equity ofapproximately SEK 3,091 million at December 31, 1997.

The financial data also include Combitech Nexus AB,which was divested in 1996, Preseco InformationSystems AB, Innovativ Vision AB and the operations ofDocEye AB, which were all divested in 1997 andTelelogic AB, which was divested in January 1998. Theseoperations had an affect on the operating incomeamounting to SEK 9 million in 1995, SEK -109 million in1996 and SEK -213 million in 1997.

The table on page 17 sets forth the income statementand balance sheet of the Group as well as the capitalallocated to each of Saab, Regional Aircraft and SAFG atDecember 31, 1997. Since Saab and Regional Aircraft arenot separate legal entities, the amounts attributed to

Saab and Regional Aircraft refer to internal allocationswithin the parent company Saab AB. As a consequence,financial information for these entities is reported proforma.

On the balance sheet of Saab, the SAFG holding isreported as a fixed asset of SEK 1,500 million, which isconstituted by the book value in Saab AB. The valuationof the shares in SAFG consequently affects the reportedbook equity of Saab. The SAFG holding is reported atthis value because the holding represents a financialasset, which in principle can be divested at any givenpoint in time.

Interest income on the Group’s interest-bearingassets has historically been reported in Saab AB byallocation to the business areas including RegionalAircraft. SAFG transactions within the Group have beenconducted on an interest-free basis. Future interestincome per business area will be calculated as follows:interest-bearing assets attributable to SAFG will carrymarket rate interest and thus SAFG will be consideredan independent entity; whereas, within the parentcompany Saab AB, due to an internal allocation ofinterest bearing assets between Saab and RegionalAircraft, interest regarding Regional Aircraft will bereported within Saab. Interest within Regional Aircraftarises mainly due to the provisions taken to cover thecosts of the discontinuation.

Financial data for Saab and the Group for thefinancial years 1995–1997 are to be found on pages18–22. Equivalent information on Regional Aircraft andSAFG can be found under “Actions Relating to RegionalAircraft and Saab Aircraft Finance Group (SAFG)”.

Statutory Financial Statements for the Saab Groupcovering the fiscal years 1995–1997 are provided onpages 83–110.

The interim report for the Saab Group coveringJanuary-March 1998 is provided on pages 111–115.

FINANCIAL OVERVIEW

Saab Group I 17

FINANCIAL OVERVIEW

THE SAAB GROUP

1997Income Statement (pro forma) Regional Elimina-(in SEK million) Saab Aircraft SAFG tions Saab Group(1)

Sales 6,866 3,035 –1,227 8,674Cost of goods sold –4,461 –3,166 1,227 –6,400

Gross margin 2,405 –131 2,274

Operating expenses –1,538 –422 –212 –2,172Items affecting comparability –4,079 –1,342 –5,421Share in income of associated companies 3 3

Operating income 870 –4,632 –1,554 –5,316

Financial income and expenses(2) 503 –32 471

Income after financial income and expenses 1,373 –4,664 –1,554 –4,845

Taxes 1,075Minorities –20

Net income –3,790

December 31, 1997Balance Sheet (pro forma) Regional Elimina-(in SEK million) Saab Aircraft SAFG tions Saab Group(1)

Property, plant and equipment 2,499 84 2,583Lease assets 6,919 6,919Deferred tax receivables 163 1,142 –439(3) 866Other fixed assets 1,717(5) 515 –1,500(4) 732Inventories etc. 3,342 1,654 4,996Receivables and other current assets 1,149 227 196 1,572Cash and marketable securities 7,712(6) 3,926 3,474 15,112

Total assets 16,582 7,033 11,104 –1,939 32,780

Shareholders’ equity 3,091(5) 1,500 –1,500(4) 3,091Minority interest in subsidiaries 64 94 158Provision for pensions 2,213 30 2,243Other provisions 61 4,097 3,149 –439(3) 6,868Long-term borrowings 30 30Lease obligations 5,207 5,207Short-term borrowings 596 322 918Accounts payable and other short-term liabilities 3,342 2,231 1,154 6,727Advance payments from customers 7,185 353 7,538

Total shareholders’ equity and liabilities 16,582 7,033 11,104 –1,939 32,780(1) In accordance with the Company’s Annual Report.

(2) For a description of the allocation of financial items, see page 16.

(3) Net of deferred tax assets and liabilities.

(4) Elimination of shares in SAFG against equity in SAFG.

(5) The parent company Saab AB’s holding in SAFG is reported as an asset in Saab. For a description of the assessed return on this asset, see “Actions Relating to Regional Aircraft and Saab

Aircraft Finance Group (SAFG)”.

(6) Liquid funds include, apart from receivables on companies in the Investor Group, also the netting of receivables and liabilities between Saab, Regional Aircraft and SAFG.The provisions

taken in Regional Aircraft and SAFG and the capital injection received by SAFG, increased their receivables on Saab at December 31, 1997, but did not impact the financial net for 1997.

The division between Saab and Regional Aircraft is made on an operational basis and refers to internal allocations within Saab AB.The composition of liquid funds in Saab on December 31,

1997, is set forth in the table below.

Cash and marketable securities 271

Current investments 5,672

Receivables on Investor companies 7,347

Gross liquid funds 13,290

Intra-group liability to Regional Aircraft –3,868

Liability to SAFG –1,710

Net liquid funds 7,712

18 I Saab Group

The following tables set forth selected consolidated financial statements for Saab and for the entire Group for each of the threefinancial years 1995, 1996 and 1997.

FINANCIAL OVERVIEW

December 31,Balance Sheet 1995 1996 1997(in SEK million) (pro forma) (pro forma) (pro forma)

Property, plant and equipment 1,746 1,740 2,499Other fixed assets 217 185 1,880

Total fixed assets 1,963 1,925 4,379

Inventories etc. 2,464 3,399 3,342Receivables and other current assets 864 893 1,149Cash and marketable securities (1) 11,647 13,210 7,712

Total current assets 14,974 17,502 12,203

Total assets 16,938 19,427 16,582

Shareholders’ equity (1) 3,578 5,110 3,091

Minority interests in subsidiaries 40 52 64

Provision for pensions 1,919 2,129 2,213Other provisions 120 22 61

Long-term borrowings 226 50 30

Short-term borrowings 395 281 596Accounts payable and other short-term liabilities 4,197 4,192 3,342Advance payments from customers 6,463 7,591 7,185

Total short-term liabilities 11,054 12,064 11,122

Total shareholders’ equity and liabilities 16,938 19,427 16,582(1) The change in 1997 “Cash and marketable securities” and “Shareholders’ equity” is primarily attributable to the capital injection to Regional Aircraft and SAFG in 1997; see also page 17.

SAAB

Income Statement 1995 1996 1997(in SEK million) (pro forma) (pro forma) (pro forma)

Sales 4,804 5,638 6,866Cost of goods sold –3,175 –3,475 –4,461

Gross margin 1,629 2,163 2,405

Operating expenses –1,013 –1,255 –1,538Share in income of associated companies 2 2 3

Operating income 618 910 870

Net financial income and expenses 559 449 503

Income after financial income and expenses 1,177 1,359 1,373

Saab Group I 19

FINANCIAL OVERVIEW

SAAB

Statement of Cash Flows 1995 1996 1997(in SEK million) (pro forma) (pro forma) (pro forma)

Cash flow from operating activitiesOperating income (1) 618 910 870Adjustments for items not affecting cash flow

Total depreciation 240 336 376Less share of income of associated companies –1 –2 –3

Total 857 1,244 1,243

Financial net including share of income of associated companies 559 449 504Tax –15 –13 –252

Total cash flow from operating activities before changes in working capital 1,401 1,680 1,495

Changes in working capitalInventories etc. –436 –936 57Current receivables and other current assets –124 –29 –256Advance payments from customers 984 1,128 –406Accounts payable and other current liabilities –243 –5 –850Other provisions –15 39

Total change in working capital 166 158 –1,416

Total cash flow from operating activities 1,567 1,838 79

Cash flow from investmentsNet investments in fixed assets –201 –298 –472

Cash flow from investments –201 –298 –472

Operating cash flow 1,366 1,540 –393

Other items (2) –308 104 –5,483

Change in net liquidity 1,058 1,644 –5,876(1) Includes reversal of loss risk reserve of SEK 300 million and SEK 313 million in 1996 and 1997, respectively.

(2) Consisting of capital injection, Group contribution and translation differences etc. In 1997, “Other items” reflect the capital injection to Regional Aircraft and SAFG as a consequence of

provisions taken.

20 I Saab Group

FINANCIAL OVERVIEW

December 31,Balance Sheet 1995 1996 1997(in SEK million) (pro forma) (pro forma)

Property, plant and equipment 2,119 1,821 2,583Lease assets 5,736 5,937 6,919Other fixed assets 1,511 688 1,598


Inventories etc. 3,907 4,965 4,996Receivables and other current assets 1,322 1,399 1,572Cash and marketable securities (2) 13,542 16,578 15,112


Total assets 28,137 31,388 32,780

Shareholders’ equity 5,828 6,324 3,091


Provision for pensions 2,058 2,161 2,243Other provisions 1,283 2,123 6,868

Long-term borrowings 241 59 30Lease obligations 5,289 5,432 4,922Other long-term liabilities 426 760

Total long-term liabilities 5,530 5,917 5,712

Short-term borrowings 420 288 918Accounts payable and other short-term liabilities 5,733 6,106 5,967Lease obligations 253 309 285Advance payments from customers 6,860 8,017 7,538


Total shareholders’ equity and liabilities 28,137 31,388 32,780(1) “Items affecting comparability” relate to provisions taken in relation to regional aircraft activities. See “Actions Relating to Regional Aircraft and Saab Aircraft Finance Group (SAFG)”.

(2) Includes receivables on Investor Group companies.

THE SAAB GROUP

Income Statement 1995 1996 1997(in SEK million) (pro forma) (pro forma)


Gross margin 1,454 1,735 2,274

Operating expenses –1,854 –2,584 –2,172Items affecting comparability (1) –1,219 –5,421Share in income of associated companies 1 2 3

Operating income –399 –2,066 –5,316


Income after financial income and expenses 271 –1,572 –4,845

Taxes –112 203 1,075Minority interest –11 –16 –20

Net income 148 –1,385 –3,790

Saab Group I 21

FINANCIAL OVERVIEW

THE SAAB GROUP

Statement of Cash Flow 1995 1996 1997(in SEK million) (pro forma) (pro forma)

Cash flow from operationsOperating income –399 –2,066 –5,316Adjustments for items not affecting cash flow

Total depreciation 848 977 789Items affecting comparability 1,219 5,421Less share of income of associated companies –1 –2 –3

Total 448 128 891

Financial net including dividend from associated companies 670 494 472Tax 10 –86 –287

Total cash flow from operating activities before changes in working capital 1,128 536 1,076

Changes in working capitalInventories etc. –455 –1,058 –31Current receivables and other current assets –254 –77 –173Advance payments from customers 825 1,157 –479Accounts payable and other current liabilities –246 373 –139Other long-term liabilities –20 426 334Lease obligations 747 199 –534Other provisions 48 521 –402

Total change in working capital 645 1,541 –1,424

Total cash flow from operating activities 1,773 2,077 –348

Cash flow from investmentsInvestments in fixed assets –371 –341 –516Investments in lease assets –997 –541 –1,365

Cash flow from investments –1,368 –882 –1,881

Operating cash flow 405 1,195 –2,229

Other items (1) –34 2,053 80

Change in net liquidity 371 3,248 –2,149(1) Consisting of capital injections, Group contributions, capital adjustments due to change in leasing accounting and translation differences etc.

22 I Saab Group

FINANCIAL OVERVIEW

KEY RATIOS

Saab 1993 1994 1995 1996 1997(in SEK million, unless otherwise stated) (pro forma) (pro forma) (pro forma) (pro forma) (pro forma)

Order bookings during the year 3,401 3,304 3,819 5,337 14,106 Order backlog at year-end 18,810 18,314 17,452 17,185 24,388Operating margin before depreciation (1) 16.3% 16.8% 17.9% 16.8% 13.6%Operating margin(1) 10.8% 11.0% 12.9% 10.8% 8.1%Operating margin(2) 10.8% 11.0% 12.9% 16.1% 12.7%Profit margin(1) 30.1% 22.4% 17.4%Interest coverage ratio(2) 5.3 6.1 8.9 Return on capital employed(1) 22.0% 18.4% 17.5%Capital turnover 0.9 0.8 1.0 Equity/assets ratio 26.0% 31.6% 21.9%Net liquidity 9,107 10,750 4,873 Capital employed 6,158 7,623 5,994 Average number of employees 6,320 6,460 6,224Utilized part of advance payments 3,171 3,248 2,460

Saab Group 1995 1996 1997(in SEK million, unless otherwise stated) (pro forma) (pro forma)

Order bookings during the year 6,053 7,736 16,612 Order backlog at year-end 20,509 20,042 27,122 Operating margin(2)(3) neg. neg. 1.2%Profit margin(2)(3) 5.5% neg. 7.8%Interest coverage ratio(2)(3) 2.6 neg. 6.8 Return on capital employed(2) 5.0% neg. neg.Return on capital employed(2)(3) 5.0% neg. 8.8%Return on shareholders’ equity(2) 2.5% neg. neg.Return on shareholders’ equity(2)(3) 2.5% neg. 2.4%Capital turnover 0.9 0.9 1.1 Equity/assets ratio 23.3% 22.5% 10.2%Equity/assets ratio, exclusive of SAFG 31.9% 32.7% 14.9%Net liquidity 10,824 14,070 11,921 Capital employed 8,719 8,975 6,440 Average number of employees 7,991 8,131 7,716Utilized part of advance payments 3,171 3,248 2,460Earnings per share, SEK 1.4 neg. neg.Shareholders’ equity per share, SEK 54.8 59.4 29.0Price/Book value per share 1.6(1) Exclusive of reversal of loss risk reserve in the Base Contract of SEK 300 million in 1996 and SEK 313 million in 1997.

(2) Includes reversal of loss risk reserve referred to in note (1).

(3) Exclusive of “Items affecting comparability”.

Operating MarginOperating income divided by sales.

Profit MarginOperating income increased by financial income as a percentage of sales.

Interest Coverage RatioOperating income increased by financial income divided by financial costs.

Return of Capital EmployedOperating income increased by financial income as a percentage of average capitalemployed.

Return on Shareholders’ EquityNet income as a percentage of average shareholders’ equity.When calculating return onequity before “Items affecting comparability”, a tax rate of 28 percent has been used.

Capital TurnoverSales divided by average capital employed.

Equity to Assets RatioEquity to total assets after deducting utilized advance payments.The equity to assets ratio,calculated excluding SAFG, means that SAFG is consolidated in accordance with the equitymethod.

The calculation represents complementary information due to SAFG’s large amount ofassets as a consequence of prevalent leasing accounting.The equity to assets ratio for Saabis based on Saab’s balance sheet, See page 18.

Net LiquidityLiquid funds, including receivables on affiliated companies, after deducting interest-bearingliabilities including pension provisions.

Capital EmployedTotal capital deducted by non interest-bearing liabilities and deferred tax liabilities.

Average Number of EmployeesAverage number of employees has been calculated according to a standard working year of1,800 hours per employee.

Earnings per ShareNet income divided by the number of fully-diluted shares.

Shareholders’ Equity per ShareShareholders’ equity at the end of the period divided by the number of shares.

Saab Group I 23

The following discussion and analysis should be read inconjunction with the “Financial Overview” andSaab AB’s consolidated financial statements and thenotes thereto appearing elsewhere in this Document.

The Saab Group develops, manufactures andmarkets sophisticated military defense and aerospacesystems and equipment as well as other high technologyproducts for civilian use.

PRIMARY FACTORS AFFECTING THEOPERATIONS

Sales to the FMVA substantial part of the Group’s revenues during 1995,1996 and 1997 as well as the current order backlog isattributable to sales to the FMV. These sales are governed by long-term delivery contracts. See “MajorAgreements”. Approximately 49 percent of the Group’ssales in 1997 were to the Swedish Armed Forces.

The Base Contract, consisting of development of theGripen, including five test aircraft and 30 aircraft,(“Batch 1”), was agreed in 1982. Deliveries under theBase Contract began in 1993 and were completed in 1996.The second batch of the Gripen program (“Batch 2”) wasordered in 1992 and consists of a total of 110 aircraft,deliveries of which began in 1996 and are scheduled tobe delivered through 2003. In 1997, the FMV ordered thethird batch of the Gripen program consisting of a total of64 aircraft (“Batch 3”). According to the agreements, thefirst aircraft in Batch 3 will be delivered in 2003 and thefinal aircraft in 2007.

In 1997, the FMV also ordered the further developmentprogram for the Gripen, comprising the continualupgrading and modernization of the Gripen to meetchanged requirements in the future. Similar programsare already in place for other aircraft, including theViggen. The need for further development of the Gripenis deemed to exist as long as the aircraft is in activeservice, which the Company expects will be far into the21st century. Thus, further development of Gripen isexpected to continue after the final delivery of Batch 3has been completed.

The contracts with the FMV are expected to generatea significant portion of revenue for Saab in the next fewyears, which may result in stability in revenues and netincome.

Future Export of the GripenIn conjunction with British Aerospace, Saab is developingan export version of the Gripen, which is currently beingmarketed in selected countries. See “The Business ofSaab – The Gripen Export Program Joint Venture with

British Aerospace”. Additional product developmentcosts and marketing expenses to meet anticipatedspecifications and demands of the export market willburden Saab’s income going forward. These coststotalled SEK 63 million in 1997 and are expected toincrease during the next few years. Saab expects toinvest approximately SEK 1 billion within theframework of the export program during the period1998–2002.

All costs will be expensed as incurred and willaccordingly have a direct negative effect on Saab’s netincome during this period. To the extent the Gripen issubsequently exported, Saab’s results in later periodsshould benefit from the expensing of development costsin earlier periods. Saab and British Aerospace will shareequally any proceeds received from the export programafter deduction of a fee paid to Saab.

In order to establish itself on the export market andreceive a first export order, Saab may have to enteragreements on conditions which would affect its incomenegatively in the short term.

In addition, non-Swedish kronor denominated sales areexpected to increase due to export sales of the Gripen.See “Impact of Exchange Rate and Interest Rate Fluctuations”.

On April 29, 1998, British Aerospace entered into anagreement with Investor to acquire sharescorresponding to 35.1 percent of the share capital and35.0 percent of the voting rights in Saab AB for SEK 3,500million subject to appropriate authorities having givenrelevant approvals to the sale and the shares of Saab ABhaving been listed on the Stockholm Stock Exchange.See “Share Capital and Ownership Structure –Shareholders’ Agreement between Investor and BritishAerospace”.

Military ExpendituresSince the mid-1980s military appropriations in Europe,the United States, as well as in other countries, havedecreased due to decreasing military tension after theend of the cold war and increasing budget constraints.Despite declining national defense expenditures, astrong need for ongoing upgrades of existing equipmentthrough the purchase of sophisticated systems and theproducts of the kind manufactured by Saab is expectedto persist. See “Industry Overview”.

Due to the importance of military spending todomestic economies and the strategic nature of militarypurchases, decisions to purchase military equipmentcontain substantial political aspects. Although an exportproduct may be technologically superior or more cost-effective, political implications are taken into

Management’s Discussion and Analysis of FinancialCondition and Results of Operations

24 I Saab Group

consideration in the purchase decision making process.In addition, the export market for the Gripen is affectedby customers’ requirements for offset arrangements. See“Industry Overview”. One result of Saab’s joint venturewith British Aerospace is that the marketing of theexport program benefits from the dual support of theBritish and Swedish governments.

OTHER FACTORS AFFECTING INCOME ANDFINANCIAL CONDITIONRecognition of Revenue and CostsIn both the military aerospace and space industries,contracts are generally long-term and can be broadlycategorized as either development or productioncontracts. Both types of contracts are usually financed byadvance payments from customers. Revenues from andcosts related to development contracts are recognized ona percentage of completion basis. On some occasions, thedegree of completion can be determined by thecompletion of certain contracted milestones. The Groupnormally recognizes revenues from and costs related toproduction contracts upon the acceptance by thecustomer of delivery.

The contracts for Batch 2 and Batch 3 in the Gripenprogram are long-term production contracts and,accordingly, revenue is recognized on delivery of eachaircraft. The amount of revenue and cost recognizedwith respect to each aircraft is based on total revenuesand costs under the contract divided by the number ofaircraft.

In addition to Batch 2 and Batch 3, the FMV hasordered a further development program for futureimprovements on Gripen aircraft. The contract is adevelopment contract.

Dependence on Large Contracts.The Group’s operating income is expected to be stablecompared to cyclical businesses over the long-term, as alarge part of the activities are not primarily tied to theeconomic business cycle but to the operations of theGroup’s core businesses, which constitute a relativelylimited number of large contracts. The Group’s cashflowmay, however, be subject from time to time to significantfluctuations as a result of payment conditions agreedwith customers. In addition, the agreements mayinvolve significant advance payments.

Loss Risk Reserve for the Gripen Base ContractCompleted in 1996, the Base Contract resulted in a loss.The loss was attributable to significant additional costsin connection with the development of the Gripen. In

particular, additional costs were caused by delays in thedevelopment of the steering system. Between 1988 and1993, provisions in the amount of SEK 2,300 million weremade to cover these anticipated losses. Of this total, SEK1,310 million has already been realized against incurredcosts. During the years 1996 and 1997, part of theremaining loss risk reserve was reversed by SEK 300million and SEK 313 million, respectively, as a result of areduction of risks over time, which implied lowerestimated provision needs. After these reversals, theremainder of the provision amounted to SEK 377 millionat December 31, 1997. In accordance with past practice,the provision amount required will be recalculated on anongoing basis. Any future reversals will be included inSaab’s operating income.

Project InterestThe timing and amount of advance payments are animportant component of the contracts between theGroup and its customers. The contracts are considered tobe standard in the defense industry. The interest earnedon non-utilized advance payments (project interest) istaken into account in the pricing of such contracts andtherefore constitutes an integral part of the underlyingeconomics and is considered an operating gain. Projectinterest from domestic sales is expected to decrease inthe future as the timing of advance payments is expectedto match more accurately the timing of actual costsincurred. The project interest will thus decrease as Batch2 is completed. In Batch 3, the portion of project interestis likely to be less significant. However, the Companyexpects that operating income will be compensated byother contract terms.

The table below presents project interest for thefinancial years 1993–1997.

(in SEK million) 1993 1994 1995 1996 1997

Military Aerospace 148 177 267 258 235Space 9 7 14 11 8Training Systems 4 6 3 2 6

Total Project Interest 161 190 284 271 249

Discontinuation of Manufacturing of RegionalAircraftDue to the decision to discontinue the manufacturing ofregional aircraft, total sales of the Group will decrease.Based on the provisions taken, the operations ofRegional Aircraft are not expected to affect the Group’sfuture income negatively. These provisions are to a largeextent expected to be utilized during 1998 and 1999. See“Actions Relating to Regional Aircraft and Saab AircraftFinance Group (SAFG)”.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Saab Group I 25

Provisions and Capitalization of SAFGFollowing the decision to cease production of regionalaircraft, SAFG’s leasing portfolio has a finite life, similarin principle to a financial asset which can be divested. Inview of the business’ finite term, the Company decidedto take a write-down on future operations of SAFG,adjusting the book value of the portfolio to its estimatedmarket value. Accordingly, this portfolio will be valuedat the current market value on an on-going basis. Suchan on going valuation will affect SAFG earnings in thatparticular period. The provision taken was calculated inorder to cover currently expected deficits in SAFGoperations as well as to yield a market rate return on theportfolio’s assets over its lifetime. See “Actions Relatingto Regional Aircraft and Saab Aircraft Finance Group(SAFG)”.

RESEARCH AND DEVELOPMENT

In order to maintain its position as a leading developerof military aerospace and defense equipment, the Groupdevotes considerable resources to research anddevelopment. Approximately 2,000 Group employees(one fourth of the Group’s total employees) are engagedin research and development activities. Groupinvestments in research and development are madeprimarily for customers in the business area MilitaryAerospace. Investments in research and developmentare also made within areas including laser simulation,radar-based level-gauging equipment and thedevelopment of military technique for civilianapplications.

In recent years the Group’s research and developmentresources have mainly been devoted to the Gripen andSaab 2000 aircraft programs.

The majority of research and development activitiesof the Group are directly paid for by the customer.

Remaining research and development activities incurredby the Group on its own account have been expensed asincurred and amounted to SEK 416 million, SEK 463million and SEK 409 million in 1995, 1996 and 1997,respectively.

Development costs amounting to SEK 996 millioncapitalized in the years 1992 to 1994 in relation to theSaab 2000 are subject to a write down of 20 percent peryear beginning in 1995. All remaining capitalizeddevelopment costs as of December 31, 1996 for the Saab2000 program were written off in 1996 in connectionwith the revaluation of the program and are included in“Items affecting comparability”. As of December 31,1997 there were no capitalized research anddevelopment costs on the Group’s balance sheet.

In 1997 the development costs for the export versionof the Gripen amounted to SEK 63 million and areexpected to increase in the next few years. Saab willspend approximately SEK 1 billion within theframework of the export program during the period1998–2002.

The following table presents the Group’s totalresearch and development expenditures for the financialyears 1993–1997, including expenditures which are paidfor by the Group’s customers.

(in SEK million) 1993 1994 1995 1996 1997

Military Aerospace 1,130 1,361 1,455 1,229 1,332Space 85 86 132 140 171Training Systems 29 49 48 48 94Combitech 80 66 102 143 137

Saab 1,324 1,562 1,737 1,560 1,734

Regional Aircraft 495 314 214 230 58

Saab Group(1) 1,819 1,876 1,951 1,790 1,792(1) Of which SEK 1,163 million, SEK 1,434 million, SEK 1,535 million, SEK 1,327 million and

SEK 1,355 million were paid by customers in 1993, 1994, 1995, 1996 and 1997, respectively.


Order Backlog Order Booking

1993 1994 1995 1996 1997 1993 1994 1995 1996 1997

Military Aerospace 17,468 16,894 16,345 15,053 21,969 1,813 1,746 1,917 2,506 11,405Space 312 356 479 663 674 305 355 447 593 605Training Systems 820 802 513 999 1,007 522 473 438 1,045 677Commercial Aircraft(1) 31 56 102 531 287 290 303 290Combitech 210 262 377 455 781 397 509 807 1,020 1,356(less internal orders) –293 –41 –145 –167 –66 –80 –130 –227

Saab 18,810 18,314 17,452 17,185 24,388 3,401 3,304 3,819 5,337 14,106

Regional Aircraft 6,871 3,881 3,057 2,857 2,734 1,120 793 2,524 2,702 2,706(less internal orders) –531 –287 –290 –303 –200

Saab Group 25,681 22,195 20,509 20,042 27,122 3,990 3,810 6,053 7,736 16,612(1) Exclusive of orders from and sales to Military Aerospace.

26 I Saab Group


ORDER BACKLOG AND ORDER BOOKINGSThe Group’s total order backlog (which represents firmcontractual orders) amounted to SEK 20,509 million in1995, SEK 20,042 million in 1996 and SEK 27,122 millionin 1997, on December 31 of each year. Total orderbookings for the Group amounted to SEK 6,053 millionin 1995, SEK 7,736 million in 1996 and SEK 16,612million in 1997.

The total order backlog of Saab increased to SEK24,388 million at December 31, 1997 as compared to SEK17,185 million at December 31, 1996 and SEK 17,452million at December 31, 1995.

The most significant orders received in 1997 were inMilitary Aerospace with which the FMV placed an orderfor Batch 3 of the Gripen comprising 64 aircraft and anorder for the further development program of theGripen. Aircraft comprising Batch 3 will be delivereduntil 2007. At December 31, 1997, the total order backlogof the Gripen was 156 aircraft compared to 112 aircraft atDecember 31, 1996 and 126 aircraft at December 31, 1995.The Group expects to deliver 18 Gripen in each of 1998and 1999. In addition, orders for the furtherdevelopment of a new auxiliary power unit (APU) forthe Gripen as well as several orders for infrared andlaser equipment within the business unit Dynamics.

Order bookings for Space increased in 1997compared to 1996. Important orders in 1997 included thereorder of computers for the Ariane 4 launcher fromMatra and the development of measuring instrumentsfor weather satellites for ESA and the U.S. government.

During 1997, the order bookings of Training Systems

decreased compared to 1996 when the order bookingswere unusually high primarily due to a large order fromGermany. However, also in 1997 the order bookingswere nevertheless satisfactorily high as systemsregarding service on previously delivered materials,simulation equipment and packages for upgrading wereordered from the United States, the United Kingdomand Germany.

Order bookings for Combitech increased in 1997compared to 1996 due primarily to an order fromMelbourne, Australia for a free-flow traffic system andorders for new level-gauging products for the processingindustry.

A strategically important agreement entered into byCommercial Aircraft in 1997 was the transfer of metalbonding activities from British Aerospace. In addition,Commercial Aircraft signed a number of deliverycontracts with Boeing during 1997.

At December 31, 1997, the total order backlog ofRegional Aircraft amounted to SEK 2,734 million, or 26Saab 340 and 12 Saab 2000 aircraft, compared to SEK2,857 million at December 31, 1996 or 31 Saab 340 and 11Saab 2000 aircraft and SEK 3,057 million at December 31,1995 or 25 Saab 340 and 16 Saab 2000 aircraft. During1997, a total of 21 Saab 340 and 12 Saab 2000 wereordered compared to a total of 32 Saab 340 and sevenSaab 2000 ordered in 1996. As a consequence of thediscontinuation of manufacturing of regional aircraft,the order book was closed in January 1998. However,there are outstanding options on the sale and productionof three aircraft which are valid during 1998.


(in SEK million, unless otherwise stated) 1993 1994 1995 1996 1997

Military AerospaceSales 2,238 2,337 2,698 3,471 4,480Operating expenses –1,692 –1,844 –2,105 –2,733 –3,772Depreciation on tangible fixed assets –153 –173 –168 –181 –122

Operating income 393 320 425 557 586Operating margin 17.6% 13.7% 15.8% 16.0% 13.1%

Reversal of loss risk reserve 300 313

SpaceSales 302 312 383 467 594Operating expenses –270 –258 –324 –397 –519Depreciation on tangible fixed assets –11 –19 –24 –25 –28


Training SystemsSales 283 491 727 559 668Operating expenses –235 –359 –541 –427 –491Depreciation on tangible fixed assets –7 –10 –14 –17 –21


Commercial AircraftSales(1) 531 287 259 278 244Operating expenses –531 –287 –259 –278 –212Depreciation on tangible fixed assets –29

Operating income (external sales only) 3Operating margin 1.1%

CombitechSales(2) 396 446 792 932 1,073Operating expenses –480 –465 –783 –1,070 –1,368Depreciation on tangible fixed assets –22 –12 –16 –21 –43

Operating income(3) –106 –31 –7 –159 –338(1) Includes external sales of SEK 44 million and sales of SEK 200 million to Regional Aircraft in 1997. In 1993–1996, includes sales only to Regional Aircraft.

(2) Includes sales of later divested companies amounting to SEK 230 million, SEK 267 million and SEK 114 million in 1995, 1996 and 1997, respectively.

(3) Includes operating income relating to later divested companies amounting to SEK 9 million, SEK –109 million and SEK –213 million in 1995, 1996 and 1997, respectively.

RESULTS OF OPERATIONS

The Saab Group today comprises Saab, Regional Aircraft and SAFG. Saab consists of the business areas MilitaryAerospace, Space, Training Systems, Commercial Aircraft and Combitech. The overview of the performance of theoperations is outlined in accordance with this structure.

The following table sets forth certain financial information for each business area in Saab and for Regional Aircraftfor the years 1993–1997 and for SAFG and the Group for 1995–1997.

Saab Group I 27

28 I Saab Group



CorporateOperating expenses/income(1) 61 –23 0 85 138Depreciation on tangible fixed assets –10 –5 –7 –33 –35

Operating income 51 –28 –7 52 103

EliminationsSales –43 –89 –55 –69 –193Operating expenses 43 89 55 69 193

SaabSales 3,707 3,784 4,804 5,638 6,866Operating expenses –3,104 –3,147 –3,957 –4,451 –5,718Depreciation on tangible fixed assets –203 –219 –229 –277 –278

Operating income 400 418 618 910 870Operating margin 10.8% 11.0% 12.9% 16.1% 12.7%Operating income before depreciation(2) 603 637 858 957 934Operating margin before depreciation(2) 16.3% 16.8% 17.9% 16.8% 13.6%Operating income(2) 400 418 618 610 557Operating margin(2) 10.8% 11.0% 12.9% 10.8% 8.1%

Regional AircraftSales 2,004 1,360 3,391 2,902 3,035Operating expenses –2,462 –2,230 –4,146 –3,901 –3,559Items affecting comparability –1,219 –4,079Depreciation on tangible fixed assets –69 –78 –101 –94 –29

Operating income –527 –948 –856 –2,312 –4,632

SAFGLeasing and other operating income(3) 1,281 1,398 1,706Leasing and other operating expenses –1,141 –1,722 –1,535Items affecting comparability –1,342Depreciation on tangible fixed assets (leasing assets) –301 –340 –383

Operating income –161 –664 –1,554

Group eliminationsSales –270 –381 –1,227Operating expenses 270 381 1,227

The Saab GroupSales 7,925 8,159 8,674Operating expenses –7,693 –8,295 –7,879Items affecting comparability –1,219 –5,421Depreciation on tangible fixed assets –631 –711 –690

Operating income –399 –2,066 –5,316(1) Including non allocated corporate costs and income from Saab Treasury.

(2) Exclusive of reversal of loss risk reserve in the Base Contract of SEK 300 million in 1996 and SEK 313 million in 1997.

(3) Not included in sales of the Group. SAFG’s operating income is instead included in the item “Operating expenses” of the Group.

Saab Group I 29


SAAB1997 compared with 1996SalesSales of Saab in 1997 amounted to SEK 6,866 million,representing an increase of 21.8 percent compared to SEK5,638 million in 1996. Substantially all of Saab sales wereexternal to the Group in 1996 and 1997. Sales increased inthe business areas Military Aerospace, Space, TrainingSystems and Combitech.

Sales of Military Aerospace increased 29.1 percent in1997 to SEK 4,480 million compared to SEK 3,471 millionin 1996, primarily due to more Gripen aircraft invoiced. Atotal of 17 Gripen aircraft were produced in each of 1996and 1997. However, three of the Gripen produced in 1996were not invoiced until 1997, when delivery was made tothe FMV.

Sales of Space increased 27.2 percent in 1997 to SEK594 million, compared to SEK 467 million in 1996. Theincrease was primarily due to an increase demand in themarket for commercial satellites.

Sales of Training Systems increased 19.5 percent in1997 to SEK 668 million, compared to SEK 559 million in1996. The increase was primarily due to a higher numberof laser simulators being delivered.

Sales of Combitech increased 15.1 percent in 1997 toSEK 1,073 million, compared to SEK 932 million in 1996.The increase was primarily due to increased deliveries byMarine Electronics.

Operating IncomeOperating income of Saab in 1997 decreased to SEK 870million compared to SEK 910 million in 1996. Reversals ofloss risk reserves relating to the Base Contract amountingto SEK 313 million (SEK 300 million in 1996) had apositive effect on Saab’s operating income.

SEK 15 million of operating income of Saab wasattributable to income from treasury operations of theGroup in 1997, compared with SEK 99 million in 1996. In1996 a significant decrease in interest rates occurred,which had a positive impact on the trading income thatyear. The operating margin of Saab was 12.7 percent in1997 compared to 16.1 percent in 1996. The operatingmargin of Saab excluding reversal of the loss risk reservewas 8.1 percent in 1997 compared to 10.8 percent in 1996.

Operating income of Military Aerospace for 1997 wasSEK 586 million compared to SEK 557 million in 1996.The operating margin of Military Aerospace excludingreversals of loss risk reserves was approximately 13.1percent in 1997 compared with 16.0 percent in 1996. Thisincrease in operating income was primarily attributableto the commencement of deliveries of Batch 2 of the

Gripen. Revenues from the contract to develop thetwo-seater Gripen also contributed positively tooperating income in 1997. In conjunction with the Gripenexport program in 1997, development costs wereincurred which affected income negatively.

Operating income of Training Systems for 1997 wasSEK 156 million compared to SEK 115 million in 1996.The increase was due to increased sales while marginswere maintained.

Operating income of Combitech was SEK –338 millionin 1997 compared to SEK –159 million in 1996, primarilydue to higher marketing and development costs inCombitech Traffic Systems including depreciation ofpreviously capitalized development costs of SEK 40million and costs of SEK 169 million related torestructuring and disposal of information technology(”IT”) companies.

Other business areas did not generate any significantchanges in operating income in 1997 compared to 1996.

1996 compared with 1995SalesSales of Saab in 1996 amounted to SEK 5,638 million, anincrease of 17.4 percent compared to SEK 4,804 million in1995. Substantially all of Saab sales were external to theGroup in 1995 and 1996. Sales increased foremost in thebusiness areas Military Aerospace, Space and Combitechwhile sales of Training Systems decreased.

Sales of Military Aerospace for 1996 were SEK 3,471million, representing an increase of 28.7 percentcompared to SEK 2,698 million in 1995. The increase wasprimarily attributable to a higher number of Gripenaircraft delivered. During 1996, Saab delivered the lastGripen aircraft under the Base Contract and the firstaircraft in Batch 2 to the FMV. A total of 14 Gripen aircraftwere invoiced during 1996 compared to nine during1995.

Sales of Space increased 21.9 percent in 1996 to SEK467 million, compared to SEK 383 million in 1995. Theincrease was primarily due to the acquisition of amajority stake of an Austrian company during the year.

Sales of Training Systems decreased by 23.1 percent toSEK 559 million in 1996, compared to SEK 727 million in1995. The decrease was primarily due to lower deliveriesof laser simulators due to late order bookings.

Sales of Combitech increased 17.7 percent in 1996 toSEK 932 million, compared to SEK 792 million in 1995.The increase was primarily due to increased sales inMarine Electronics, Combitech Electronics andacquisitions of IT companies during the autumn of 1995.These IT companies were subsequently divested.

30 I Saab Group


Operating IncomeOperating income of Saab for 1996 increased to SEK 910million compared to SEK 618 million in 1995. During1996 Saab reversed loss risk reserves relating to the BaseContract amounting to SEK 300 million. Of the 1996operating income, SEK 99 million was attributable to thetreasury activities of the Group. Saab Treasuryperformed well during the year due to decreasedinterest rate levels. The operating margin of Saab was16.1 percent in 1996 compared to an operating margin of12.9 percent in 1995. The operating margin exclusive ofreversal of the loss risk reserve was 10.8 percent in 1996.

Operating income of Military Aerospace increased in1996 to SEK 557 million compared to SEK 425 million in1995. The operating margin of Military Aerospaceincreased to 16.0 percent in 1996 from 15.8 percent in1995. The increase was primarily due to a higher numberof Gripen aircraft being delivered. Revenues from thedevelopment contract for the two-seater Gripen alsocontributed also positively to operating income in 1996.

Operating income from Training Systems in 1996decreased to SEK 115 million compared to SEK 172million in 1995, primarily due to lower sales.

Combitech’s operating income decreased to SEK –159in 1996 million compared to SEK –7 million in 1995,primarily due to losses in subsequently divested ITcompanies and development costs in Combitech TrafficSystems.

Other business areas did not generate any significantchanges in operating income in 1996 compared to 1995.

REGIONAL AIRCRAFT

1997 compared with 1996SalesSales of Regional Aircraft in 1997 were SEK 3,035million, representing an increase of 4.6 percentcompared to SEK 2,902 million in 1996. The increase wasprimarily attributable to a higher U.S. dollar rate inrelation to the Swedish krona in 1997 compared to 1996.A total of 26 Saab 340 were delivered during each of 1996and 1997. A total of nine Saab 2000 were deliveredduring 1997 compared to 11 during 1996.

Operating IncomeOperating income in Regional Aircraft decreased to SEK–4,632 million in 1997 compared to SEK –2,312 million in1996, primarily due to provisions of SEK 4,079 milliontaken in connection with the decision to discontinue themanufacturing of regional aircraft. Write-downs relating

to the Saab 2000 program taken in 1996 amounted toSEK 1,219 million. Excluding items affectingcomparability, operating income amounted to SEK –553million in 1997 compared to SEK –1,093 million in 1996.The improvement was primarily a consequence of loss-making deliveries of regional aircraft during 1996 and1997. The entire loss was taken in 1996.

1996 compared with 1995SalesSales in Regional Aircraft for 1996 amounted to SEK2,902 million, a decrease of 14.4 percent compared toSEK 3,391 million in 1995. The decrease was primarilyattributable to fewer Saab 2000 aircraft delivered, whichwas partly offset by a higher number of the Saab 340delivered. A total of 26 Saab 340 were delivered during1996 compared to 15 during 1995. A total of 11 Saab 2000were delivered during 1996 compared to 20 during 1995.

Operating IncomeOperating income in Regional Aircraft for 1996decreased to SEK –2,312 million compared to SEK –856million in 1995. The decrease was primarily attributableto the revaluation of the Saab 2000 program, whichincluded write-downs of SEK 584 million for capitalizedresearch and development costs, SEK 243 million onmachinery and equipment and SEK 392 million forrevaluation of commitments and guarantees. Excludingitems affecting comparability, operating incomeamounted to SEK –1,093 in 1996. The decrease comparedto 1995 was mainly due to loss-making deliveries ofaircraft during 1996 and 1997. The entire loss was takenin 1996.

SAFG

1997 compared with 1996PortfolioDuring 1997, SAFG acquired 21 new Saab 340 and sixnew Saab 2000 and purchased two used Saab 340aircraft. At December 31, 1997, the leasing portfolio ofSAFG consisted of 275 Saab 340 and 21 Saab 2000compared to 260 Saab 340 and 15 Saab 2000 at December31, 1996. The total guarantees issued by Saab ABsupporting the financing of the leasing portfolioamounted to SEK 5,855 million at December 31, 1997.

Operating Income.Operating income of SAFG in 1997 decreased to SEK–1,554 million compared to SEK –664 million in 1996.


The operating income in 1997 was negatively affected byprovisions of SEK 1,342 million taken in connection withthe decision to cease production of regional aircraft.Excluding provisions, operating income amounted toSEK –212 million in 1997 compared to SEK –664 millionin 1996. The improvement in 1997 was primarilyattributable to financial difficulties experienced by theairline Business Express, which caused losses in 1996.

1996 compared with 1995PortfolioDuring 1996, SAFG acquired 24 new Saab 340 and threenew Saab 2000 and purchased six used Saab 340 aircraft.At December 31, 1996, the leasing portfolio of SAFGconsisted of 260 Saab 340 and 15 Saab 2000 compared to232 Saab 340 and 12 Saab 2000 at December 31, 1995. Thetotal guarantees issued by Saab AB supporting thefinancing of the leasing portfolio amounted to SEK 5,764million at December 31, 1996.

Operating IncomeOperating income of SAFG in 1996 was SEK -664 millioncompared to SEK -161 million in 1995. The decrease wasprimarily attributable to provisions taken for losses ofSEK 383 million related to renegotiated leasing termswith airlines including Business Express.

THE SAAB GROUP1997 compared with 1996SalesIn 1997 Group sales amounted to SEK 8,674 million,representing an increase of 6.3 percent compared to SEK8,159 million in 1996. The increase in sales in 1997 wasdue primarily to higher sales within Saab. Salesincreased in the business areas Military Aerospace,Space, Training Systems and Combitech.

During 1997 Regional Aircraft delivered ten Saab 340and six Saab 2000 to SAFG which remained on thebalance sheet of SAFG at year end, resulting in anincrease of SEK 1,027 million in internal sales in 1997.

Operating IncomeOperating income of the Group amounted to SEK –5,316million in 1997 representing a decline compared to SEK–2,066 million in 1996, due primarily to provisions ofSEK 4,079 million and SEK 1,342 million taken inRegional Aircraft and SAFG, respectively. Operatingincome in 1996 was affected by SEK 1,219 million ofwrite-downs and revaluations relating to the Saab 2000

program in Regional Aircraft. Excluding items affectingcomparability, the Group’s operating income amountedto SEK 105 million in 1997 compared to SEK –847 millionin 1996. The increase was due to lower losses in RegionalAircraft and SAFG in 1997 compared to 1996.

Financial Income and ExpenseFinancial income and expense amounted to SEK 571million and SEK –100 million, respectively, in 1997,compared with SEK 646 million and SEK –152 million,respectively, in 1996. The changes in financial incomeand expenses were primarily due to lower marketinterest rates. The average return on liquid funds was 6.2percent in 1997 compared to 7.9 percent in 1996. Theaverage net liquidity was higher in 1997 compared to 1996.

Income TaxesIncome taxes showed a tax income for 1997 of SEK 1,075million compared to a tax income of SEK 203 million in1996. The increase was primarily due to deferred tax onprovisions made in 1997.

Net IncomeNet income amounted to SEK -3,790 million in 1997compared with SEK –1,385 million in 1996.

1996 compared with 1995SalesThe Group’s sales amounted to SEK 8,159 million in1996, representing an increase of 3.0 percent over sales ofSEK 7,925 million in 1995. The increase was dueprimarily to higher sales of Saab. In Saab, sales increasedforemost in the business areas Military Aerospace, Spaceand Combitech while sales of Training Systemsdecreased. The increase in Saab’s sales was partly off-setby decreased sales in Regional Aircraft.

Operating IncomeOperating income of the Group was SEK -2,066 millionin 1996, a decrease compared to operating income of SEK–399 million in 1995. The decrease was mainlyattributable to write-downs and revaluations relating tothe Saab 2000 program in Regional Aircraft of SEK 1,219million and loss provisions in SAFG’s leasing portfolioof SEK 383 million. Excluding items affectingcomparability of SEK 1,219 million, operating incomeamounted to SEK –847 million in 1996. The decreasecompared to 1995 was primarily due to higher losses inRegional Aircraft and SAFG.

Saab Group I 31

32 I Saab Group


Financial Income and ExpenseFinancial income and expense amounted to SEK 646million and SEK –152 million, respectively, in 1996,compared with SEK 835 million and SEK –165 million in1995. The changes in financial income and expenses wereprimarily caused by lower market interest rates. Theaverage return on liquid funds decreased to 7.9 percent in1996 compared with 9.0 percent in 1995. The average netliquidity was higher in 1996 compared to 1995.

Income TaxIncome taxes showed a tax income for 1996 of SEK 203million compared to a tax cost of SEK –112 million in1995. The change was primarily attributable to deferredtaxes on provisions made in 1996.

Net IncomeNet income of the Group amounted to SEK –1,385 millionin 1996 compared to SEK 148 million in 1995.

SaabThe funds generated from operations before change inworking capital amounted to SEK 1,401 million in 1995,SEK 1,680 million in 1996 and SEK 1,495 million in 1997.Working capital of Saab decreased by SEK 166 million in1995 and by SEK 158 million in 1996 and increased bySEK 1,416 million in 1997. The change in working capitalduring 1997 was primarily attributable to a repayment tothe FMV as a result of an adjustment related to theindexation of advance payments for items such as priceincreases in materials and currency fluctuations over thelifetime of the Base Contract.

The net investments of Saab were SEK 201 million in1995, SEK 298 million in 1996 and SEK 472 million in1997 for primarily machinery, equipment and buildings.The Company expects operating cash flow of Saab to bereduced in the next few years due to lower advancepayments received and increased work in progress

coupled with increased development and marketingcosts of the Gripen export program.

Regional Aircraft The funds generated from the operations of RegionalAircraft before change in working capital amounted toSEK –428 million in 1995, SEK –761 million in 1996 andSEK –563 million in 1997. Working capital of RegionalAircraft increased by SEK 286 million in 1995 and bySEK 104 million in 1996 and decreased by SEK 248million in 1997. The net investments of Regional Aircraftconsisting primarily of machinery and equipment wereSEK 7 million in 1995, SEK 49 million in 1996 and SEK 28million in 1997.

SAFGThe funds generated from the operations of SAFGamounted to SEK –240 million in 1995, SEK 566 million


(in SEK million) 1995 1996 1997

SaabCash flow from operating activities 1,401 1,680 1,495Change in working capital(1) 166 158 –1,416Net investments –201 –298 –472

Operating cash flow 1,366 1,540 –393

Regional AircraftCash flow from operating activities –428 –761 –563Change in working capital(1) –286 –104 248Net investments –7 –49 –28

Operating cash flow –721 –914 –343

SAFGCash flow from operating activities 154 –383 144Change in working capital 766 1,486 –256Net investments (leasing aircraft) –1,160 –537 –1,382

Operating cash flow –240 566 –1,494

The Saab GroupCash flow from operating activities 1,128 536 1,076Change in working capital(1) 645 1,541 –1,424Net investments –1,368 –882 –1,881

Operating cash flow 405 1,195 –2,229(1) Includes advance payments.

LIQUIDITY AND CAPITAL RESOURCES

Cash FlowThe following table summarizes the Group’s cash flow statements pro forma for the financial years 1995, 1996 and 1997,for Saab, Regional Aircraft, SAFG and the Group.

Saab Group I 33

34 I Saab Group


in 1996 and SEK –1,494 million in 1997. The decrease incash flow in 1997 was primarily attributable to leasingagreements being signed which resulted in a largernumber of aircraft being reported in SAFG’s balancesheet at year end.

The Saab GroupThe funds generated from the operations before change inworking capital amounted to SEK 1,128 million in 1995,SEK 536 million in 1996 and SEK 1,076 million in 1997.Working capital of the Group decreased by SEK645 million in 1995, by SEK 1,541 million in 1996 andincreased by SEK 1,424 million in 1997. The netinvestments of the Group were SEK 1,368 million in 1995,SEK 882 million in 1996 and SEK 1,881 million in 1997.

Capital ExpenditureThe Group’s capital expenditures during the last fewyears consisted primarily of investments in machineryand equipment and the construction of new buildingsfor Space, Combitech Electronics and Training Systems.During 1997 and through 1998, Training Systems willhave invested approximately SEK 100 million inadditional premises in Huskvarna.

The table below sets forth the capital expenditures ofthe Group for the period 1993–1997 exclusive of leaseassets.

(in SEK million) 1993 1994 1995 1996 1997

Military Aerospace 178 199 177 195 153Space 13 23 30 30 43Training Systems 15 25 15 24 51Commercial Aircraft 45Combitech 20 11 23 30 91

Saab 226 258 245 279 383

Regional Aircraft 29 15 12 23 13

Saab Group 255 273 257 302 396Capital expenditure in aircraft held for leasing in SAFG amounted to SEK 1,308 million, SEK

664 million and SEK 1,549 million in 1995, 1996 and 1997, respectively.

Currency and Interest Rate Management PolicyTreasury management within the Group is performed bySaab Treasury which is responsible for overallinvestment and financing operations, excluding thoserelating to the product financing and the externalmanagement of interest and currency risks. According tothe currency and interest rate management policy, thefinancial risks related to the operations of the businessunits are to be minimized. All financial transactions arecarried out by Saab Treasury. The Saab Treasury alsoadvises all units of the Group on currency and interest

rate management matters. The business transactionsinvolving Saab Treasury and the business units withregard to currency and interest transactions areconducted on a market price basis. Saab Treasury takesno risks in such transactions, as all intra-companytransactions are hedged against external parties.Through this organization, the Group has established astructure with a decentralized hedging responsibilityand a centralized trading responsibility.

The Group’s interest rate risks are managed bymatching assets and future liabilities obligations.

Liquid Funds and Interest-bearing LiabilitiesThe Group’s cash and marketable securities includingreceivables from companies in the Investor Groupamounted to SEK 13,542 million, SEK 16,578 million andSEK 15,112 million at December 31, 1995, 1996 and 1997,respectively.

Part of the Group’s liquid funds have been investedin Swedish government securities and have been lent toInvestor and other companies in the Investor Group attreasury bill rates. At December, 31 1997 receivablesfrom Investor companies amounted to SEK 9,104million. All such loans will be terminated by the end of1998, and the Group will reinvest such funds inaccordance with its investment policy.

Non-utilized advance payments, all of which relateto operations in Saab, amounted to SEK 3,869 million atDecember 31, 1995, SEK 4,501 million at December 31,1996 and SEK 4,917 million at December 31, 1997.

As of December 31, 1997 the Group had interestbearing liabilities, including pension liabilities, of SEK3,192 million, of which SEK 31 million was long-term,SEK 918 million was short-term and SEK 2,243 millionwas pension liabilities.

The Group’s net liquidity (cash and marketablesecurities after deduction of short and long-termborrowing and pension liabilities) decreased by SEK2,149 million to SEK 11,921 million during 1997. Thedecrease was primarily attributable to net investments inregional aircraft held for leasing, repayment of SEK 1,123million to the FMV under the Base Contract, reducedadvance payments and a higher amount of receivables.

Saab’s financial objective is to achieve an equity toassets ratio exceeding 30 percent in the long term. See “Financial Overview – Financial Objectives”. AtDecember 31, 1997, Saab’s equity/assets ratio amountedto 21.9 percent. Of Saab’s total assets at December 31,1997, liquid funds accounted for approximately 47percent whereas liquid funds accounted for 46 percent ofthe total assets of the Group. The Company believes that

Saab Group I 35


Saab’s and the Group’s current cash, operating cash flowand available sources of financing will provide it withsufficient resources for its future operations.

Investment PolicyThe investment policy of the Group with regard to liquidinvestments prescribes an average investment durationof 11–21 months. To obtain a desired interest rate profile,interest derivatives are allowed. At December 31, 1997,the average investment duration of the Group’s liquidinvestments was 11 months. In 1997, the average yieldon the cash and marketable securities of the Group was6.2 percent compared with 7.9 percent in 1996 and 9.0percent in 1995. Pursuant to contracts with the FMV, theGroup grants the FMV security over advance paymentsreceived. See Note 39 to the “Statutory FinancialStatements”.

Saab Treasury has an annual risk mandate of SEK 20million for trading in currency and money marketinstruments that is not related to hedging activities. TheCompany believes that limited trading of this natureenhances the ability of the Group to hedge effectivelyand take full advantage of available financial products.During 1997, trading income was SEK 15 millioncompared to SEK 99 million in 1996. Saab Treasurystarted its operations on January 1, 1996.

IMPACT OF EXCHANGE RATE AND INTERESTRATE FLUCTUATIONS

The Group publishes its consolidated financialstatements in Swedish kronor. However, part of theGroup’s sales and expenses is denominated in othercurrencies, mainly the U.S. dollar. As the Group does notcurrently have significant sales and expenses that aredenominated in currencies other than the Swedish kronaand the U.S. dollar, it does not currently plan to reportaccounts in Euro.

As the U.S. dollar is the most commonly usedcurrency in the aircraft and space industry, the SaabGroup can, to a large extent, match income and expensesin this currency, reducing the Group’s net transactionexposure. If the Group receives export orders, theexposure to other currencies may increase.

To the extent that the Group is exposed to exchangerate fluctuation, it may enter into foreign currencytransactions and general hedging transactions. In themilitary activities of the Group, exchange rate exposureis hedged on a per contract basis. Pursuant to contractsbetween the Group and the FMV, the FMV bearscurrency exposure risk with respect to contract activities.In other contracts, it is the Group’s policy to hedge the

currency risk in all firm orders signed using forwardcontracts. However, changes in the exchange rate of SEKand U.S. dollar will affect the translation of U.S. dollarrevenues into SEK for new contracts not yet beinghedged. Provisions made in Regional Aircraft and inSAFG are to a large extent denominated in U.S. dollars,and such exposure is hedged through forward contracts.

When converting the balance sheets of foreignsubsidiaries to Swedish kronor, translation exposure willoccur, resulting from fluctuations in the values of thecurrencies in which such balance sheets are expressed, ascompared to the Swedish krona. Approximately 85percent of the Group’s net assets are denominated inSwedish kronor with the remainder denominated inforeign currencies. At December 31, 1997 the total equitydenominated in foreign currencies amounted to SEK 471million. The Group’s foreign subsidiaries are located inAustralia, Chile, Germany, Hong Kong, Russia, the UnitedKingdom and the United States. These subsidiaries aregenerally established with limited equity, for marketing,sales or aircraft leasing purposes. Accordingly, the Grouphas a limited balance sheet translation exposure.

The Group has a substantial net liquidity and isthereby exposed to changes in market interest rates. AtDecember 31, 1997, net liquidity of the Group, beforedeductions for pension provisions of SEK 2,243 million,amounted to SEK 14,164 million. All other factorsremaining constant, the effect of a one percent unitincrease or decrease in the interest rates would result ina corresponding increase or decrease of the annualincome of the Group, net of 28 percent tax, ofapproximately SEK 100 million.

TAXES

The Group’s utilized tax loss carry forwards ofapproximately SEK 100 million against incomegenerated in 1997. As from 1998, the Group hasapproximately SEK 400 million of tax losses to carryforward. The entire amount relates to deficits that havearisen in Sweden and can be used without time limit. Asthe majority of the operations are carried out in Sweden,the Company estimates that the future effective tax ratefor the Group will be close to 28 percent, correspondingto the corporate tax rate in Sweden. The provisions madein 1997 to cover costs related to the termination of themanufacturing of regional aircraft may in principle notbe claimed as tax deductions before the point in timewhen the expenses are incurred. This has been taken intoconsideration when calculating the deferred taxes. Adeferred tax asset of net SEK 866 million was reported onthe balance sheet .

36 I Saab Group


OUTLOOK FOR 1998The operations in 1998 and 1999 will be characterized bycontinued focus on the Gripen program throughdeliveries and further development of the aircraftaccording to the contract with the FMV. The Groupintends to deliver 18 Gripen aircraft annually to the FMVin 1998 and 1999, respectively. Significant efforts withregard to the export of the Gripen will be made throughfurther development and marketing of the exportversion. Costs in 1998 related to the export efforts will besignificantly higher than the corresponding amount ofSEK 63 million in 1997.

Other units within Military Aerospace will alsocontinue to have a strong relation to the Gripen.

Training Systems is expected to continue to have astrong position within its operational sphere althoughthe total market in which Training Systems is active isexpected to decline.

Combitech’s operations will primarily be directed tothe development of existing companies and to workactively to facilitate spin-offs from the core businesses inSaab.

Saab reported an operating income amounting toSEK 870 million in 1997, of which SEK 313 million wasrelated to the reversal of loss risk reserves for the GripenBase Contract. Operating income exclusive of suchreversal amounted to SEK 557 million. In 1998 thedevelopment efforts relating to the Gripen exportversion will increase significantly compared to 1997. Atthe same time, the Company expects income inCombitech to improve significantly compared to 1997since the income in 1997 was affected by losses in thesubsequently divested IT companies. The Companyexpects Saab’s operating income in 1998 to be in linewith the operating income in 1997, exclusive of abovementioned reversal of loss risk reserve. See also “–FutureExports of the Gripen”.

In 1998, the production of Saab 340 and Saab 2000will gradually decrease and cease by mid-1999 when thelast aircraft in the order book will have been delivered.In connection with the decision to discontinue theproduction of regional aircraft, extensive provisionswere taken to cover the losses generated by theremaining production, expected costs relating to thediscontinuation of production and ongoing CustomerSupport activities for the existing fleet of aircraft. Theprovisions have been calculated so that the RegionalAircraft activities going forward are not expected tonegatively affect the financial performance of the Group.

Regional Aircraft’s operating income is expected to

be zero in 1998, taking the provisions into consideration.The operating income in 1997 before items affectingcomparability of previous year was SEK –553 million.

Following the decision to cease production ofregional aircraft, SAFG’s leasing portfolio has a finitelife. In view of the business’ finite term, the Companydecided to take a write-down on future operations ofSAFG, adjusting the book value of the portfolio to itsestimated market value. On December 31, 1997, suchprovisions were made and in addition, SEK 1,500 millionof capital was contributed to SAFG. The return on theinvestment in SAFG will be generated by: (i) an interestincome on the capital contribution to SAFG of SEK 1,500million; and (ii) a market rate return on the assets of theportfolio over its life through reversals of provisions inevent that the operations develop in accordance with orbetter than assumed. See “Actions Relating to RegionalAircraft and Saab Aircraft Finance Group (SAFG)”.

The operations in SAFG are expected to result in theparent company Saab AB receiving an income reflectinga market rate interest earned on the capital contribution,which amounts to SEK 1,500 million. Operating incomebefore items affecting comparability in 1997 was SEK–212 million.

The operating income of the Group in 1997 amountedto SEK –5,316 million. In light of the above mentionedfactors, the Company expects the operating income ofthe Group to improve significantly in 1998.

The Group’s operating income before items affectingcomparability in 1997 was SEK 105 million.

The net financial items of Saab refer to all interest-bearing assets and liabilities exclusive of those reportedin SAFG. Consequently, the net of financial income andexpenses regarding Regional Aircraft are included. Theallocation of interest-bearing liabilities and assets toRegional Aircraft is an internal allocation within theparent company Saab AB. The interest-bearing liabilitiesand assets with regard to Saab, Regional Aircraft andSAFG are shown on the balance sheet on page 17.Interest-bearing assets are reported under “Cash andmarketable securities”. Interest-bearing liabilities consistof “Provision for pensions” and “Short- and long-termborrowing”. The Group received an average return onliquid funds of 6.2 percent in 1997 (7.9 percent in 1996).Declining market interest rates and a lower average netliquidity are expected to affect the net financial itemsnegatively in 1998.

The Group’s interim report for the first quarter of1998 is provided on pages 111–115.

Saab Group I 37

THE AEROSPACE INDUSTRY

The aerospace industry is mainly grouped in the sectorsof military aerospace, civilian aircraft and space.Governments, civilian transportation companies andusers of satellites, such as space research agencies andcompanies in the telecommunications and informationindustry, are the industry’s principal customer groups.

The military aerospace industry comprises primarilyaircraft, missiles, avionics and electro-optical systemstypically acquired by governments. The civilian aircraftindustry primarily involves passenger aircraft and otheraviation aircraft provided to the transportation industry.The civilian space industry comprises the provision ofsatellite equipment and satellite launchers andequipment for information transmission to satellites forthe telecommunications and information industry. Thefollowing discussion is limited to the military aerospaceindustry.

THE MILITARY AEROSPACE INDUSTRY

The military aerospace industry combines the capital-intensive nature of heavy equipment with sophisticatedtechnology. In particular, the products often require longdevelopment and production cycles and large initialinvestments. Further development of existing productsis therefore crucial to exploit fully the market potentialof an existing design. Due to the increasing economies ofscale caused by increasing development costs andhigher level of technological competence required, themilitary aerospace industry is characterized by highbarriers to entry.

Aircraft and weapon systems are becomingincreasingly complex and expensive to develop,resulting in a higher level of technical and political riskin the development of new systems. Consequently,fewer programs are being launched. Also, a technologyshift is occurring, with electronics and informationtechnology becoming the most prevalent and value-adding components in future weapon systems. Today,key features of modern weapon systems include sensorand guidance capability.

Defense industry companies are typically reliant ontheir domestic markets for development, growthprospects and profitability, and it is generally difficult topenetrate the export market without first having asignificant domestic market. However, export marketshave proven an important source of revenues for defensecompanies, notwithstanding the fact that sales of leading-edge military equipment typically can be restricted bynational security considerations. Furthermore, offset

arrangements are often required as a precondition tobeing awarded an export contract. Under such offsetarrangements, the export contract is awarded subject tocommercially viable reciprocal orders being placed tothe local industry in the form of sub-contracts for theproduction of that particular product, or technologytransfers. Defense companies attempting to export theirproducts usually benefit from co-operation agreementswith other companies that can economically place orderswith the country targeted. Furthermore, internationalco-operation is important in military sales in foreignmarkets. Also the political aspects generally play a majorrole in the final decision regarding what country is to beawarded an export contract.

The military aerospace industry hinges to a largeextent on the size of defense spending. A recent majortrend in the industry has been the reduction in defensebudgets in many western countries. Reduced militarytensions combined with growing political pressures tobalance federal budgets have diminished investments inmilitary infrastructure.

Such reductions have direct implications on thestructure of the defense industry. The increasingcomplexity of the aircraft and weapon systems and therecent defense budget reductions made by the U.S.government have contributed to a wave of restructuringand consolidation activity in the United States. Therestructuring process is still continuing in certain areas.Subject to the completion of certain announcedtransactions, the U.S. defense industry has come to bedominated by three large defense companies: Boeing,Lockheed Martin and Raytheon. The U.S. governmenthas generally been supportive of such consolidationtrend, and has agreed in several instances to reimbursemerger-related restructuring costs in exchange for costsavings and price reductions in the future. There is alimit to consolidation, however, with the U.S.government carefully investigating areas of too muchconcentration and excessive vertical integration.

The western European defense industry is facingsimilar pressures. Western European governments arereducing defense budgets both as a consequence of theend of the cold war and as a general attempt to complywith European Monetary Union criteria. At the sametime, the western European industry remainsfragmented with several national “champions”. WesternEurope has a lower defense budget than the UnitedStates, but more than twice as many prime contractors ofdefense material.

In order to remain competitive in the future, inparticular in relation to the U.S. industry, the defense

Industry Overview

38 I Saab Group

INDUSTRY OVERVIEW

industry in Europe will need to undergo a restructuring.The European industry has already collaborated oncertain multi-national projects, including developmentand production of the Eurofighter aircraft (see below).Any restructuring of the European industry, however, islikely to pose particular challenges. The Europeanmilitary market remains relatively fragmented and eachcountry has its own specifications and standards. Thetrend is to move towards common requirements,however little substantive progress has been made thusfar. There is currently no unified European defensepolicy and no common European procurement authorityfor defense products. Political considerations, nationalinterests, and the ownership situation of the maindefense companies are likely to impact the shaping offuture alliances and mergers.

INTERNATIONAL COLLABORATIONS ONAEROSPACE AND DEFENSE

The increasing complexity of aerospace and defenseproducts has reduced the number of large nationalaircraft programs. The Gripen and the French Rafale arethe only West European national fighter programscurrently under development or in production.

Although lagging the U.S. industry in terms ofrestructuring, the European aerospace industrystructure is already characterized by multi-nationalcollaborations on both the prime and subcontractorlevel. The Eurofighter is the most recent example of

multi-national collaboration on military aircraft, and it isbeing jointly produced by British Aerospace, Germany’sDASA, Spain’s CASA and Italy’s Alenia. Developmentand production of the aircraft is distributed between thefour companies in proportion to the respective country’saircraft orders.

The Airbus consortium is a multi-nationalcollaboration in the civil aircraft industry. Theconsortium comprises France’s Aerospatiale, DASA,British Aerospace and CASA.

MILITARY AIRCRAFT

Many nations have traditionally attached greatimportance to their air force and recent years’ conflictshave highlighted the importance of air combatsupremacy. Defense departments in the world devote asignificant portion of their defense expenditure tomaintain state-of-the-art air forces and related weaponsystems, through orders for new aircraft and upgradesof existing aircraft.

Only a handful of countries today have companieswith the capacity to develop, manufacture and support acomplete military aircraft system. The United States haslong been a strong producer of aircraft systems, withLockheed Martin and Boeing dominating their homemarket. Western European manufacturers with totalsystem integration capability include Saab, BritishAerospace and France’s Dassault.

Saab Group I 39

INDUSTRY OVERVIEW

Industry HistoryThe first generation of jet fighters were straight-wingaircraft such as the U.S.’s F-80 and F-84, FH-1 and FJ-1and U.K.’s Vampire and Meteor. These aircraft weredeveloped in the 1940s. Comparable Soviet aircraftincluded the Yak-15 and the MiG-9. Later firstgeneration aircraft such as the F-86, MiG-15 and the Saab29 “Flying Barrel” incorporated the results of Germandevelopment progress during the Second World Warand improved aerodynamic design.

Soon after the Korean War, in the 1950-60s, the secondgeneration jet fighters capable of achieving supersonicspeeds in flight was introduced, including the F-105, theMiG-21 and the Draken.

The 1970s saw the emergence of the third generationof fighters, including the F-14, F-16 and the F-18 in theUnited States and the Mirage F-1, Tornado and theViggen in Europe. In the 1980s, the Mirage 2000 in

Europe and the MiG-29 and Su-27 launched in the SovietUnion. Distinguished by greater capability andflexibility than their predecessors, these aircraftcontinued the move from single role to multi-role fighteraircraft.

The fourth generation of aircraft is based on digitalelectronic steering systems that govern their flightpatterns. Depending on the type of weapon load carried,the fourth generation fighter can change role whileairborne, in contrast to earlier generation fighters. Othercharacteristics for the fourth generation of jet fighters areincreased target seeking, data handling andcommunication capability, greater weapon capacity aswell as lower operating costs. The fourth generation offighter aircraft includes the Gripen, the Eurofighter, theFrench Rafale and the U.S.’s F-22. Today the Gripen isthe world’s only fourth generation fighter aircraft inoperational service.

1940 1950 1960 1970 1980 1990 2000 2010 2020

1st 2nd 3rd 4th

F-100F-104

F-105

F-4

F-5 F-15A-10

F-16 F-117 F-22 JSF

A-4F-4

F-14

MiG-15MiG-19

MiG-25MiG-23

MiG-27MiG-29

Su-27

Meteor

VampireHunter

Tornado

EF 2000 FSF

FOAS

Mystere

Mirage III

Mirage F-1

Mirage 2000 RafaleBarrelLansen Draken Viggen

Sweden USM/USMCRAF/RN Russia/USSRFrance USAF

Gripen

F-86

Lightning

JSF

MiG-21MiG-17

F/A-18

Military jet aircraft have been developed in four generations.

Source: Saab The picture illustrates the time at which the respective aircraft was put in service for the first time, alternatively when it is planned to be put in service.

40 I Saab Group

BUSINESS OVERVIEW

The Saab Group develops,manufactures and sells arange of sophisticatedmilitary defense andaerospace equipment as wellas other high technologyproducts for civilian use.Since its establishment in1937, Saab has supplied theSwedish Armed Forces withfighter aircraft and othermilitary equipment, includingthe Saab 29 “Flying Barrel”,the Lansen, the Draken, theViggen and most recently thecombined fighter, attack and reconnaissance aircraft theGripen, which is the world’s only fourth generationfighter aircraft in service. Saab’s other products andservices, which are also sold to customers worldwide,primarily include missiles, electro-optical, airborne andelectronics systems, satellite equipment, militarytraining systems radar-based level-gauging systems,development software and customer support forexisting Saab-manufactured military and civilianaircraft.

The Board of Directors decided in December 1997 todiscontinue the manufacturing of the Group’s regionalaircraft, the Saab 340 and Saab 2000, during 1999 as aresult of worsening market conditions and significantlosses in its activities in recent years.

The Saab Group today comprises Saab, RegionalAircraft and SAFG. Saab, which comprises the businessareas Military Aerospace, Space, Training Systems,Commercial Aircraft and Combitech, focuses primarilyon the core businesses primarily within the defense andspace industry, civilian applications of militarytechnology, collaborative programs with regionalaircraft manufacturers and Customer Support to theexisting fleet of 500 Saab-manufactured regional aircraft.Operations going forward concerning the remainingmanufacturing of the regional aircraft Saab 340 and Saab2000 are conducted by Regional Aircraft. SAFG managesthe Group’s leasing portfolio of approximately 300 Saab-manufactured aircraft.

STRATEGY

Products and marketsContinue supplying theSwedish Armed Forces withleading productsOver the years, Saab hasprovided the SwedishArmed Forces with a num-ber of internationally com-petitive products, such asthe Gripen. The Gripenorders include productionand development through2007 and Saab also expectsorders for future upgradesof the aircraft as well as its

embedded electronics systems and weapons systems.The backlog for deliveries to the Swedish Armed

Forces represents stable, long-term revenues in futureyears. Saab will make major efforts not only to fulfilpresent orders from its biggest customer with highquality, but also to acquire further orders.

Actively pursue export opportunities for the Gripen and otherproductsIn addition to the Swedish orders, Saab is activelyexploring export opportunities for the Gripen. Duringthe coming 10 to 15 years, the Company expects thatover 2,000 fighter aircraft will be in demand in marketsaccessible to the Gripen.

Saab’s goal is to capture at least 20 percent of this mar-ket. Export of the Gripen and other products offer asignificant opportunity for future revenues for decades.The joint venture with British Aerospace is an importantstrategic advantage in this context.

Maintain market leadership in key niche marketsSaab has developed a number of highly competitiveproducts of which the RBS 15 anti-ship missile is one ofmany examples.

Saab intends to remain one of the market leaders inthe segments in which it is operating and to actively seekgrowth opportunities. Dynamics, Space and TrainingSystems are examples of areas which offer interestingopportunities.

Business Overview and Strategy

Gripen.

Saab Group I 41

Competence and TechnologiesTake advantage of systems integration skillsThrough its systems integration skills, Saab is one ofonly a handful of companies in the world capable ofdeveloping complex military aircraft systems.

Saab intends to maintain and enhance itscompetences and also seeks to apply these capabilities toother product areas.

Seek continued technological excellenceSaab is a company with highly skilled employees andlarge research and development investments in relationto sales. Approximately 2,000 employees work withdifferent forms of research and development. Coopera-tion within Saab as well as with other companies anduniversities provides for continued technical excellence.

Fully exploit information technologyInformation technology is becoming increasingly impor-tant in the aerospace industry. This is already obvious inbusiness areas such as Space, Training Systems andCombitech. Saab develops substantially all of the com-puter software used in Saab’s products, and is therebyone of the major developers of computer software inSweden. The role of information technology in MilitaryAerospace will also be more important in the future,adding further customer value to systems already deliv-ered by Saab as well as those to be delivered in thefuture.

Value creation through restructuring and spin-offs

Actively participate in restructuring of the aerospace anddefense industryThe international aerospace and defense industry isgenerally perceived as being in need of restructuring.The Company believes Saab is well-positioned to takepart in such a process. The joint venture with BritishAerospace, and the recently announced share sale andpurchase agreement, pursuant to which BritishAerospace will acquire shares corresponding to35.1 percent of the share capital and 35.0 percent of thevoting rights in Saab AB subject to appropriateauthorities having given relevant approvals to the saleand the shares of Saab AB having been listed on theStockholm Stock Exchange, together with Saab’sparticipation in other international joint ventures,represent important steps in this direction.

Strengthen growth and profitability through commercializa-tion of defense technologySaab has during the years been able to commercializedefense technology for civil markets and is increasing itsefforts in this field further. Value creation from suchspin-offs is part of Saab’s strategy.

BUSINESS OVERVIEW AND STRATEGY

42 I Saab Group

MILITARY AEROSPACE

(in SEK millions, unless otherwise stated) 1993 1994 1995 1996 1997

Order bookings 1,813 1,746 1,917 2,506 11,405 Gripen, number of aircraft 64Order backlog 17,468 16,894 16,345 15,053 21,969 Gripen, number of aircraft 138 135 126 112 156 Sales 2,238 2,337 2,698 3,471 4,480Gripen, number of aircraft 1 4 9 14 20 Operating income 393 320 425 557 586Operating margin 17.6% 13.7% 15.8% 16.0% 13.1%Capital expenditures 178 199 177 195 152 Average number of employees(1) 4,305 3,893 4,938 4,717 3,614(1) 1993 to 1996 include employees within Collaborative Programs.

The Business of Saab

Military Aerospace comprises the business units Gripen,Dynamics, Avionics (49.9 percent owned), GeneralMilitary Programs and Future Products & Technologyand CSM Materialteknik AB (50.0 percent owned).Military Aerospace is the largest business area in theGroup. Sales of Military Aerospace in 1997 were SEK4,480 million, accounting for 44.4 percent of Group sales.

GripenGripen is the largest business unit in Saab, with justunder 2,000 employees, nearly all of whom are based inLinköping. The unit is responsible for the developmentand production of the Gripen aircraft for both theSwedish Armed Forces and future export customers.

The development of the Gripen has its origin in 1980,when the Swedish parliament resolved to replace theViggen aircraft with a smaller and lighter Swedish-developed fighter, attack and reconnaissance aircraft,suited to Swedish conditions. The consortiumIndustrigruppen JAS AB (“IG JAS”) was formed inresponse to a proposal with regard to the developmentof a new combat aircraft to submit to the Government.Today, Saab AB, Volvo Aero AB, Telefonaktiebolaget LMEricsson, Avionics and Celsius Aerotech AB each hold 20percent of IG JAS, although Saab manufactures 65percent of the Gripen. See “Major Agreements”.

In 1982, the FMV placed a formal order for thedevelopment of the Gripen, including five test aircraftand delivery of a first batch of 30 aircraft and associatedsupport systems such as, for instance, training and spareparts. The Base Contract was completed at the end of1996. In 1992, the FMV signed an agreement with IG JASfor the development of a two-seater version of theGripen (the JAS 39B) and for delivery of the 110 aircraftcomprising Batch 2, of which 14 were two-seaters, andtheir related support systems. In 1997, the FMV orderedthe 64 aircraft comprising Batch 3, of which 14 were two-

seaters, and their related support systems. A furtherdevelopment program for the Gripen was also enteredinto with the FMV in 1997.

The first Gripen exercise involving the full militaryorganization was carried out in September 1997, and thefirst squadrons were declared operationally deployedshortly thereafter. Reflecting the fact that the Gripen hasto date only been operated by the Swedish Air Force, ithas no live combat experience. The Swedish Air Forcepresently has 50 Gripen in active service. Deliveries ofBatch 2 will continue until 2003, and delivery of Batch 3is expected to be completed by 2007.

The arrangements with the FMV determine the risksto be borne by each of the parties in connection with thedomestic Gripen program. Generally, the FMV bearsrisks related to changes in foreign currency exchangerates and inflation, changes in Swedish law,consequences of other actions by the Swedish

Gripen test aircraft from cockpit of two-seater Gripen.

Saab Group I 43

government and consequences for adverse changes inexport and re-export permits and licences. As theultimate contractor, Saab bears risks related to Gripen’sperformance targets, cost overruns and delays for itspart of the project. The Group bears a limited risk forthird party damages, and the FMV bears all risks abovesuch limitation.

The Gripen aircraft is capable of three types ofmissions: fighter, attack and reconnaissance. Dependingon the type of weapon load carried, the Gripen canchange roles while airborne, a capability that createsunique mission flexibility. The aircraft’s aerodynamicdesign, featuring a delta wing and movable canardwing, provides agility at various speeds and altitudes.The Gripen also has an advanced cockpit, a fuel efficientmodular construction engine and an auxiliary powerunit (APU). The aircraft’s main systems include anelectronic warfare system, advanced radar, datalinkcommunication system, triplex digital control system,and low signatures which means that the aircraft isdifficult to detect with radar, infrared search or visually.Although only half its size, the Gripen can carry thesame armament as its predecessor the Viggen.Furthermore, the Gripen features significantly reducedturnaround times between subsequent missions. Thetwo-seater version, a full capability combat aircraft, isused primarily for tactical and combat training andsecondarily for flight training.

The most important suppliers to the Gripen are theIG JAS partners and some systems suppliers in theUnited States and Europe, including General Electric,

which is a sub-supplier of the engine to Volvo;Sundstrand, which supplies the auxiliary power unit;Kaiser Electronics, which is a sub-supplier of the headup display to Avionics; Lockheed Martin, whichsupplies the flight control system computer hardware;and Honeywell which supplies the inertial navigationsystems and radar ultimeter. European suppliers includeMartin Baker, Dowty, Intertechnique and Mauser. TheGroup has long-term contracts with all major suppliersto the Gripen.

The Gripen Export Program Joint Venture with British AerospaceExport sales were not a core activity of the militaryaircraft business of the Group until this decade.Although the Viggen was never exported, Saab exportedthe Draken, the Viggen’s predecessor, delivering 51aircraft to Denmark, 12 new and 35 used aircraft toFinland and 24 upgraded aircraft to Austria.Approximately 40 Saab 105 were also exported toAustria. The international market demand for aircraft inthe Gripen’s size and price category is expected to growin the next decade as countries confront smaller defensebudgets.

In 1995, Saab AB and British Aerospace entered into along-term strategic joint venture agreement to adapt,manufacture and market the Gripen internationally. See“Major Agreements”. An Anglo-Swedish team ofengineers has defined specifications for the Gripenexport version, taking into account British Aerospace’sextensive knowledge of world export markets and

THE BUSINESS OF SAAB

Final assembly of the Gripen.

44 I Saab Group

customer requirements. In addition, the two parties areengaged in the development of future technologiesthrough joint programs and technology exchanges andthe exploration of further collaboration opportunities inareas of common interest and respective fields ofactivity. The joint venture agreement between Saab ABand British Aerospace is approved by the Swedish andBritish governments and by the EU Commission.

Pursuant to the joint venture agreement, Saabcontributes the Gripen aircraft, which complementsBritish Aerospace’s existing product range, while BritishAerospace contributes marketing, technical and otherresources. Income from any export sales will be sharedequally after deduction of a certain fee to Saab. Eachparty will bear the commercial and other risks inconnection with the specific work carried out by theparty. Furthermore, Saab has also agreed to pay the FMVroyalties on export sales of the Gripen, that IG JASagreed to pay pursuant the development agreementdated June 26, 1997. See “Major Agreements”.

On April 29, 1998, British Aerospace entered into anagreement with Investor to acquire sharescorresponding to 35.1 percent of the share capital and35.0 percent of the voting rights in Saab AB for SEK 3,500million subject to appropriate authorities having givenrelevant approvals to the sale and the shares of Saab ABhaving been listed on the Stockholm Stock Exchange.See “Share Capital and Ownership Structure – TheShareholders’ Agreement between Investor and BritishAerospace ”.

The Company believes that the combination of lowoperating costs and low infrastructure investmentsrequired for using the Gripen results in a considerablylower life cycle cost for the aircraft compared withearlier generations of combat aircraft and certain of itsexisting competitors. Furthermore, a modular, fuel-efficient engine incorporating a built-in test andmonitoring system for on-site maintenance considerablyincreases the mission availability of the Gripen whilereducing total operating costs.

Market and CompetitionIn markets believed to be accessible Saab and BritishAerospace estimate that there will be a demand for over2,000 combat aircraft in the next 10 to 15 years. Thisestimate is based on a country-by-country review and islimited specifically to orders for which the Gripen couldrealistically compete and which would be acceptablefrom a political perspective. For example, countries withdomestic suppliers such as the United States, orcountries that due to political considerations would not

be viable export markets are not included. See “SpecialConsiderations – Importance of the Gripen ExportProgram”. The estimate relates to approximately 50countries which Saab and British Aerospace expect toprocure combat aircraft for either replacement orincrease in the capacity of air forces. Saab and BritishAerospace have set as an objective to capture at least 20percent of the addressable market, which would result inthe receipt of orders for approximately 400 aircraft overthe coming years.

In addition to aircraft capabilities, the decisionrelated to the purchase of military aircraft is based on anumber of factors, such as what aircraft is currentlyused, various political considerations, offers to pursuetraditional offset arrangements and customer financingsupport. The Gripen is marketed internationally by bothSaab and British Aerospace and can benefit from thesupport of both the British and Swedish governments.

In their international marketing campaigns, Saab andBritish Aerospace aim to offer traditional offsetarrangements as well as direct investments in thecustomer country’s industry. In this respect, Saab andBritish Aerospace benefit from their respective globalnetworks and their relationships with internationalcompanies.

Another critical factor in the competition for exportcontracts is the financing solutions offered to thecustomer. Saab and British Aerospace have the ability,with the support of external parties, to offer financingsolutions and payment terms tailored to the client’sneeds.

Potential clients are identified through a selectionprocess based on the analysis of the clients’ existing fleet,the expected requirements, announcement of concretesteps for a procurement process as well as political


Draken

Jaguar

MiG-21/F-7

F-5E Tiger 11

F-16A-5/Q-5

Hunter

KFIR/A-4 Skyhawk

Mirage F-1Mirage 11/5/50

F-5A Freeedom Fighter

OtherCompletion, upgrade and following-up purchases

Combat Aircraft Expected to beReplaced Within the Next 10 to 15 Years

Source: Saab

Saab Group I 45

considerations. In addition to ongoing marketingactivities worldwide, targeted marketing and salesefforts are presently being conducted towards severalcountries which have issued formal requests forproposals or requests for detailed information on theGripen. The Company expects such countries topurchase between 300 and 450 aircraft, within anapproximately five year period.

The Gripen will compete directly with third as wellas fourth generation aircraft. The United States, Franceand Russia have aircraft manufacturers whose productscompete directly with the Gripen. The third generationfighters F-16, produced by Lockheed Martin, and theMirage 2000-5, produced by Dassault, are comparable insize to the Gripen and are considered direct competitors.The Company believes that as the only fourth generationfighter aircraft currently in service, the Gripen has, inaddition to lower life cycle and maintenance costs,technological advantages and larger potential for furtherdevelopment over certain of its third generationcompetitors. Boeing’s F-18, a third generation aircraft, ismuch larger than the Gripen, has a greater weapon loadcapability and operational radius and is most often not adirect competitor to the Gripen. The Russian MiG-29 hasan older design and relatively high operational costs butthere are also more modern Russian aircraft such as theSu-27, -30 and -35. The fourth generation fighters such asthe Eurofighter 2000 and the Rafale are not yet in servicebut are expected to cater to customers with differentoperational requirements. The U.S. Joint Strike Fighter

project is still in development, but will likely be a strongcompetitor to the Gripen after 2010, when it is estimatedto become operational. Future plans for development offighter aircraft in Europe include the Future OffensiveAir System and the New European Combat Aircraft, butboth projects are still in the feasibility study phase, andthe aircraft are not expected to be operational before2020.

DynamicsDynamics is an application-oriented company offeringhigh technology products tailored for air force, navaland army requirements. Its primary areas are guidedweapons, electro-optical systems and relatedsubsystems and equipment for these and externalsystems.

The current configuration of Dynamics was createdin 1997, when Ericsson Microwave Systems’ optronicsoperations was acquired and merged with the guidedweapons and optronic systems of the Group. AlthoughDynamics has been successful in exporting certain of itsproducts, the FMV remains its primary customer withover 50 percent of sales in 1997. During the last fiveyears, the most important customers were Sweden,Finland, Belgium and Australia. Dynamics hasapproximately 700 employees and operations arelocated in Linköping, Jönköping and Gothenburg.

Guided weapons are missile systems equipped withadvanced target seeking which give systems fire-and-forget capability. One of Dynamics’ major products is


Dynamics’ anti-ship missile RBS 15 which is, among other things, offered as armament for the Gripen.

46 I Saab Group

the RBS 15 anti-ship missile system, which is integratedwith the Gripen armament and has also been exported.The Company believes that significant future potentialexists for RBS 15, and Dynamics is currently developinga version to meet new international requirements.

RBS 15 is marketed in several countries for thearmament of ships but also as armament of the exportversion of the Gripen.

The STRIX is an anti-armor infrared (the infraredwavelength area) guided projectile developed for trenchmortarguns. The STRIX is in service with the SwedishArmy and has been ordered by the Swiss Army.

Dynamics is also participating in collaboration withthe European missile industry in connection with thedevelopment of the IRIS-T and Meteor in response todemand for more modern types of short- and medium-ranged missiles. A decision on further development ofthese missiles is expected in 1998 or in 1999.

Dynamics also develops and manufactures a range ofelectro-optical systems based on television, infrared andlaser technology. Products include passive systems forsurveillance, target observation, target indication andtarget seeking. Present products include anti-air firecontrol systems, land-based passive surveillance systemto detect aircraft and helicopters, helicopter laser systemfor sea mapping, helicopter observation sight and thehelicopter observation sight integrated with anti-tankmissiles intended to combat tanks. Products have beenexported to several countries, including Belgium,Denmark and Brazil.

Subsystems and equipment offered by Dynamicsinclude navigation systems, laser-based distancemeasuring equipment, infrared camera equipment andequipment for electronic warfare, both for the Group’sown systems and external customers. Products areexported to a number of countries.

Market and CompetitionSweden is the primary market for all products andDynamics’ product development has historicallyfocused on the needs of the Swedish Armed Forces whenit comes to product development. Internationalcollaboration is however an important element inDynamics’ future projects, and the unit markets anumber of products abroad which meet internationalrequirements.

Competitors in the international anti-ship missilemarket include the U.S. Harpoon and French Exocet. Inthe electro-optical sector, the main competitors toDynamics are the U.S.’s Boeing and France’s Sagem andSFIM.

AvionicsAvionics develops and produces electronic warfaresystems, display and reconnaissance systems, electronicand mechanical equipment and components. Avionics isone of the five IG JAS partners and collaboratesextensively with other business areas within Saab andEricsson. Avionics customers are primarily the FMV andother companies within the Group, although certainequipment, such as jamming pods, is exported. About650 persons are employed at Avionics facilities in Kista,Linköping and Jönköping. Sales of Avionics, which arenot consolidated in the Group, amounted to SEK 850million in 1997, of which SEK 650 million were externalto the Group.

Avionics was formed by Saab AB and EricssonMicrowave Systems in 1997 through the merger of thetwo companies’ existing avionics operations. Saab ABowns 49.9 percent of Avionics, and the remaining 50.1percent is held by Ericsson Microwave Systems.According to the terms of an agreement between Saaband Ericsson Microwave Systems, the majority interestin Avionics will be held by Saab AB after January 1, 1999.See ”Major Agreements“.

Avionics’ products include the EWS 39 and otherequipment for the Gripen, which is designed to handleoff-board, integrated and pod-mounted electroniccountermeasure systems. Avionics also produces cockpitdisplays and panel controls for the Gripen. The latestsystem, EP-17, includes four displays: a diffractionoptics head-up display, a flight-data display, a horizontalsituation display based on a digital map and a multi-sensor display. Avionics also develops and manufacturesa number of electrical and mechanical equipment for theGripen, including computers, control units andservoactuators. In addition, Avionics provides servicesin the area of electromagnetic technology such asanalysis, design support, and evaluation subsystems aswell as complete systems. Other services include radarcross-section calculations and measurements.

Market and CompetitionThrough Dynamics and Avionics, the Group’s positionin the reconnaissance and electronic warfare market hasbeen strengthened in Sweden. International competitorsin the reconnaissance sector are Germany’s DASA, theU.K.’s Vinten, Israel’s ELOP and the U.S.’s Loral. InSweden, the market for electronic warfare is dominatedby Celsius in the passive system sector, while Avionics isa leader in the active system sector. Internationalcompetitors include the U.K.’s GEC Marconi, France’sThomson, and the U.S.’s Lockheed Martin.


General Military Programs, Future Products &Technology and CSM MaterialteknikGeneral Military Programs service the requirements ofthe Swedish Armed Forces and export customers forfurther development, modifications, maintenance andqualified services for the Lansen, the Draken, the Viggenand the Saab 105 aircraft, all of which are still inoperation in Sweden and abroad. In addition to thecontinuous updating of reference material and sale ofspare parts, the business area focuses on the upgradingof the Viggen by introducing certain weapon systemsand other equipment developed for the Gripen. Otheroperations include modifications of the two-seaterversion of the Viggen and the Saab 105. The Viggen wasfirst delivered in 1971 and has been updated andupgraded on a continuous basis. The Viggen aircraft stillconstitutes the majority of aircraft used by the SwedishAir Force. A significant portion of future MilitaryAerospace income is expected to be derived from theupgrading and development programs. GeneralMilitary Programs has approximately 120 employees.

Future Products & Technology conducts long-termresearch and technological development relating to theaircraft operations of the Group. Activities comprise alarge number of technical areas, including advanceddesign and concept studies for new products,development and support for methods, software and tools for product development and production.Products are often developed in collaboration withnational and international research organizations.Future Products & Technology has approximately 320employees.

CSM Materialteknik is a company specializing inmaterials technology and is 50 percent owned by SaabAB and 50 percent owned by Celsius MaterialteknikCMT AB, although Celsius Materialteknik CMT AB hasan option, exercisable during a certain period in 1999, toacquire one percent of the company’s shares for theirnominal value. The unit offers service and developmentin materials and process technology, analyses,investigations, product and materials testing, chemical,surface and environmental technology, and training.CSM Materialteknik has approximately 115 employeesbased in Linköping.


Saab Group I 47

48 I Saab Group


SPACE


Order bookings 305 355 447 593 605 Order backlog 312 356 479 663 674 Sales 302 312 383 467 594 Operating income 21 35 35 45 47 Operating margin 7.0% 11.2% 9.2% 9.6% 8.0%Capital expenditures 13 23 30 30 43 Average number of employees 361 370 450 529 524

Space develops, manufactures and markets equipmentfor the international space industry. The presentconfiguration of the business area was established in1992, and it is 60 percent owned by Saab and 40 percentby Ericsson Microwave Systems. A long-term focus onelectronics, mechanics, computer and antennatechnology has made Space one of the world’s leadingproducers of equipment for satellites and launch rocketsin its selected niche markets. By combining thecapabilities of the Group in aerospace and defense andof Ericsson in telecommunications, Space is well-positioned to enhance its competitiveness in theinternational market for space equipment and topenetrate profitable niche markets. The business areaalso collaborates with other entities in the Group,particularly in the area of advanced mechanicalproduction.

Space’s main products include on-board computers,data handling systems, antenna and antenna systems,microwave electronics, satellite separation systems andguidance systems for sound rockets. Space’s primary

customers are ESA, Alcatel-Aerospatiale, Matra MarconiSpace/DASA, Alenia and Hughes.

Space has approximately 600 employees at facilitiesbased in Gothenburg and Linköping, Sweden andVienna, Austria. Over half of Space’s employees haveMasters or Doctorate degrees. Sales in 1997 amounted toSEK 594 million, corresponding to 5.9 percent of totalsales of the Group.

Fault tolerant on-board computers built by Space are used for rocket guidance and control, missionmanagement and altitude control computers,instrument control computers and digital signalprocessing. The currently produced third generationonboard computer is able to perform both diagnosticand corrective actions. In addition, Space has developedTHOR, a fault tolerant micro processor intended forspace computer applications requiring highperformance, high reliability, and a long life in thecosmic environment. Ariane 5, the fifth generationlaunch vehicle, is equipped with two Space computers.

Space’s data handling systems include, for example,systems for scientific, earth observation andtelecommunication satellites, such as Eutelsat II,Turksat, Arabsat, Sirius 2, Nahuel, Thaicom and theESA/NASA-built satellite SOHO. In addition, Space hassupplied antennas for most of the European scientificsatellites since 1970 and antennas for earth observationprograms such as the French SPOT program and ESA’sERS program, although antennas for commercialsatellites now form the major part of deliveries. Theantennas for the ICO satellite mobile telephone systemare designed and produced by Space.

Space is furthermore, a world leader in separationsystems for launchers and satellites for Arianespace’sAriane, Lockheed Martin’s Atlas, ILS/Krunischev’sProton, Boeing’s Delta and sub-satellite and experimentseparation systems and also supplies guidance systemsfor NASA’s sounding rockets.

The Odin satellite.

Saab Group I 49

Market and CompetitionCarrier rockets, satellites and space vehicles areprimarily used for telecommunications, meteorologyand environmental monitoring, research into the solarsystem, various defense and peace-keeping applications.The largest markets for Space currently includegovernmental organizations such as ESA, NASA and theU.S. Department of Defense, international organizationssuch as Intelsat, Inmarsat and Eutelsat and privatetelecommunications-operators.

However, commercially-financed projects such aslaunch rocket operations and the manufacture oftelecommunications satellites offer the biggest growthopportunities for Space, constituting 35 percent of salesand 42 percent of orders booked in 1997.

The European carrier rocket Ariane accounts formore than half of all civilian satellite launches in the world. Other large operators in the market are the

U.S. Atlas and Delta rockets as well as the RussianProton.

Programs for broad-band communications satellitesin specific orbital patterns will provide Space withadditional opportunities for growth and development.

Companies in the space sector include large playerssuch as Lockheed Martin, Boeing, Alcatel, Aerospatiale,DASA, Thomson, Hughes, Matra Marconi, SpaceSystems, Loral and Alenia. Most of these companies arealso customers of Space in certain programs. WhileSpace has little competition in separation systems, itcompetes with other subcontractors in connection withother products. Main competitors include Canada’s Sparand the U.S.’s Raytheon in the market for antennas; theItaly’s Laden, the U.S.’s Honeywell and the France’sSextant in the market for on-board computers; andthe Canadian Comdev and the U.S.’s Raytheon inmicrowave electronics.


50 I Saab Group


Training Systems is a world leader in the field of militarytraining equipment, specializing in laser simulators,graphic simulators and target equipment for live firing.The business area’s laser simulator systems are designedto carry out true to life exercises in the field with existingweapons systems, increasing the effectiveness oftraining while reducing cost and impact on theenvironment. Graphics-based simulators rely on virtualsimulation used indoors or in the field for weaponstraining.

Systems created by Training Systems are used in over20 countries in Europe, North America and Asia.Training Systems’ three largest customers are thenational defense forces of the United States, the UnitedKingdom and Germany.

Training Systems has just under 300 employees basedat facilities in Huskvarna. Sales of Training Systems in1997 were SEK 668 million, amounting to 6.6 percent ofthe Group’s total sales. Over 94 percent of TrainingSystems sales were exported in 1997.

Training Systems’ most successful product is theBT46, a laser-based system, which can be used withdirect fire weapons. Training Systems’ BT46, which is

used for training military forces worldwide, is a two-way system consisting of a firing system and a targetsystem that simulates both the actual ammunition beingused and its effect on various types of targets. The U.S.Army has purchased over 1,000 BT46 systems to date. Alarge contract was also signed with the British Ministryof Defence in 1997 for simulators for the battle tankChallenger II. In addition, Training Systems hascontinued to strengthen its position as supplier to theGerman national defense with the signing of a contractregarding development of simulators for the Leopardbattle tank and the Luchs armored reconnaissancevehicle.

Training Systems also designs and manufacturesgraphic simulators which use digitalized scenarios ofactual environments with three-dimensional movingtargets and authentic sound reproduction. The TrainingSystems’ BT61 family of graphic simulators is used forgunnery and decision training and can be used withvarious types of weapons systems.

Training Systems is one of the world’s leadingsuppliers of target equipment for live firing practice. Itsmain target equipment customers include the armedforces of Norway, France and Denmark. In 1997,Training Systems signed a contract with the Norwegiangovernment for the delivery of target equipment duringthe year 2000, which is the largest single contract interms of sales for target equipment ever signed byTraining Systems.

Market and CompetitionAlthough the military training equipment market ispresently narrowing, there are niches with a growingdemand which in the case of Saab may compensate, forthe decline in other areas. One such niche is trainingcenters for qualified live outdoor training.

Competitors to Training Systems include the U.S.’sCubic Corporation and Lockheed Martin, France’sGiravion Dorand as well as Germany’s STN AtlasElekronik and ESW-Extel Systems Wedel.

TRAINING SYSTEMS


Order bookings 522 473 438 1,045 677 Order backlog 820 802 513 999 1,007 Sales 283 491 727 559 668 Operating income 41 122 172 115 156 Operating margin 14.5% 24.8% 23.7% 20.5% 23.3%Capital expenditures 15 25 16 24 51 Average number of employees 196 230 258 276 282

BT61 simulation.


COMMERCIAL AIRCRAFT(1)


Order bookings (2) 531 287 290 303 290Order backlog (2) 31 56 102Sales (2) 531 287 259 278 244Operating income (3) 3Operating margin 1.1%Capital expenditures 45Average number of employees 938(1) The operations were established as a separate business area on January 1, 1997.

(2) Includes external sales and sales to Regional Aircraft only.

(3) Income from external orders only.

After the decision to discontinue the manufacturing ofregional aircraft, Commercial Aircraft is focused onbecoming a direct sub-system supplier to large aircraftmanufacturers, concentrating on high value-addedactivities such as development and assembly withinareas of core competence.

Established in its present form in 1997, the operationsof Commercial Aircraft also comprise the production oftools, parts and assemblies for other business areaswithin the Group for both commercial and militaryproduction. Such production is divided into six mainsegments: machining, sheet metal, processes, composite,tooling and metal bonding. Potential future productsinclude outer wings, pax doors, tail cones systems andwing movables.

A large external customer for aircraft parts iscurrently Boeing, the world’s largest producer ofcommercial aircraft, with an extensive program rangingfrom the B737 to the B747. Current direct supplycontracts include the supply of wing tip panels,intercostals and crew doors for the B737 and various

wing parts for the B777. Commercial Aircraft will alsosupply metal bonding for British Aerospace aircraft. Inthe first quarter of 1998, Commercial Aircraft signed twocontracts with Aerospatiale regarding participation inthe Airbus A340 which comprises development andmanufacturing. Commercial Aircraft is also taking partof the feasibility study for Airbus A3XX, which is a largepassenger aircraft for up to 500 passengers.

Total sales in 1997 amounted to SEK 244 million, ofwhich SEK 200 million were to Regional Aircraft withinthe Group. Production for the military manufacturing isreported as part of the business area Military Aerospace.At year end 1997, Commercial Aircraft hadapproximately 1,200 employees.

As of January 1, 1998, Commercial Aircraft includesCustomer Support for airline operators of Saab 340 andSaab 2000 aircraft. The Customer Support includes thesupply of spare parts, training of technical personnel,and the production and updating of inspection, repairand maintenance manuals. Comprehensive support isalso available to assist airline operators in emergencysituations. Customer Support is based in Linköping butoperations are carried out worldwide. Going forward,Customer Support’s annual sales are expected toamount to approximately SEK 500 million.

Market and CompetitionAccording to Boeing 1997 Current Market Outlook, thegrowth of the aircraft passenger market is expected tocontinue at the rate of approximately five percentannually over the next 10 to 20 years, which wouldrequire the world’s passenger aircraft fleet to doubleover the next 20 year period. This increase reflects onaverage a need for the production of 600 new largeaircraft (more than 100 seats) and approximately 250new regional aircraft a year. At the highest subcontractorlevel there are some 20 companies with varying abilitiesand specialties, of which the largest are the Netherland’sFokker Aerostructures, the United Kingdom’s Shortsand Westlands.

Fusilage panel.

Saab Group I 51

52 I Saab Group


COMBITECH


Order bookings 397 509 807 1,020 1,356 Order backlog 210 262 377 455 781Sales 396 446 792 932 1,073

of which later divested operations 230 267 114Operating income –106 –31 –7 –159 –338

of which later divested operations 9 –109 –213Capital expenditures 20 11 23 30 91 Average number of employees 555 525 674 938 862

Combitech consists of a network of small to medium-sized high technology niche companies specializing in arange of fields such as level-gauging, electronics andcomputer software development.

Originally formed in 1983 from operations withorigins in the military or civilian aircraft arena,Combitech was founded to develop and market militaryand commercial applications for technologies originallyconceived by the Group for the aircraft business. Today,Combitech consists of nine companies: Saab MarineElectronics AB (“Marine Electronics”) Combitech

Electronics AB (“Combitech Electronics”), CombitechNetwork AB (“Combitech Network”), CombitechSoftware AB (“Combitech Software”), Pronesto AB(“Pronesto”), Combitech Traffic Systems AB(“Combitech Traffic Systems”), Saab Survey Systems AB(“Survey Systems”), IV Image System AB (“ImageSystems”) and Combitech Innovation AB (“CombitechInnovation”).

Combitech has approximately 800 employees atvarious facilities in Sweden. Combitech sales in 1997were SEK 1,073 million, amounting to 10.6 percent of theGroup’s total sales.

Combitech combines the small company’s flexibilityand closeness to the market with a large company’sresources through a network-based cohesiveorganization, concentrating on small and medium-sizedhigh-tech companies with high internationaldevelopment potential. Dynamics, Space and TrainingSystems, for example, are companies developed in Com-bitech.

During the last few years Combitech has experiencedoperating losses attributable to development costs inCombitech Traffic Systems and costs relating to certaininformation technology companies acquired during1994 and 1995. Combitech implemented a new strategyin 1997 aimed at actively searching for and exploitingideas for value enhancement through spin-off andgrowth opportunities from within the core business ofSaab.

Combitech also streamlined its structure by divestinga number of IT-companies, such as Combitech Nexus ABin 1996, Preseco Information Systems AB, InnovativVision AB and the operations in DocEye AB in 1997 aswell as Telelogic AB in January 1998. A major part of theCombitech operating losses in 1997 were attributable towrite-downs of assets in connection with thesedivestments. Combitech intends to continue to divestoperations in accordance with its current strategy.

The level-gauging system Pro, manufactured by Marine Electronics andprimarily used in chemical tankers.

Saab Group I 53

Marine ElectronicsMarine Electronics develops, manufactures and marketsradar-based level-gauging systems for tankers,refineries, tanker terminals and chemical industries.Marine Electronics was the first company in the world in1975 to devise radar marine level-gauging technique, atechnique more accurate than other forms of level-gauging. Marine Electronics has also further developedthe same radar technique for land-based applications inrefineries and tank terminals as well as for applicationsin the steel and chemical industries. The Company’smain product, Saab Tank Radar, is used in all types ofvessels from large oil tankers to small chemical carrierscarrying chemical substances. Marine Electronics’market share of applications amounts to approximately50 percent of the tanker market and an estimated 20percent for refineries and tank terminals. The chemicalindustry, which is believed to have substantial growthpotential, was the target of a product launch well-received by the market in 1997. Sales of MarineElectronics in 1997 amounted to SEK 385 million andoperating income, including the foreign operationsamounted to SEK 29 million. Ninety-eight percent ofsales were exported.

Combitech ElectronicsCombitech Electronics offers services for thedevelopment, production and support of electronicproducts. The company’s core competence consists ofdeveloping electronic building techniques andmanufacturing advanced electronics hardware fordemanding environments. The company offersproduction processes for surface mounted techniques,multichip modules and assembly techniques.Furthermore, Combitech Electronics offers services forcomponent technologies, CAE/CAD and testing andenvironmental analyses. Combitech Electronics suppliesits products mainly to the vehicle, pharmaceutical anddefense industries and approximately 70 percent of salesare outside the Group. A new plant with a highlyautomated multichip module production line wascompleted in 1997, giving Combitech Electronics thecapability of producing large volumes of multichipmodules in a clean room environment. Sales in 1997amounted to SEK 168 million and operating income wasSEK 2 million.

Combitech NetworkCombitech Network offers access to information bycomputer network. To do so, Combitech Network has anextensive IT security offering, ranging from analyses to

products and operations services for companies withhigh demands for user support, technology, flexibilityand security. Founded in 1992 as a joint venture betweenCombitech and Digital Equipment, the company becamea 100 percent subsidiary of the Group in 1995. Althoughmost of Combitech Network’s sales are within the SaabGroup, important customers include large companies inSweden who require security, availability, adaptabilityand technical competence. Sales in 1997 were SEK 262million of which SEK 204 million was within the Groupand operating income was SEK 8 million.

Combitech SoftwareCombitech Software is a consulting company with acomprehensive range of software development servicesfor technical real-time systems. The company is 65percent owned by Saab AB and 35 percent owned byEnea Data AB. The company’s customers consist ofdevelopment departments for companies in a variety ofindustries whose products are based on technical real-time systems. Combitech Software focuses on systemdevelopment, evaluations and implementingimprovements. Assignments outside the Group accountfor approximately half of total business volume. In thepast two years, sales and workforce of CombitechSoftware have more than doubled. In 1997, salesamounted to SEK 59 million and operating income wasSEK 10 million.

PronestoPronesto is a company that serves as an agent marketinghigh-tech systems and components to Scandinaviancustomers within the area of radio, tele- and data-communication. The products are acquired frommanufacturers in Europe and the United States.Established in 1984 within the Ericsson Group, Pronestohas been a part of Combitech since 1985. Its high-technology products include microwave components,EMC products, test and measurement systems and radioand telecommunications systems.

The main suppliers and collaborative partners are theU.S.’s Celeritek and Dow Key, the U.K.’s EEV, Belgium’sEmerson & Cuming, and the U.K.’s GEC MarconiCommunication, the U.S.’s Gould, IFR Ltd (formerlyMarconi Instruments), K&L Litton Solid State, Italy’sMarconi SpA and the U.S.’s Parkers-Chomerics.Pronesto also offers marketing, service and technicalsupport to non-domestic companies intending to enterthe Swedish market.

Pronesto sales in 1997 were SEK 64 million andoperating income was SEK 5 million.


54 I Saab Group

Combitech Traffic SystemsCombitech Traffic Systems, using leading edge expertisein image-processing and microwave technology,develops products and systems for effective and securetollroad collection. The company is offering ranges frommicrowave links for communication between theroadside and vehicles to complete, automatic tollpoints.In 1997, the largest order to date was signed with the cityof Melbourne, Australia to implement a multi-lane free-flow tollroad system, with which drivers are notrequired to stop or slow down in order to pay the roadtoll. See “Major Agreements – the ETC-Agreement”.

Combitech Traffic Systems is expected to havegrowth potential, although the company hasexperienced development delays and a slow marketdevelopment, which it expects to continue at leastthrough the next year. The industry is in a need ofrestructuring in which Combitech Traffic Systemsintends to participate. Combitech Traffic Systems sales in1997 were SEK 72 million and operating income wasSEK –166 million including a research and developmentwrite-down of SEK –40 million and project revaluationof SEK –28 million.

Survey SystemsFormed in early 1996, Survey Systems is owned 90 per-cent by Saab AB and 10 percent by OstermanHelicoptermätning i Göteborg AB and focuses on devel-oping, producing and marketing airborne systems foracquisition of primary geographical data. Survey

System’s main product is Saab TopEye, a topographicalsurvey system which uses a high-speed scanning laser toprecisely measure topography for production of largescale maps with a high degree of detail. Other applica-tions include measurement and inspection of roads,power lines and other infrastructure installations. Sur-vey Systems sales in 1997 were SEK 21 million and oper-ating income was SEK –3 million.

Image SystemsImage Systems develops and markets systems for theanalysis of high-speed movements with applications inthe defense industry as well as vehicle and aircraftmanufacturing. Examples of applications include themeasurements of car crash test results and test flights.Due to the unexpected complexity of certain of itsprojects, the company has experienced large operatinglosses. Image Systems does not fit Combitech’s currentstrategy and is expected to be divested. In 1997, ImageSystems sales were SEK 11 million and reportedoperating income amounted to SEK –50 million,including provisions for future project expenses.

Combitech InnovationAs a part of Combitech’s strategy, from 1998 CombitechInnovation will be used as a development companyfocused on exploiting new business ideas within theGroup. The market potential and the prospects of thesebusiness ideas will be explored further within the scopeof Combitech Innovation.


Saab Group I 55

As a result of deteriorating market conditions andseveral years of losses, the Board of Directors decided inDecember 1997 to discontinue production of newregional aircraft and to adjust the book value of theleasing portfolio to an estimated market value.

Since the first delivery of the Saab 340 in 1984,significant overcapacity and price competition havedeveloped in the global market for regional aircraft. Forthe Saab 340, which competes in the 30-37 seatercategory, heavy competition in the marketplace hasresulted in prices and rent levels not being satisfactorydespite the aircraft’s strong market position.Furthermore, the Saab 2000, a newer model in the 50-58seater category, has not succeeded in making abreakthrough in the United States, the largest market forregional aircraft. The weak demand in the United Statesis primarily due to passengers’ preferences for regionaljets rather than turbo-props. In order to make turbo-props more competitive with respect to regional jets,prices on 50-seater turbo-props have suffered continueddownward pressure.

REGIONAL AIRCRAFT

Following the decision to cease manufacturing, theGroup announced it would discontinue production ofregional aircraft in mid-1999, after delivery of alloutstanding orders, including the exercise of any optionsoutstanding. The Group will continue its commitment toprovide Customer Support for the fleet of over 500 Saab-manufactured regional aircraft worldwide.

In connection with the decision to cease productionof regional aircraft, extensive provisions have been takenin order to cover the losses generated in the remainingproduction, expected costs relating to thediscontinuation of manufacturing and the ongoingCustomer Support operations for the remaining fleet ofregional aircraft. The provisions amounted to SEK 4,079million before tax (SEK 2,937 million after tax) as ofDecember 31, 1997.

A detailed study was performed to estimate the costsrelating to the cessation of production. In calculating theprovisions, assumptions were made regarding estimatedoperating losses in Regional Aircraft in 1998 and 1999,write-offs of current and fixed assets, costs relating to theredeployment of employees, costs for contractedcommitments to suppliers, estimated reduction inrevenue for Commercial Aircraft and estimatedunderabsorption of certain overhead expenses.Furthermore, an external consultant was commissioned

to perform an independent study. The study confirmedthe calculated cost for the discontinuation.

The provisions were calculated so that RegionalAircraft’s operations are expected not to impactnegatively the results of the Group in the future.

Some 1,800 of the Group’s 8,000 employees areaffected by the decision to cease the production of theregional aircraft. A substantial number of theseemployees will be offered employment in otherdivisions of the Group, particularly in CommercialAircraft and in the military operations where there is ademand for well qualified engineers and technicians.After allowances are made for early retirement andretraining, the Company estimates that a few hundredpeople will be made redundant over the next two years.

SAAB AIRCRAFT FINANCE GROUP (SAFG)

Following the decision to discontinue production ofregional aircraft, actions were taken to adjust the bookvalue of the leasing portfolio to an estimated marketvalue.

The revaluation of the leasing portfolio does notinclude 61 aircraft in Saab-Scania Rental AB (“SSRA”)and Swedish Aircraft Three KB (“SA3KB”). Thefinancing is non-recourse to the Group, that is, theinvestor has no right of recourse against the Group buthas a lien against the aircraft.

Over two-thirds of the regional aircraft that theGroup has delivered to airlines are included in SAFG’sleasing operations. The aircraft included in SAFG havebeen purchased by external investors and then, often asa requirement, SAFG has leased them back undercontracts with an average duration of 10 to 17 years.With certain exceptions, SAFG, in turn, leases the aircrafton corresponding maturities to the airlines. However,the competition and the weak financial position of theregional airlines have resulted in one third of the aircraftportfolio currently being leased on a shorter-term basisthan the original lease period in place for the externalinvestors. As the market value of regional aircraft hasdeclined since the beginning of the 1990s, with lowersub-lease rents as a result, the portfolio is expected togenerate losses.

After 1999, no newly manufactured aircraft will beadded to the portfolio. Consequently, the duration of theportfolio is limited. In conjunction with the decision tocease the production, a decision was taken to adjust thebook value of the leasing portfolio to an estimatedmarket value through making a provision.

Actions Relating to Regional Aircraft and SaabAircraft Finance Group (SAFG)

56 I Saab Group

The provision made on December 31, 1997 amountedto SEK 1,342 million. The provision, added to reservespreviously made, then totalled SEK 2,728 million ($350million).

In determining the value of the leasing portfolio andthe related amount of provisions necessary to take inorder to bring the book value of the portfolio in line withthe market value, what is considered realisticassumptions were made regarding the remaining life ofthe portfolio. Based on the Company’s views as well asviews from two independent aircraft consultants,Airclaims and Avitas, assumptions were made byaircraft type and manufacture year for expected futuresub-lease rents, sub-lease contract turnover,refurbishment costs in conjunction with sub-lease,remarketing time, economic life, scrap value andoperating costs. In determining the portfolio value,SAFG’s sublease contracts for 31 additional aircraft to bedelivered before the manufacturing ceases have beenincluded.

The table below summarizes the assumptionsunderlying the estimated value of the leasing portfolio.

Future sub-lease rents Separate assumptions made foreach aircraft type and manufactureyear, based on current lease ratesand reflecting expected marketrates

Turnover of Based on historic turnover andsublease contracts expected future demand

Refurbishment costs Based on industry standard andhistorical costs of SAFG’s aircraft

Re-marketing time Conservative estimate based onhistorical experience

Economic life Conservative assessment of theeconomic life of the Saab 340 andthe Saab 2000 aircraft

Scrap value Based on industry standard

Operating costs Estimated in relation to the size ofthe portfolio

Considering the above assumptions, a market valueof the portfolio has been calculated, defined as the

difference between the market value of the assets andliabilities related to the portfolio, resulting in a marketvalue of approximately SEK –1,800 million.

The market value of the assets was calculated as thepresent value of the sub-lease rents, net of refurbishmentand operating costs, guarantee and option payouts and,when applicable, a terminal value. See “The Business ofSAFG”. A risk-adjusted discount rate of 11.2 percent wasused to value these asset cash flows. This rate includes afinancial return which is considered to be required bythe market for an investment with a similar risk profile.

The market value of the liabilities was calculated asthe present value of the head-lease payments, plus debtwith respect to future deliveries, assuming that they areinternally financed by SAFG. These obligations havebeen discounted using a rate of 7.3 percent, based on theprevailing ten year U.S. dollar risk-free rate plus anestimated credit risk premium. The discount ratecorresponds to an estimated lending rate for theportfolio at the time of the valuation.

If the operations develop in accordance with or betterthan the assumptions, reversals of provisions will resultin a realization of the market return included in theprovisions.

The market value of SEK –1,800 million implies thatthe book value of the portfolio of SEK 928 million,excluding aircraft in SSRA and SA3KB, needed to beadjusted with a total provision of SEK 2,728 million. Thetotal provisions of SEK 2,728 million are also included inthe item other provisions of SEK 3,148 million on thebalance sheet on page 59. The book value of SEK 928million includes the items of the balance sheet related tothe transactions in question, i.e. all transactions exceptthe 61 aircraft in SSRA and SA3KB, since the financing ofthe latter aircraft is without recourse to the Group, thatis, the investor has no right of recourse against theGroup, but has a lien against the aircraft.

($ (SEKmillion) million)

Net book value of risk-exposedportfolio(1) before provisions 119 928Provision –350 –2,728

Market value of risk-exposed portfolio(1) –231 –1,800(1) Excludes 61 aircraft in SSRA and SA3KB.

ACTIONS RELATING TO REGIONAL AIRCRAFT AND SAAB AIRCRAFT FINANCE GROUP (SAFG)

Saab Group I 57

The following table summarizes the present valueamounts of SAFG’s total obligations, contracted incomeand expected income for the remaining life of the leasingportfolio, based on the operating assumptions anddiscount rates discussed earlier. When translatingamounts in U.S. dollars to SEK, an exchange rate of $1.00to SEK 7.79 has been used, which corresponds to theexchange rate at which the provision has been hedged.

($ (SEKmillion) million)

Present value of lease payments to investors

Due within one year –130 –1,014Due between one and five years –403 –3,140Due after five years –379 –2,951

Total present value of lease payments –912 –7,105

Present value of contracted rents from airlines

Due within one year 149 1,164Due between one and five years 325 2,527Due after five years 217 1,690

Sum 691 5,381

Present value of expected rents from re-leasing

Due within one year 8 62Due between one and five years 129 1,008Due after five years 174 1,357

Sum 311 2,427

Total present value of rents 1,002 7,808

Purchase of future deliveries –205 –1,597Guarantees and options –37 –290Operating expenses –50 –390Unallocated provisions –29 –226

Market value of risk-exposedportfolio –231 –1,800*Excludes 61 aircraft in SSRA and SA3KB.

The portfolio will be revalued at its current marketvalue on an on-going basis. Such an on-going valuation

will affect the SAFG earnings in that particular period.The provision is calculated to cover expected on-goingdeficits in SAFG’s operations as well as to yield a marketreturn on the portfolio’s assets.

The provision has been calculated based on operatingassumptions which are highly dependent on thelongterm development of the market for regionalaircraft. As such, it is not possible to be certain that theprovision taken will, in fact, be sufficient to cover anymismatch between net sub-lease rents and contractualobligations. The Company, however, believes that basedon the assumptions made, the provision taken will besufficient to cover the deficits in the leasing portfolio andthat such deficits will not negatively affect SAFG’sshareholders’ equity in the future.

In 1997, SAFG’s shareholders’ equity was negativelyaffected by the provisions made. The intention is thatSAFG should be able to operate independently from theother operations of the Group to the greatest extentpossible. Additionally, a certain capital base is requiredto achieve a certain credit worthiness and to complywith specific key financial ratios pursuant to certainfinancing agreements. In 1997, SAFG was thereforecapitalized with SEK 1,500 million, which will beinvested in accordance with the Group’s investmentpolicy, see “Management’s Discussions and Analysis ofFinancial Condition and Results of Operations –Investment Policy”.

With the provisions taken at year end, SAFG’sfinancial position before the capitalization is believed tobe sufficient in order to generate a market return onSAFG’s assets. The capital injection of SEK 1,500 millionis incremental equity which, to the extent SAFG’soperations develop in accordance or better than theassumptions used in the provisions, will not be drawnupon to finance ongoing operations.

Further to the provisions and the capitalization, theholding in SAFG is regarded as a financial asset, whichin principle may be divested. The return on theinvestment in SAFG will be generated by: i) an interestincome on the capital contribution to SAFG of SEK 1,500million; and ii) a market rate return on the assets of theportfolio over its life through reversals of provisions inevent that the operations develop in accordance with orbetter than assumed.


58 I Saab Group

FINANCIAL INFORMATIONThe tables below set forth the Income Statements and Balance Sheets as well as summary Cash Flow Statements forRegional Aircraft and SAFG for the fiscal years 1995, 1996 and 1997.

REGIONAL AIRCRAFT

Income Statement 1995 1996 1997(in millions SEK) (pro forma) (pro forma) (pro forma)


Gross margin –175 –429 –131

Operating expenses –681 –664 –422Items affecting comparability(1) –1,219 –4,079

Operating income –856 –2,312 –4,632

Net financial income and expenses 111 45 –32

Income after financial income and expenses –745 –2,267 –4,664

December 31Balance Sheet 1995 1996 1997(in millions SEK) (pro forma) (pro forma) (pro forma)

Property, plant and equipment 372 80 84Other fixed assets 791 5 1,142

Total fixed assets 1,163 85 1,226

Inventories, etc. 1,443 1,565 1,654Receivables and other current assets 175 385 227Cash and marketable securities(2) 1,424 418 3,926


Total assets 4,205 2,453 7,033

Shareholders’ equity(3) 2,268

Provision for pensions 138 32 30Other provisions(4) 166 457 4,097

Long-term borrowings 14 9

Short-term borrowings 25 6 322Accounts payable and other short-term liabilities 1,197 1,523 2,231Advance payments from customers 397 426 353


Total shareholders’ equity and liabilities 4,205 2,453 7,033

Statement of Cash Flows 1995 1996 1997(in millions SEK) (pro forma) (pro forma) (pro forma)

Cash flow from operating activities –428 –761 –563Change in working capital –286 –104 248Net investments –7 –49 –28

Operating cash flow –721 –914 –343(1) “Items affecting comparability” relate to provisions taken in relation to regional aircraft activities.

(2) Capital injection from Saab in 1997 to cover provisions etc.(3) Loss in 1997 covered by Saab.(4) In 1997, including the provision of SEK 4,079 million.


Saab Group I 59

SAFGIncome Statement 1995 1996 1997(in millions SEK) (pro forma) (pro forma)

Leasing and other operating income(1) 1,281 1,398 1,706Leasing and other operating expense –1,442 –2,062 –1,918Items affecting comparability(2) –1,342

Operating income –161 –664 –1,554

Balance Sheet 1995 1996 1997(in millions SEK) (pro forma) (pro forma)

Lease assets 5,737 5,937 6,919Other fixed assets 502 499 515


Receivables and other current assets 284 140 196Cash and marketable securities 471 2,951 3,474

Total current assets 755 3,091 3,670

Total assets 6,994 9,527 11,104

Shareholders’ equity(3) –17 1,215 1,500


Other provisions 998 1,644 3,148(4)

Lease obligations 5,289 5,432 4,922Other long-term liabilities 426 760

Accounts payable and other short-term liabilities 339 410 395Lease obligations 253 309 285

Total shareholders’ equity and liabilities 6,994 9,527 11,104

Statement of Cash Flows 1995 1996 1997(in millions SEK) (pro forma) (pro forma)

Cash flow from operating activities 154 –383 144Change in working capital 766 1,486 –256Net investments (leasing aircraft) –1,160 –537 –1,382

Operating cash flow –240 566 –1,494 (1) Not included in Group sales. Operating income in SAFG is included in the item “Other operating expenses” of the Group.

(2) “Items affecting comparability” relate to provisions taken in relation to regional aircraft activities.

(3) Including contributions from Saab in 1996 and 1997.

(4) Including a provision of SEK 2,728 million.


60 I Saab Group

Since the early 1980’s the Group has been active in thedevelopment, production and marketing of regionalaircraft. The Group currently produces the Saab 340,which is a 30–37 seater aircraft, and the Saab 2000, whichis a 50-58 seater aircraft.

The Saab 340 is a two turbo-prop engine aircraft witha maximum cruise speed of 528 km per hour and anormal flying distance of approximately 1,500 km. Theaverage flight time of the Saab 340 is approximately 55minutes, covering a distance of nearly 350 km. A total of454 orders for Saab 340 have been received since 1980,

which corresponds to a market share of approximately33 percent in its segment. The Saab 2000 is two turbo-prop engine aircraft with a maximum cruise speed of 685km per hour and a normal flying distance ofapproximately 2,300 km. The average flight time of aSaab 2000 is approximately 60 minutes, covering adistance of approximately 650 km.

Following deteriorating market conditions andseveral years of losses, the Board of Directors announcedin December 1997 the discontinuation of production ofregional aircraft. See “Actions Relating to RegionalAircraft and Saab Aircraft Finance Group (SAFG)”. Inorder to fulfill existing orders and options, the Companyexpects to deliver new aircraft until mid-1999. Excessmanufacturing capacity is subsequently intended to beused in Commercial Aircraft. Regional Aircraft will notaccept any new orders except exercise of written optionson three aircraft, which may result in orders in 1998.

The Business of Regional Aircraft

(in millions SEK, unless otherwise stated) 1993 1994 1995 1996 1997

Order bookings 1,120 793 2,524 2,702 2,706Saab 340, number of aircraft 11 3 31 32 21Saab 2000, number of aircraft 3 5 7 12Order backlog 6,871 3,881 3,057 2,857 2,734Saab 340, number of aircraft 32 9 25 31 26Saab 2000, number of aircraft 36 31 16 11 12Sales 2,004 1,360 3,391 2,902 3,035Saab 340, number of aircraft 29 9 15 26 26Saab 2000, number of aircraft 5 20 11 9Operating income (1) –527 –948 –856 –2,312 –4,632Capital expenditures 29 15 12 23 13Average number of employees 1,782 1,650 1,663 1,661 1,473(1) Of which SEK -1,219 million and SEK-4,079 million relate to provisions taken in 1996 and 1997, respectively.

The Saab 340 and 2000

Saab Group I 61

The Business of SAFG

SAFG’s main business is to manage a leasingportfolio consisting of Saab-manufactured regionalaircraft, including marketing and placing of availableSaab aircraft with airlines. SAFG comprises Saab AircraftCredit Group (“SACA”), consisting of companies inSweden and the United States, as well as SSRA. Of theportfolio’s 296 aircraft, 243 are managed within SACA,while SSRA manages 53 aircraft for one single airline.

The PortfolioAs of December 31, 1997, SAFG’s portfolio consisted of296 aircraft, of which 275 were Saab 340s and 21 wereSaab 2000s. SAFG customers comprised 27 airlines in 17countries in North and South America, Europe, Asia andAustralia. At December 31, 1997 there were four aircraftwhich were not allocated to any airline. Approximatelytwo thirds of all manufactured Saab 340 and Saab 2000aircraft have been financed by SAFG.

Since 1994, SAFG has placed aircraft with 14 newairlines, while nine airlines were withdrawn from theportfolio during the same period. Following thecessation of manufacturing of regional aircraft,marketing and placing of available aircraft will becomean important task for SAFG.

During 1997, SAFG signed leasing agreements for 21new Saab 340 and six new Saab 2000 aircraft, and soldtwo as well as purchased two used Saab 340s. Fortyleasing agreements for Saab 340 aircraft were concludedduring 1997, in respect of both new and old customers.

FinancingSAFG’s portfolio consists primarily of aircraft which arefinanced by external investors. This form of financeinvolves external investors who have acquired aircraftfrom the Group and leased them to SAFG. In turn, SAFGleases the aircraft to airlines. At December 31, 1997, atotal of 171 aircraft were financed by external investors.Of these, 129 aircraft were financed by Americaninvestors, 37 by Swedish investors and five werefinanced by Japanese investors. Certain leases financedby external investors also involve SAFG guarantees ofthe residual value of an aircraft. In the majority ofSAFG’s leasing agreements, Saab AB has providedguarantees in respect of SAFG’s obligations to theexternal investors. See “Guarantees and OtherObligations from Saab AB”.

In other cases investors acquire the aircraft from theGroup and then lease such aircraft directly to the airline.In some of these transactions, Saab AB has provided athird-party guarantee, whereby Saab AB guarantees thethird party a specified return on investment, includingin the case of a default by the airline. See “Guaranteesand Other Obligations from Saab AB”. At December 31,1997, there were a total of 25 aircraft with third-partyguarantees in SAFG’s portfolio.

As of December 31, 1997, a total of 39 aircraft wereinternally financed.

As of December 31, 1997, 61 aircraft were financed bythe companies SSRA and SA3KB. This financing is non-recourse, meaning that the investor has no right ofrecourse against SACA or Saab AB but has a lien againstthe aircraft. All 61 aircraft are operated by AmericanEagle, a division of American Airlines.

SACA’s leasing agreements with external investorscontain conditions which are normal for the industry,

(in SEK millions, unless otherwise stated) 1995 1996 1997

Leasing portfolio, number of aircraft(1) 244 275 296Guarantee volume 4,277 5,764 5,855Guarantee volume, in $ million 641 839 744Lease revenue and other income 1,281 1,398 1,706Items affecting comparability –1,342Operating income –161 –664 –1,554Average number of employees(2) 8 10 19(1) The leasing portfolio includes 61 aircraft financed without recourse against SACA or Saab AB.(2) Saab Aircraft Marketing & Sales has been transferred to SAFG as of January 1, 1998 and thereafter the number of employees in SAFG was 44 persons.

American Eagle aircraft

62 I Saab Group

THE BUSINESS OF SAFG

including conditions according to which investors mayrequire additional sureties or terminate the leasingagreement, if SACA’s or Saab AB’s (as a guarantor)financial condition changes significantly.

Agreements with AirlinesAirlines are responsible for all aircraft operational costs.The operating lease imposes obligations on the airlinerelating to insurance, maintenance and the generalcondition of the aircraft. SAFG checks, when necessary,to ensure that these provisions are maintained. Theairline is also responsible for observing all laws andregulations which apply to the aircraft and for all costsin connection with such compliance.

When a lease expires, SAFG’s task is either to extendthe lease with the airline or lease the aircraft to anotherairline. SAFG is responsible for the costs of refurbishingthe aircraft before it is released. The refurbishing costsdepend upon the condition of the aircraft when it isreturned and the requirements of the new airline. Animportant task for SAFG is to minimize the downtime, i.e.the time between when it is returned until the time a newairline takes over the aircraft on lease. Historically, theaverage downtime per aircraft for SAFG has beenapproximately three months. As of December 31, 1997there were four aircraft in the portfolio which were not onlease with any airline. Sub-leases with regard to 44 aircraftwill expire in 1998.

ProvisionsThe leasing portfolio has generated, and is expected togenerate, further losses because of the lower lease rentsfrom airlines, compared with the long-term head-leasepayments SAFG pays to external investors. The lossesoccurred when the sub-lease rents dropped in relation tofinancing obligations.

In view of the finite life of the leasing portfolio, theCompany took provisions in order to cover expectedcalculated future losses on the portfolio. Using what theCompany believes to be realistic assumptions forexpected sub-lease rents, turnover frequency of thesubleases, operating and refurbishment costs anddowntime, the difference between the net book value ofthe portfolio of aircraft and the present value of netleasing cash flows was estimated to be $–350 million(SEK –2,728 million). This value represented the amountby which SAFG’s net assets needed to be adjusted tomark the assets to market. The revaluation of the leasingportfolio did not include 61 aircraft in SSRA and SA3KBwhich are non-recourse to the Group.

In order to adjust the book value of the portfolio’s netassets so that, at the time before the adjustment andsubsequently, they reflect an estimated value ofportfolio’s assets and liabilities, provisions were made asat December 31, 1997 of SEK 1,342 million. Totalprovisions, together with those previously made,amounted to SEK 2,728 million.

See “Actions Relating to Regional Aircraft and SaabAircraft Finance Group (SAFG)”.

Tax GuaranteesThe head-leases have clauses that require SACA toindemnify the lessor for the loss of certain tax benefits asa consequence of SAFG’s actions. Giving tax indemnitiesto investors is customary in the industry, and to date nosuch indemnity has been triggered.

SACA has undertaken an obligation to an investor tocover the fiscal outcome of a leasing transaction. Thisobligation could result in the leasing fee paid by SACAin a specific transaction being increased.

See “Contingent Liabilities” on page 85 in “StatutoryFinancial Statements”.

Guarantees and Other Obligations from Saab ABSaab has supplied guarantees to the benefit of externalinvestors in the leasing portfolio amounting to $744million (SEK 5,855 million), of which $251 million(SEK 1,719 million)(1) were entered as leasing obligationson the balance sheet. On the balance sheet there is anadditional $211 million (SEK 1,644 million)(1) accountedfor as debt, included in the total provision for the leasingportfolio. The remaining $282 million (SEK 2,492million) is accounted for as contingent liabilities.

The Export Credits Guarantee Board (“EKN”) hasissued residual value guarantees for a total of $231million (SEK 1,818 million) in connection with 42 leasingagreements in the United States. EKN has recourseagainst Saab AB in respect of these transactions,amounting to a total of $40 million (SEK 315 million),which forms part of the total guarantee volume.

AirlinesOccasionally the need has arisen to assist airlines whohave experienced financial difficulties because ofworsening market conditions. In certain cases SAFG hasrenegotiated the airline’s leasing agreement. Theserenegotiations have, as a rule, involved altered paymentconditions and leasing charges, or the leasing agreementhas been terminated before its scheduled expiry, and theaircraft returned. In order to reduce the risks of the

(1) Amounts in SEK correspond to the amounts on the balance sheet.


leasing rents not being paid, SAFG monitors the airlines’financial development and undertakes regular technicalinspections of the aircraft. During 1997, no Saab-manufactured aircraft were repossessed from airlines,although two aircraft were repossessed in 1996.

SAFG’s largest customers include the U.S’s MesabaAirlines, which leased 50 aircraft at year-end 1997 withanother 22 Saab 340s to be delivered during 1998, andthe U.S.’s Express Airlines, a wholly-owned subsidiaryof Northwest Airlines, Inc., which guarantees ExpressAirlines’ lease contracts of 26 Saab aircraft.

American Eagle, which conducts regional air trafficas part of American Airlines, leases 86 Saab 340s ofwhich 61 are financed without recourse against SACA orSaab AB. American Eagle has announced that thecompany intends to return eight aircraft beginning inOctober 1998. Thereafter, American Eagle may alsoexercise its option to return a further 17 aircraft at a rateof two aircraft per month.

Another large customer, Business Express, whichleases 35 aircraft, experienced financial difficultiesduring 1996 and SAFG therefore made provisions inorder to cover future reductions in leasing payments.The airline has subsequently been restructured.

The table on page 64 contains an overview of theportfolio and the airlines as at December 31, 1997.

Market and CompetitionSAFG’s task is to administer the portfolio in such a waythat the sub-lease rents are maximised. Even though themarket for new aircraft is weak, the demand for used

aircraft is currently regarded as being favorable, as aresult of an anticipated increase in passenger traffic atthe same time as new manufacturing industrywide isexpected to decrease. Lease rents are, however, expectedto be further depressed as a result of heavy competition.The Company believes that the Saab 340 and the Saab2000 aircraft will assert themselves positively in themarket for used aircraft, with their demonstratedqualities of low operating costs, high accessibility andgood customer and product support.

SAFG leases out aircraft to regional airlinesthroughout the world and its global market share ishigh. The Company believes that the North Americanmarket will continue to be strong and important, butthat the trend will be towards the Eastern European andthe Central and South American markets assuming agreater significance.

Saab regional aircraft compete with products from:the Canadian Bombardier, which has a completeprogram of regional turbo-prop (the Dash-8) and jet (theCanadair RJ) aircraft; the AI(R) consortium, consisting ofBritish Aerospace, Aerospatiale and Alenia, which has acorresponding program and the foremost competitor isthe ATR 42 for 50 passengers; Fairchild - Dornier whichmanufactures turboprop aircraft in the 30 passengerclass and is now also developing a jet version; Brazil’sEmbraer which competes with the EMB-120; aturboprop in the 30 passenger class, and the EMB-145, ajet aircraft in the 50 passenger class, of which a smallerversion in the 37 passenger class, the EMB-135, is underdevelopment.

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64 I Saab Group


PORTFOLIO AT DECEMBER 31, 1997

SAAB SAAB SAABCountry Operator 340A 340B 2000 Total

1 United States AMR/Flagship/Nashville 86 862 United States Business Express 15 20 353 United States Chautauqua Airlines 12 124 United States Express Airlines 1 15 11 265 United States Mesaba 19 31 506 United States PennAir 2 27 Canada Calmair 3 38 Argentina Andesmar 2 29 Argentina Kaiken 2 2

10 Argentina TAN 2 211 Argentina Tapsa 1 112 Columbia Aero Taca 2 2

12 Americas and Canada 68 155 223

1 Latvia Air Baltic 1 12 Czech Republic Air Ostrava 3 33 Republic of Slovakia Tatra Air 2 24 France REGIONAL 7 6 135 Scotland Business Air 7 3 106 Switzerland Crossair 5 57 Germany Deutsche BA 5 58 Finland Finnair/Finnaviation 3 39 Lithuania Lithuanian Airlines 2 2

10 Sweden SAS 4 411 Sweden Skyways 4 4

11 Europe 14 18 20 52

1 Taiwan Formosa Airlines 4 42 New Zealand Air Nelson 2 23 Australia Hazelton Air Service 6 64 Australia Kendell 1 4 5

4 Rest of the World 3 14 17

Unallocated 3 1 4

27 Total Portfolio 85 190 21 296

1998 and 1999 Deliveries

United States Mesaba 22 221 Italy Medair 2 2

Sweden SAS 2 2Switzerland Crossair 5 5Taiwan Formosa Airlines –1 –1

28 Total Portfolio Including 1998 and 1999 Deliveries 85 211 30 326

Additional Information

TAX PROCEEDINGS

The Group has in the 1990s been subject to tax audits,both in Sweden and in the United States. The tax audit ofthe 1993, 1994 and 1995 fiscal years in the United Stateshas been terminated and no legal proceedings relating totax issues resulting from the audit of these fiscal yearsare on-going. Tax audits in Sweden, one for the 1995 yearand one for 1987 through 1989, may result in additionaltaxes to be paid by the Group. The tax authorities believethat the Group has reported insufficient taxable incomefor those years. As a consequence, the tax authority hasdecided to charge the Group additional income taxesand other taxes, including penalties, of SEK 229 millionfor the financial year 1995. This amount has been fullyreserved by the Group in 1997. About 80 percent of theadditional income taxes relates to timing differenceswhich has resulted in deferred tax liabilities of SEK 170million. Most of the adjustments made by the taxauthorities will be appealed in the tax court.

The decisions made by the tax authorities for the taxaudit of the years 1987–1989 have been appealed, but thetax courts have not yet reached a final decision. TheGroup’s estimate, based on judgement by the CountyAdministrative Court of Appeal, is that this may lead toadditional taxes of an amount not exceeding SEK 174 million which has been reserved for by theGroup.

LEGAL PROCEEDINGS

The Group is party to certain legal proceedings that havearisen in the normal course of business. The Board ofDirectors does not believe that any single ongoing orexpected legal or arbitration proceeding will have, orduring the last twelve months have had, any significanteffect on the Group’s results of operations or financialcondition.

INTELLECTUAL PROPERTY RIGHTS

The Group does not hold any patents, licenses or otherintangible rights apart from the right to certain trademarks and business names, which are consideredmaterial to the Group. See “Major Agreements”. It hashistorically been the policy of the Group, primarily dueto military secrecy, to protect technical innovations anddevelopments within the Group, rather than makingpublic applications for patents. However, the Group is inthe process of implementing a new strategy forprotection of intellectual property rights and expects toapply for an increased number of patents in the future.

A portion of Saab Training Systems AB’s productscontain certain technology initially developed byRobertron AB. Compensation to Robertron AB is paidout as a royalty. The patents will expire during 1999.

INSURANCE

In addition to such risks which arise in the normalcourse of business, the Group incurs liability in relationto aircraft manufactured and owned by the Group. TheGroup has substantial public liability coverageprotection against the possibility that, in its capacity asan aircraft manufacturer, owner and lessor, it could beheld liable as a result of an accident involving an aircraftmanufactured by the Group.

Insurance coverage of the Group is regularlyreviewed and is believed to be at a level customary in thebusinesses in which it operates.

ENVIRONMENT

The Group’s business operations and facilities aresubject to a number of local, national and foreignenvironmental laws and regulations including rulespertaining to noise reductions and emissions of air,ground and water pollutants. Although the Board ofDirectors believes that its operations are in materialcompliance with all relevant environmental laws andregulations, there can be no assurance that the Groupwill not incur costs in the future due to current or formeroperations or changed waste disposal practices orchanging environmental compliance requirements orthat operating licenses will not be renewed. The SaabGroup has an established environmental program.

EMPLOYEES

The high-technology nature of the Group’s products andservices requires a highly educated and qualifiedworkforce. At December 31, 1997, the Group had 8,110employees. The Board of Directors considers its relationswith the employees to be good. There are no presentconflicts with labor unions representing Groupemployees, nor are any expected to occur. The Grouphas a long tradition of well-established relations withlabor unions and therefore also long traditions withoutconflicts.

Some 1,800 of the Saab Group’s 8,000 employees willbe affected by the decision to discontinue regionalaircraft production. A substantial number of theseemployees will be offered employment in other

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66 I Saab Group

ADDITIONAL INFORMATION

operations within the Group. In particular, withinCommercial Aircraft and the military operations there isa demand for well qualified engineers and technicians.After allowances are made for early retirement andretraining, the Company estimates that a few hundredpeople will be made redundant over the next two years.

PROPERTIES

The Group’s real estate holdings are related to itsoperations. The Group owns, with minor exceptions, allof its manufacturing and research facilities and officebuildings. The few facilities, mainly offices, that are not

owned by the Group are leased on current market terms.The book value of the Group’s total real estate holdingsas of December 31, 1997 was SEK 1,695 million, all ofwhich represented properties in Sweden. The Swedishtax assessment value of the properties (land andbuildings) on the same date was SEK 1,049 million. TheBoard of Directors believes that the principal productionfacilities are in good condition and are adequate to meetthe Group’s needs.

As of December 31, 1997, none of the Group’s realestate were subject to mortgages or were pledged. See“The Relationship Between the Saab Group and InvestorAB”.

IG JAS AND FMV AGREEMENTS

Industrigruppen JAS ABIG JAS was established in 1982 and is owned in equalparts of 20 percent by Saab AB, Volvo Aero AB,Telefonaktiebolaget LM Ericsson (“LM Ericsson”),Avionics and Celsius Aerotech AB (formerly FFVAerotech) (together “IG JAS Owners”).

The Cooperation AgreementThe operations of IG JAS and the relationship betweenits owners are governed by a cooperation agreement. IGJAS Owners’ more specific undertakings are describedin internal agreements between IG JAS and eachrespective IG JAS Owner.

The IG JAS AgreementsA number of agreements regarding the developmentand delivery of the Gripen have been concludedbetween the FMV and IG JAS and the main ones arepresented in the table below.

The FMV pays advances to IG JAS in order to financethe development work, work in progress and to long-term guarantee the supply of certain equipment, such aselectronic applications. Advances and other paymentsfrom the FMV are distributed among the IG JAS Ownerswithin the framework of the internal agreements.

Payment schedules vary across the various contracts.Depending on the contract, financing for up to 85percent of the total value are paid at intervals over thelifetime of the contract with the balance paid at deliveryor at certain milestones in case of development pro-grams. The prices in the agreements are adjusted basedon several factors including inflation and in most casesmarket prices of key raw materials such as titanium.

The FMV has the right to, at any time, canceldeliveries or work not yet carried out by IG JAS. In thatevent, IG JAS is, however, entitled to remuneration forits actual costs and for reasonable profits.

The Internal AgreementsIG JAS has entered into agreements with each of the IGJAS Owners which define each IG JAS Owner’sresponsibility as regards the fulfillment of IG JAS’sundertakings towards the FMV. The agreements alsodefine the price calculation applicable to each IG JASOwner’s undertakings.

Undertakings by the Owners of IG JASIG JAS has a share capital amounting to SEK 5 million.Under the Internal Agreements with the IG JAS Owners,the FMV has the right to demand that each of the IG JASOwners fulfill its obligations directly to the FMV shouldIG JAS be unable to fulfill the same. Should one of the IGJAS Owners become insolvent or unable to fulfill itsagreed deliveries to IG JAS, the other IG JAS Ownershave agreed to take actions, within reasonable limits, inorder for IG JAS to meet its obligations towards the FMV.The agreements between IG JAS and the FMV containprovisions under which the FMV is granted access toinformation regarding the activities of both IG JAS andthe IG JAS Owners to the extent it affects IG JAS. TheFMV shall also have access to all technical and financialinformation necessary in order to ascertain that theoffers presented by IG JAS under the agreements arecorrect and reasonable.

The Framework AgreementSaab AB has entered into a framework agreement withthe FMV which provides a regulatory framework fororders placed directly by the FMV with Saab AB. Thisagreement also grants the FMV access to informationregarding the operations.

The Letters of SupportIn June 1997, in connection with the execution of theagreements between the FMV and IG JAS regardingBatch 3, Investor issued a letter of support regardingSaab AB. According to the letter of support, Investor has

Major Agreements

Agreement Purpose of Agreement Date

Base Contract Development of the JAS 39 Gripen aircraft and delivery of the first 30 aircraft June 30, 1982

Second Production Series Agreement Production and delivery of 110 aircraft in Batch 2 June 26, 1992

Development of JAS 39B Gripen Development of the two seater version of the aircraft June 26, 1992

Support Systems Agreement Manufacture and delivery of spare parts and maintenance equipment June 26, 1992

APESS Agreement Development of a new auxiliary power unit and engine start system June 6, 1997

Third Production Series Agreement Production and delivery of 64 aircraft in Batch 3 June 26, 1997

Development Agreement Development of certain improvements to the aircraft June 26, 1997

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MAJOR AGREEMENTS

confirmed its awareness of Saab AB’s undertakingstowards IG JAS and confirmed that it will closelymonitor Saab AB’s fulfillment of these undertakings andrender its support to Saab AB, should it be necessary.The parent companies of the other IG JAS Owners haveissued similar letters of support to the FMV.

Royalty to the FMVPursuant to a development agreement dated June 26,1997 the FMV is entitled to a royalty on export sales ofthe Gripen from IG JAS. Saab has undertaken to paysuch royalty in its entirety. The royalty amount Saab willbe required to pay is dependent on the number ofGripen sold on the export market.

Price and other terms and conditions are to bedetermined so that the FMV does not subsidize suchexport. If the price to be paid by an export customer isbelow the price that the FMV is to pay during the sameproduction period, the FMV shall be entitled to acorresponding price reduction.

BRITISH AEROSPACE JOINT VENTURE AGREEMENT

In 1995 Saab AB and British Aerospace Defence Ltdentered into a joint venture, 50 percent owned by eachparty, aimed at the development and sale of the Gripenon the international market. Under the terms of the jointventure agreement Saab AB contributes the product, theGripen, while British Aerospace Defence Ltd contributesits experience and contacts in respect of marketing andcustomer support and its expertise in adapting aircraftfor export requirements. Future development, somemarketing costs and administrative investments are tobe borne equally by the parties. Each of the parties,however, will bear its own costs relating to, among otherthings, market analysis and generation of customerinterest. Profits from export orders will be sharedequally between the parties, after deduction of a fee toSaab AB.

The joint venture agreement provides that both SaabAB and British Aerospace Defence Ltd will not sellaircraft in direct competition with the Gripen.

THE TEAMING AGREEMENTS

Saab AB and British Aerospace (Operations) Ltd are inthe process of entering into teaming agreements with theother IG JAS Owners. The agreements are expected to beon similar terms and will define each party’sresponsibility for developing and delivering the exportversion of the Gripen aircraft. The parties also intend to

enter into contracts which govern work to be carried outas a result of sales contracts entered into by BritishAerospace or Saab AB under the joint ventureagreement.

SAAB 340 AND THE SAAB 2000 RISK FINANCINGAGREEMENTS

Saab 340 Risk Financing AgreementPursuant to a risk financing agreement dated as ofFebruary 26, 1980, the Swedish government grantedSaab AB SEK 350 million in connection with thedevelopment and production of the Saab 340 regionalaircraft. The agreement was intended to enable theGroup to develop, design and manufacture the Saab 340in accordance with a cooperation agreement withFairchild. Pursuant to the agreement, following the saleof the first 100 Saab 340, Saab AB agreed to pay theSwedish government a predetermined amount for eachSaab 340 sold. In 1985, Fairchild withdrew from theproject due to financial difficulties, and Saab ABassumed responsibility for all development and designwork regarding Saab 340. Accordingly the agreementwas modified in 1987 to delay Saab AB’s repaymentobligations until after the first 300 aircraft had beendelivered. To date, royalty payments completed underthe risk financing agreement amount to SEK 6 million.Royalty regarding deliveries up and until 1998 has beenadjusted to SEK zero.

Saab 2000 Risk Financing AgreementIn connection with the development of the Saab 2000,the Swedish government and Saab AB entered into a riskfinancing agreement for the development andproduction of the Saab 2000 as a part of regional supportmeasures. To date, SEK 1,126 million has been paid toSaab AB under the agreement. Saab AB agreed to pay theSwedish government a certain royalty on sales of theSaab 2000. As agreed upon with the Government, SaabAB has not made any royalty payments or repaymentson the agreement to date.

Supplementary Risk Financing Agreement In connection with Saab AB’s decision in December 1997to discontinue the production of new regional aircraft bymid-1999, Saab AB, Saab Aircraft AB, the Ministry ofIndustry and Trade and the Swedish IndustrialFoundation entered into a supplementary risk financingagreement dated December 26, 1997 pursuant to which theSwedish government agreed that the royalty paymentsof the risk financing agreement described above wouldcease to apply upon Saab AB’s discontinuation of

Saab Group I 69

MAJOR AGREEMENTS

manufacture of the Saab 340 and the Saab 2000. Pursuantto the supplementary risk financing agreement, Saab ABis instead required to pay the Swedish government theequivalent of 25 percent of the accumulated result fromCustomer Support generated from after operationsregarding the Saab 340 and Saab 2000.

ERICSSON SAAB AVIONICS

On January 1, 1997, Saab AB and Ericsson MicrowaveSystems transferred their avionics operations to a jointventure company, Ericsson Saab Avionics AB. Saab ABholds 49.9 percent of the shares in Avionics and EricssonMicrowave Systems the remaining 50.1 percent. EricssonMicrowave Systems will on January 1, 1999 transfer twoshares at a pre-determined price in Avionics to Saab AB,giving Saab AB the majority holding in Avionics.Pursuant to the shareholders’ agreement, Saab AB hasundertaken to acquire all of Ericsson MicrowaveSystems’ shareholding in Avionics, at a price to benegotiated by the parties, on December 31, 2000, ifEricsson Microwave Systems makes such a request nolater than September 1, 2000.

THE ETC-AGREEMENT

In February 1997, Translink Systems PTY Limited(“Translink”) and Combitech Traffic Systems enteredinto an agreement concerning development andconstruction of an electronic system for road duties forthe city of Melbourne in Australia (the “ETC-Agreement”). Under the ETC-Agreement, CombitechTraffic Systems has a number of obligations in itscapacity as sub-contractor to TransLink. TransLink on itspart is one of the sub-contractors to the Melbourne CityLink-project.

If delays occur in the work Combitech TrafficSystems is to perform, pursuant to the agreement,Combitech Traffic Systems may be required to payconsiderable damages and liquidated damages. In

connection with the signing of the ETC-Agreement, SaabCombitech AB, parent company of Combitech TrafficSystems, signed a guarantee pursuant to which SaabCombitech AB has guaranteed the obligations ofCombitech Traffic Systems under the agreement.

AGREEMENTS CONCERNING TRADEMARKS

The License Agreement

Under a trademark licensing agreement from 1990, SaabAB has granted Saab Automobile a license to amongother things use the trademark and the business marks“SAAB” (in a certain typeface) and the “SAAB-SCANIA“ logotype. The license includes a right of SaabAutomobile to appoint dealers, agents and sub-licenseesconcerning these trademarks.

The Trademark Agreement

In 1996, Saab AB, Saab Automobile AB and Scania ABentered into an agreement concerning the ownershipand right of use of certain trademarks.

Under the agreement, Saab Automobile AB gainedthe right to register themselves as owners of thetrademark “SAAB” as well as a new Saab automobiletrademark solely for use in passenger automobilebusiness. Saab AB retains the ownership rights to theword mark “SAAB” other than in relation to passengerautomobiles, the Saab-Scania trademarks and logos.

THE SHAREHOLDERS’ AGREEMENT BETWEENINVESTOR AND BRITISH AEROSPACE

In connection with British Aerospace entering into anagreement to acquire shares in Saab AB from Investor, ashareholders’ agreement was agreed upon. See “ShareCapital and Ownership Structure – The Shareholders’Agreement between Investor and British Aerospace”.

70 I Saab Group

EXPORT OF WAR MATERIAL

Swedish law on war material provides thatmanufacturing of war material and its export must notbe carried out without specific permission. Agreementsconcerning technology transfer and other collaborativearrangements regarding war material with partiesoutside Sweden also require permission from theSwedish government. Material subject to controlpursuant to Swedish legislation reflect the requirementsof the munitions control list generally applied within theEuropean Union. The Swedish government hasestablished certain criteria to review an exportapplication. Unconditional restrictions include exportswhich violate international treaties signed by theSwedish government, decisions by the UN SecurityCouncil and international law on export of war materialfrom a neutral country. The Swedish administrativebody controlling war material activities is theInspectorate for Strategic Products (“ISP”). In matters ofprincipal importance, ISP should refer issues to theSwedish government.

SAAB AB’S MANUFACTURING PERMIT

A manufacturing permit may be issued with restrictionsregarding both foreign ownership and the citizenshipand residence of the members of a company’s Board ofDirectors and of its Managing Director.

Saab AB was granted its most recent permission tomanufacture war material in December of 1992 with thefollowing restrictions:

• less than 50 percent of the votes of all outstandingshares in Saab AB may, directly or indirectly, be heldby foreign entities or persons;

• no foreign entity or person may, directly or indirectly,hold a share of votes in Saab AB which gives thisentity a decisive influence over the Company;

• the Managing Director of Saab AB and at least half ofthe members of the Board of Directors (including theirdeputy directors) shall be Swedish citizens and beresident in Sweden.

If the foreign influence exceeds the above limits, SaabAB shall notify ISP thereof within one month ofbecoming aware of such exceedance. Saab AB shall alsoannually, within the month following its Annual GeneralMeeting report on the ownership situation of theCompany to ISP.

In general the same restrictions apply to thesubsidiaries’ permissions to manufacture war material.

Following British Aerospace’s decision to acquire35.0 percent of the voting rights in Saab AB and theexercise of purchase rights by Investor’s shareholders,approximately 40.0 percent of the number of votes areexpected to be owned by foreign investors. Moreover,additional shares may be acquired by foreign investorsin the marketplace. The Company believes that increasesin the foreign ownership that can be reasonably foreseenwill have no material negative consequence on theCompany’s current operations.

Regulatory Environment

Saab Group I 71

DEPENDENCE ON THE FMV AND GENERALREDUCTIONS IN DEFENSE SPENDING

The FMV is the Group’s largest customer, accounting forapproximately 35 percent of the Group’s total sales in1995, approximately 40 percent in 1996 and about 49percent in 1997. In recent years, Sweden, like many othercountries, has reduced its defense budget amidst ageneral easing of global military tensions. Suchreductions in military spending in Sweden andelsewhere could have a negative effect on the Group.Recent military and political discussions regarding thefinancial position of the Swedish Armed Forces have notsignificantly involved Saab’s part of the Gripen program.

IMPORTANCE OF THE GRIPEN EXPORTPROGRAM

Although there have been no exports to date, the Gripenexport program is currently a priority for the Group, andthe continued growth of the Group is, among otherthings, dependent upon wider export market acceptanceof the aircraft.

The Group’s success in exporting the Gripen is tosome extent dependent on the efforts of its joint venturepartner British Aerospace. Certain competitors to theGripen, including the F-16, the F-18, the Mirage 2000 andthe MiG-29 or their predecessor aircraft have beenexported to a range of countries. Several prospective exportmarkets are countries with emerging economies that havesubstantial competing claims for budget expenditures,and in many cases the ability of countries to replaceaging aircraft is dependent on political and economicconditions. Due to the joint venture with BritishAerospace, both Saab and British Aerospace, can benefitfrom the dual support of the Swedish and Britishgovernments with regard to export of the Gripen.Various government approvals, including those of exportsuppliers to the Gripen, are also required for exports.

Developments costs incurred in the export programwill not be recovered if there are no export orders, theabsence of which in turn could have a negative impacton Group results.

DISCONTINUATION OF REGIONAL AIRCRAFTMANUFACTURING

In December 1997, the Board of Directors decided todiscontinue manufacturing of the regional aircraft. Thelast aircraft will be delivered by mid-1999. In additiondecisions were made regarding actions to adjust thebook value of the leasing portfolio to an estimatedmarket value. See “Actions Relating to Regional Aircraftand Saab Aircraft Finance Group (SAFG)”. Both of theseevents led to decisions regarding provisioning andrestructuring costs.

Estimates for provision and restructuring chargesalways, as in all business forecasting, contain an elementof uncertainty in how both the external environment andthe Group will develop. There can be no assurance thatthe provisions made in Regional Aircraft and SAFG willbe sufficient to cover the losses generatedby theremaining manufacturing, expected costs ofdiscontinuation of the operations and ongoingCustomer Support or any unexpected increase in thesupplier costs or maintain the value of the leasingportfolio. If these provisions do not prove to beadequate, the Group’s future operating income could beadversely affected by the performance of RegionalAircraft or SAFG.

FINANCING

In 1998, SAFG is expected to restructure part of thecurrent financing and raise new financing with regard tonewly manufactured aircraft. In total, the refinancingneed amounts to approximately $450 million (SEK 3,542million) in 1998. In connection with the restructuring ofthe existing financing, the terms may change which mayresult in increased costs for SAFG. If SAFG decides tofinance certain aircraft such a solution may lead torestructuring costs.

REGULATORY MATTERS

Export of certain of the Group’s military or high-technology products is subject to the approval ofgovernmental agencies in Sweden and in certain othercountries. The Group is also required to maintainvarious certifications from the Swedish as well as otherforeign governments relating to the operation andmanufacturing of aircraft. Although the Companybelieves that it possesses all required domestic andforeign governmental certifications and does not foreseematerial difficulties acquiring certifications in the future,any revocation, limitation or failure to obtain thenecessary consents, including export approvals, couldhave an adverse effect on the Group.

While the Swedish government has made favorablestatements about Swedish participation in thedevelopment of a pan-European defense industry,present Swedish law limitations on foreign influence inthe Swedish defense industry may limit the Group’sability to participate in the consolidation of theEuropean defense industry. See “RegulatoryEnvironment”.

COMPETITION

Although there is a strong order backlog and theCompany believes that it is competing effectively in

Special Considerations

72 I Saab Group

SPECIAL CONSIDERATIONS

most of its business areas, there can be no assurance thatit will be able to maintain its market position or willcontinue to compete successfully in the future.

INTERNATIONAL OPERATIONS;INTERNATIONAL TRADE AND CURRENCYEXCHANGE

The Group markets and sells its products to customersworldwide. Accordingly, the Group is subject to all ofthe risks inherent in international operations, includingforeign currency fluctuations, transportation delays andinterruptions, the imposition of tariffs and import andexport controls, and economic and political instability. Inparticular, emerging markets, including the marketswhere the Group currently is active, may be subject tosubstantial currency fluctuations that could affect theirability to purchase Group products. The Groupgenerally hedges any foreign exchange exposure. Theseinternational trade factors may, under certaincircumstances, adversely affect demand for the Group’sproducts or the Group’s ability to sell in particularcountries or deliver its products in a timely manner at acompetitive price.

RELIANCE ON SUPPLIERS

Group products consist partly of materials andequipment purchased from other manufacturers, mostof whom have long-term contracts with the Group. Inparticular, approximately two-thirds of themanufacturing costs of the Gripen consist of materialsand equipment purchased from other manufacturers.While the Group’s production activities have never beenmaterially affected by its inability to obtain materialsand equipment, the failure of its suppliers to meet itsperformance specifications, quality standards, pricingterms or delivery schedules or to receive essentialpermissions, including approval of exports, could havean adverse impact on the profitability of the Group andthe ability of the Group to timely deliver to customers.

CRASHES AND GROUNDING ORDERS

Aircraft produced by the Group may be subject togrounding orders as a consequence of crashes or othersevere incidents. This often results in delivery delaysand revenue losses for new aircraft until the groundingorder has been cancelled. For leased regional aircraft,grounding orders may lead to difficulties in collectingsublease orders from the airlines. Grounding orders oflong duration may thus have a negative impact onprofitability.

INSURANCE ANDPRODUCT LIABILITY EXPOSURE

Although the Saab Group carries levels of insurance thatare consistent with industry practice, any accidents withan aircraft manufactured or leased by the Group couldsubject the Group to substantial lawsuits involvingproduct liability claims. The Group to date has notexperienced any significant claims related to aircraftmanufacturing, but there is no assurance that there willnot be claims in the future, or that there will be adequateinsurance to cover any claims that may arise. Two non-fatal accidents involving the Gripen occurred during thedevelopment phase, one in 1989 and one in 1993. Theseaccidents have not led to any claims. A small number ofaccidents with the Saab 340 has occurred of which twoinvolved fatalities.

TECHNICAL DEVELOPMENT;QUALIFIED ENGINEERING PERSONNEL

The Group’s growth and future financial performancedepends in part upon its ability to anticipatetechnological advances and customer requirements andto maintain a competitive advantage in technology andexpertise. Although the Group has a long-standingtradition of technological innovation, there can be noassurance that the Group will continue to be able toachieve the technological advances that may benecessary for the Group to remain competitive. Failureby the Group to anticipate or respond adequately tochanges in technology and customer requirements, ordelays in additional product development orintroduction, could have a adverse effect on the Group’sbusiness and financial performance.

The Group’s ability to attract and retain high-qualityengineering staff is essential to its business. Competition forqualified engineers is intense, and the Group hashistorically been successful in hiring and retaining itsemployees. This does not, however, provide any assurancefor the future, but the Group works actively with programsto develop and retain existing employees, as well as long-term comprehensive profile and recruitment actionstargeted towards Swedish universities.

YEAR 2000 ISSUES

The effects of the millennium change on the Group’sadministrative and technical support systems as well assystems in delivered products have been assessed andmeasures have been taken to manage the change. TheCompany believes the necessary costs will not have amaterial impact on the Group’s results. Although theCompany believes that it is able to manage its Year 2000issues, it cannot predict the effect that any third parties’inability to manage the effects of the millennium changewill have on the Group’s business.

Saab Group I 73

Share Capital and Ownership Structure

SHARE CAPITALThe share capital in Saab AB amounts to SEK 1,703,354,800 apportioned among 6,454,303 shares of class A and100,005,372 shares of class B, each share carrying a nominal value of SEK 16. Each class A share is entitled to ten (10)votes and each share of class B is entitled to one (1) vote. All the shares carry equal rights to a participation in Saab AB’sassets and profits. The table below shows the allocation of the share capital:

Share ofClass Number of par Shares Capital Votes

A 6,454,303 6% 39%B 100,005,372 94% 61%

Total 106,459,675 100% 100%

As at December 31, 1997 Saab AB’s share capital amounted to SEK 1,703,354,800, allocated on 58,195,022 class Ashares, 9,699,170 class B shares and 240,000 class C shares, each having a nominal value of SEK 25. Each class A sharewas entitled to one (1) vote, each class B share was entitled to one tenth (1/10) of a vote and each class C share wasentitled to one thousandth (1/1000) of a vote. At the Extraordinary General Meeting on March 27, 1998 a decision wasmade to convert 48,195,022 class A shares and all class C shares into class B shares. Further, a resolution was passed tochange the nominal value of one share from SEK 25 to SEK 16 and to change the number of votes per share inaccordance with the above. The Articles of Association contain a conversion clause which entitles an owner of class Ashares to convert them into class B shares. After the Extraordinary General Meeting, an additional 3,545,697 class Ashares have been converted into class B shares. There have been no further changes to the share capital during the lastfive years.

OWNERSHIP STRUCTURE

As of December 31, 1997 Investor and its subsidiaries owned 100 percent of Saab AB. At the Annual General Meetingof Investor on April 20, 1998 Investor’s Board of Directors was authorized to offer Investor shareholders theopportunity to acquire shares corresponding to at most 50 percent of the shares in the subsidiary Saab AB. On April 29,1998 British Aerospace entered into an agreement to acquire 2,247,180 shares of class A and 35,120,166 shares of class Bin Saab AB representing 35.1 percent of the share capital and 35.0 percent of the voting rights in Saab AB subject toappropriate authorities having given relevant approvals to the sale and the shares of Saab AB having been listed on theStockholm Stock Exchange. See “The Shareholders’ Agreement between Investor and British Aerospace”. The Board ofDirectors of Investor resolved on May 7, 1998 to execute the offer by distribution of purchase rights corresponding to44.8 percent of the share and 29.0 percent of the votes in Saab AB among Investor shareholders in proportion to theirholdings in Investor. The largest shareholders of Saab AB after this offer, assuming the exercise of issued purchaserights and completion of the share transfer to British Aerospace, are shown in the table below.

Share ofShareholders Capital Votes

Investor 20.1% 36.0%British Aerospace 35.1% 35.0%Knut and Alice Wallenberg Foundation 7.5% 4.8%Franklin Mutual Advisers 3.4% 2.2%AMF-p 2.2% 1.4%SPP 1.7% 1.1%Nordbanken’s securities funds 1.3% 0.8%S-E-Banken/Trygg Hansa 1.2% 0.8%Skandia 1.2% 0.8%AMF-s 1.0% 0.6%EB Foundation 0.7% 0.5%Marianne and Marcus Wallenberg Foundation 0.6% 0.4%Fifth AP Fund 0.6% 0.4%Marcus and Amalia Wallenberg Foundation 0.5% 0.4%Handelsbanken’s securities funds 0.5% 0.3%Swedish National Judicial Board for Public Lands and Funds 0.4% 0.2%S-E-Banken’s securities funds 0.2% 0.1%Other Shareholders 21.8% 14.2%

Total 100.0% 100.0%

Source:VPC’s register of ownership as of December 31, 1997 updated with latest known changes.

74 I Saab Group

Number of Owners, Number of Shares,Holding of Shares(1) thousands Percent million Percent

0 – 100 116.9 84.4% 2.2 2.0%101 – 500 17.5 12.7% 3.9 3.7%501 – 1,000 2.1 1.5% 1.5 1.4%1,001 – 5,000 1.6 1.1% 3.2 3.0%5,001 – 100,000 0.4 0.3% 8.5 8.0%100,001 – 0.0 0.0% 87.3 81.9%

Total 138.6 100.0% 106.5 100.0%

Source: VPC register of ownership, as of December 31, 1997.(1) Has been calculated from the holdings in Investor of 0-400 shares, 401-2,000 shares, 2,001–4,000 shares etc.Any changes as a consequence of the automatic sale of excess purchase rights,

the simplified procedure and other changes until the listing have not been taken into consideration.

SHARE CAPITAL AND OWNERSHIP STRUCTURE

SHAREHOLDERS’ AGREEMENT BETWEENINVESTOR AND BRITISH AEROSPACE

Simultaneously with entering into the Share Sale andPurchase Agreement relating to shares in Saab AB onApril 29, 1998, Investor and British Aerospace alsoentered into a Shareholders’ Agreement (“TheAgreement”) regarding the position and agreementsbetween themselves as shareholders in the Company. Inthe Shareholders’ Agreement the parties haveundertaken to pay due consideration to the best longterm interest and development of the Company and itsshareholders when exercising its rights and obligationsas a shareholder of the Company and as a party to theAgreement.

The Shareholders’ Agreement will come into fulleffect between Investor and British Aerospace at thesame time as the completion under the Share Sale andPurchase Agreement takes place, i.e. when theCompany’s shares of class B have been listed on the O-list of the Stockholm Stock Exchange and theappropriate authorities having given relevant approvalsrelating to the sale of shares to British Aerospace.

In the Agreement the parties recognize theCompany’s systems engineering capability andimportance to the Swedish defense forces and the needfor the Company to be part of the process ofrestructuring the European defense and aerospaceindustry. The parties have also confirmed that they are inagreement with the Company’s strategy and dividendpolicy as described on page 15 of this Document.

The parties have agreed that an employee incentiveprogram shall be established through the issuance ofconvertible debentures or similar instruments. However,the intention is that such incentive program shall notlead to a total shareholders’ dilution exceeding 3 percentof the share capital of the Company.

The parties have agreed that the board shall consist ofnine board members (but no deputies) to be appointed

by the Shareholders’ Meeting. In addition, there will beboard members appointed by the labor unions. Eachparty shall nominate three board members and vote forthe appointment of its and the other party’s nominees. Inaddition, the parties shall nominate and vote for themanaging director of the Company as a member of theboard. The parties have agreed that the board appointsamong its members nominated by the parties achairman who will have a casting vote in the case of a tieand a vice chairman.

The parties are in agreement between themselves thata requirement for a board decision shall be that at leasttwo board members nominated by each party arepresent and if such requirement is not met a newmeeting shall be held within one to two weeks and atsuch meeting the quorum requirements in the SwedishCompanies Act will apply.

The Company’s business should be managed in away that facilitates and enhances the industrialpartnership between the Company and British Aero-space in order to create value for all shareholders of theCompany. The parties agree that persons recommendedby British Aerospace will have an involvement in themanagement of the Company.

Before decisions are taken at shareholders’ meetingsor board meetings regarding certain important itemsconcerning the Company, the parties shall consult witheach other and agree as to how the matter shall beresolved. These matters are the following:

(a) Amendments of the Articles of Association.(b) Changes in the share capital of the Company and

the issue of convertible debt instruments, debtinstruments with a right of option to subscribe tonew shares and participating debt instruments.

(c) Distribution of dividends (except for dividends incompliance with the Company’s dividend policy)and dividend policy.

(d) Winding-up of the Company unless required by law.(e) Change of the place where the Company’s operation

is carried out.(f) Change of the objectives and the strategic goals of

the Company.(g) Material change in the management or the

organization of the Company.(h) Adoption of or changes to the Company’s business

plan.(i) Decision regarding a legal merger of the Company.(j) Entering into, terminating or changing an

agreement, if such agreement, termination oramendment materially affects the activities of theCompany. However, the parties do not have to agreeon a matter relating to an agreement if one of theparties directly or indirectly is a party to orotherwise has a considerable interest in such agree-ment.

(k) Appointment of the managing director.

If the parties cannot agree on an item listed abovewhere they have to agree, and a resolution can thereforenot be adopted in respect of such item the parties shallimmediately use their best efforts to solve the situation,having regard to the long-term interest anddevelopment of the Company. If a decision is requiredby law the rules of the Swedish Companies Actregarding the necessary majority for a decision shall apply.

The parties have agreed to nominate one auditor andone deputy auditor each.

Should a party’s portion of the share capital as wellas the votes in the Company decrease below 25 percentsuch party’s right to nominate board members shalldecrease from three to two. If such holding in theCompany decreases below 20 percent that party shallnot have the right to nominate an auditor and theprovision that the party should agree on the matterslisted above shall not apply.

The parties have agreed that the co-operationbetween British Aerospace and the Company as set outin the Joint Venture Agreement dated January 24, 1995,shall continue in accordance with its terms andcommercial basis. However, it is the parties intentionthat, after January 1, 2001 and subject to the joint venturebeing successful and agreement being reached on thevalue of the joint venture and type of consideration, thejoint venture will be subsumed into the Company onmarket terms. Any subsumption of the joint venture

shall be subject to a third party appraisal and approvalby a shareholders’ meeting of the Company.

The parties have stated in the Agreement that theyintend to remain active long-term owners of theCompany and co-operate with each other to promote thebest interest of the Company. British Aerospace hasstated that it may in the future wish to consideropportunities to increase its shareholding in theCompany subject to the appropriate Swedishgovernmental and other considerations including thelong-term interest of the Company and its shareholdersas well as regulatory requirements.

If Investor should choose to sell any of its shares inthe Company, Investor will first make such arrangementsas may be necessary to enable British Aerospace toexercise the same level of influence and control as BritishAerospace is able to do under the Agreement. Thisprovision shall cease to apply immediately if BritishAerospace’s shareholding in the Company both inrespect of capital and votes decreases below 25 percent.After the fourth anniversary of the effectiveness of theAgreement, Investor may initiate discussions aboutamending or removing this provision. In addition, theparties have undertaken to notify each other one monthprior to requesting conversion of any of its shares ofclass A into shares of class B.

The Agreement is binding on the parties until January 1, 2020 and can thereafter be prolonged for twoyears at a time unless notice of termination has beengiven. The Agreement may also be terminated if oneparty’s portion of the share capital and votes of theCompany falls below 10 percent. There are alsotermination provisions in case of a party committing amaterial breach of its obligations under the Agreementor any material agreement with the Company or if aparty becomes insolvent. Further, a party may have theright to terminate the Agreement if the other party incertain transactions of a major or substantial nature istaken over by another company or combines withanother entity or group and such event has a materialadverse effect on the Company as a whole. However, theparties have an obligation to discuss and negotiate witheach other before any notice of termination regardingthe events stated in the preceding sentence is given.

The parties may agree in writing to terminate ormodify the Agreement.

The Agreement is governed by Swedish law and anydisputes will be settled by arbitration in Sweden.

Saab Group I 75


BRITISH AEROSPACE

British Aerospace is Europe’s leading aerospace anddefense company. The company has two principalactivities – Defence and Commercial Aerospace – andemploys some 42,000 people around the world servingcustomers in 72 countries.

Defence comprises a military aircraft andaerostructures business, a defense prime contractingbusiness, ordnance activities, a defense systems and aguided weapons business through its Matra BritishAerospace Dynamics joint venture with the LagardèreGroup in France. This business area designs,manufactures and supports a broad range of militaryprograms. Its product range comprises Tornado, Hawk,Harrier and Nimrod 2000 aircraft. British Aerospace isparticipating in the development of the fourthgeneration jet fighter Eurofighter 2000 aircraft and hasformed a joint venture with Saab to adapt, manufacture,

market and support the Gripen fighter aircraftinternationally. British Aerospace supports some 3,000military aircraft in service with 23 airforces.

Commercial Aerospace comprises a 20 percentshareholding in Airbus Industrie GIE, one of the world’stwo leading suppliers of large commercial aircraft.British Aerospace is the sole supplier of wings for theAirbus range of aircraft and it manufactures the RJ seriesof regional jet aircraft. The company is also responsiblefor the secondary marketing, support and financing of aportfolio of regional aircraft.

In 1997, British Aerospace reported profit before taxand exceptional items of £596 million (SEK 7,450million)(1) on sales of £8,546 million (SEK 106,825million)(1). At December 31, 1997, British Aerospace’sorder book stood at £22.1 billion (SEK 290.0 billion)(2)

with net cash on the balance sheet of £761 million (SEK9,984 million)(2).

76 I Saab Group


(1) Translation to SEK was done using an average exchange rate of £1 to SEK 12.50. (2) Translation to SEK was done using a closing rate of £1 to SEK 13.12.

Saab Group I 77

Investor owns prior to this offer directly and through itssubsidiary 100 percent, of the shares in Saab AB.

On April 29, 1998, British Aerospace entered into anagreement with Investor to acquire sharescorresponding to 35.1 percent of the share capital and35.0 percent of the voting rights in Saab AB for SEK 3,500million. The agreement is contingent on appropriateauthorities having given relevant approvals to the saleand the shares in Saab AB having been listed on theStockholm Stock Exchange. After the offer, assumingpurchase rights are exercised and the transaction withBritish Aerospace is complete, Investor will own 20.1percent of the capital and 36.0 percent of the votes inSaab AB. Investor may, in order to achieve thisownership structure, dispose of Saab sharescorresponding to purchase rights which are notexercised in this offer.

Going forward, Investor will still have a considerableinfluence on the Group. Investor intends to remain anactive long-term holder of Saab AB following thecompletion of the offering.

The Group’s receivables from companies within theInvestor Group will be terminated during 1998. See“Management’s Discussion and Analysis of FinancialCondition and Results of Operations – Liquid Funds andInterest-bearing Liabilities”.

Investor has issued a letter of support regarding SaabAB in connection with the agreements between the FMVand IG JAS regarding Batch 3. See “Major Agreements”.

Lansen Insurance AB (“Lansen”) is the Group’swholly-owned insurance company, which providesinsurance primarily within the Group. In addition,Lansen provides insurance to Grand Hotel Stockholm,Grand Hotel Saltsjöbaden, Berns Hotel and the ChinaTheatre which all form part of the Investor Group. Theseinsurance contracts are leased on market terms and willremain in place after the offering. Lansen’s insurancecommitments are reinsured in accordance with what iscustomary in the industry.

Investor has guaranteed Saab AB’s undertakingstowards FPG Försäkringsbolaget, Pensionsgaranti,ömsesidigt (”FPG”). Investor’s guarantee undertakingwill be released in connection with the listing inaccordance with this prospectus. Instead, security toFPG will be offered directly by Saab AB through apledge of properties and liquid funds corresponding toa total amount of approximately SEK 1,000 million.

Except as discussed above, there are no materialfinancial or contractual relationships between Saab ABand Investor. Saab AB has operated on a stand-alonebasis since acquired by Investor in 1991, and no materialadditional costs are expected to arise in relation to itsbusiness as a result of its separation from the InvestorGroup.

The Relationship Between theSaab Group and Investor

78 I Saab Group

BOARD OF DIRECTORS(1)

Anders ScharpChairman since 1990, born 1934. Chairman of AtlasCopco AB, AB SKF and Scania AB. Vice-chairman ofInvestor AB. Chairman of the Swedish Employers’Federation. Board member of Email Limited (Australia)and the Swedish Industrial Association.Shares in Investor: 8,896Convertibles in Investor: ––Options in Investor: ––

Marcus WallenbergVice-chairman since 1993 and Board of Directorsmember since 1992, born 1956. Vice-chairman of ABAstra, LM Ericsson and STORA. Board of Directorsmember of Incentive AB, Investor AB, Scania AB, S-E-Banken as well as the Knut and Alice WallenbergFoundation.Shares in Investor: 271,903Convertibles in Investor: ––Options in Investor: 9,124

Erik BelfrageMember of the Board of Directors since 1991, born 1946.Director of S-E-Banken. Chairman of Institute forBusiness Management (IFL) and Centre for EuropeanPolicy Studies (CEPS). Board of Directors member of, forexample, SAS, SAS Sverige AB and the InternationalCommerce Council (NIR).Shares in Investor: 970Convertibles in Investor: ––Options in Investor: ––

Lars-Erik EnglundMember of the Board of Directors since 1997, born 1934.Lieutenant-General. Head of the Swedish Air Force1988-1994. Vice-chairman of the Board of Directors ofLinköping University. Board of Directors member of theRoyal Academy of War Science, SAS Flight Academyand the Svenska Dagbladet Foundation.Shares in Investor: ––Convertibles in Investor: –––Options in Investor: ––

Björn SvedbergMember of the Board of Directors since 1998, born 1937.Board of Directors member of ABB AB, ABB Ltd,Incentive AB, Investor and STORA.Shares in Investor: 4,400Convertibles in Investor: ––Options in Investor: ––

Bengt HalseHead of Group, Managing Director and member of theBoard of Directors since 1995, born 1943. Member of theboard of Directors of Chalmers Tekniska Högskola andCaran AB.Shares in Investor: ––Convertibles in Investor: ––Options in Investor: ––

Lennart HedlundMember of the Board of Directors since 1995, born 1946.Chairman of the Academicians Association at Saab’sunits in Jönköping.Shares in Investor: ––Convertibles in Investor: ––Options in Investor: ––

Ragnar LudvigssonMember of the Board of Directors since 1995, born 1946.Chairman of the Workshop Club at Saab AB inLinköping.Shares in Investor: ––Convertibles in Investor: ––Options in Investor: ––

Lars OlssonMember of the Board of Directors since 1995, born 1937.Chairman of the SIF-club at Saab AB in Linköping.Shares in Investor AB: 10Convertibles in Investor AB: ––Options in Investor AB: ––

ELECTED MEMBERS OF THE BOARD OFDIRECTORS, NOT YET EFFECTIVEThe below members of the Board of Directors wereelected at an Extraordinary General Meeting on April, 301998 and will enter upon the duties when BritishAerospace’s acquisition of Saab shares has beenapproved by relevant authorities. See “Share Capital andOwnership Structure – The Shareholders’ Agreementbetween Investor and British Aerospace”.

George W. RoseMember of the Board of Directors since 1998, born 1952.Finance Director British Aerospace plc.

William Anthony RiceMember of the Board of Directors since 1998, born 1952.Chief Executive British Aerospace Asset Management.

Kevin SmithMember of the Board of Directors since 1998, born 1954.Deputy Group Managing Director British Aerospace plc.

Board of Directors,Group Management and Auditors

(1) Including holdings of spouse, under age children and closely held companies.

Saab Group I 79

AUDITORS

Caj NackstadChartered accountant, KPMG Bohlins AB, born 1945.Auditor for Saab AB since 1991.

Gunnar WidhagenChartered accountant, Ernst & Young AB, born 1938.Auditor for Saab AB since 1993.

DEPUTY AUDITORS

Bo RibersChartered accountant, KPMG Bohlins AB, born 1942.Deputy auditor for Saab AB since 1993.

Björn FernströmChartered accountant, Ernst & Young AB, born 1950.Deputy auditor for Saab AB since 1993.

BOARD OF DIRECTORS, GROUP MANAGEMENT AND AUDITORS

DEPUTY BOARD MEMBERS

Göran GustavssonMember of the Board of Directors since 1995, born 1953.Treasurer of the Workshop Club at Saab AB inLinköping.Shares in Investor: 25Convertibles in Investor: ––Options in Investor: ––

Conny HolmMember of the Board of Directors since 1995, born 1947.Chairman of the Workshop Club at the Group’s units inJönköping.Shares in Investor: 50Convertibles in Investor: ––Options in Investor: ––

Lars-Göran LarssonMember of the Board of Directors since 1995, born 1943.Chairman of the SIF-club at Dynamics and MarineElectronics in Gothenburg.Shares in Investor: 100Convertibles in Investor: ––Options in Investor: ––

GROUP MANAGEMENT

Bengt HalseHead of Group, Managing Director and member of theBoard of Directors since 1995, born 1943. Member of theBoard of Directors of Chalmers Tekniska Högskola andCaran AB.Shares in Investor: ––Convertibles in Investor: ––Options in Investor: ––

Göran SjöblomDeputy Managing Director, born 1943. Chief FinancialOfficer. Has worked within the Group since 1995.Member of the Group Management since 1995. Memberof the Board of Directors of the I-section of ChalmersTekniska Högskola.Shares in Investor: ––Convertibles in Investor: ––Options in Investor: ––

80 I Saab Group

BOARD OF DIRECTORS, GROUP MANAGEMENT AND AUDITORS

GROUP HEADS OF STAFF

Year First Employed in the Group

Lars WahlundBorn 1953. Finance 1983

Peter SandehedBorn 1952. Treasury 1981

Mats LindmanBorn 1945. Personnel 1986

Per ErlandssonBorn 1947. Legal matters.Secretary to the Board of Directors 1980

Johan ÖsterBorn 1938. Quality 1986

Billy FredrikssonBorn 1943. Technology 1978

Lars JagerfeltBorn 1948. Information 1985

Tommy IvarssonBorn 1939. Strategy 1972

Ulf PeterssonBorn 1959. Country and Business Analysis 1991

Staffan EricssonBorn 1955. Risk Management 1986

Rolf DolkBorn 1939. Security 1976

HEADS OF BUSINESS UNITS

Year First Employed in the GroupHans KrügerBorn 1944. Gripen 1994

Ingemar NycanderBorn 1939. General Military Programs 1983

Gert SchyborgerBorn 1940. Saab Aircraft AB 1996

Mikael GrodzinskyBorn 1958. Regional Aircraft 1985

Pontus KallénBorn 1958. Collaborative Programs 1985

Jan CarlssonBorn 1960. Combitech 1993

HEADS OF SUBSIDIARIES

Anders A. AnderssonBorn 1939. Saab Dynamics AB 1965

Björn ErmanBorn 1949. Ericsson Saab Avionics AB 1997

Ivan ÖfverholmBorn 1942. Saab Ericsson Space AB 1984

Hans RobertsonBorn 1943. Saab Training Systems AB 1967

Lars B. FlodmanBorn 1942. Saab Aircraft Credit AB 1987

COMPENSATION

For the remuneration of Group Management and theBoard of Directors, see Note 2 of the “Statutory FinancialStatements”. The Group’s auditors have receivedremuneration amounting to SEK 3.6 million for thefinancial year 1997.

INCENTIVE PROGRAMS

The Group is currently considering the implementationof an incentive program or a program for jointownership for management and for other employees,the details of which are yet to be decided. See “ShareCapital and Ownership Structure – The Shareholders’Agreement between Investor and British Aerospace”.

TRANSACTIONS WITHCLOSELY RELATED PARTIES

Saab AB has not granted loans, guarantees or sureties to,or on behalf of members of the Board of Directors, seniorexecutives or the Group’s auditors. No member of theBoard of Directors and no senior executive has - duringthe current, preceding or an earlier year - participateddirectly or indirectly in any commercial transactionwhich is or was unusual in character or terms, andwhich in any way remains unsettled or incomplete. SaabAB’s auditors have not participated in any transactionssuch as those described above.

Saab Group I 81

THE COMPANY’S NAME

The name of the company is Saab Aktiebolag. Thecompany is a public company.

ACTIVITY

The objective of the company’s activity is, directly or bymeans of subsidiaries, to develop, manufacture and sellaircraft and aircraft components, defense materials andindustrial electronics, to own and administer real estateand personal property, to purchase and sell rights and toexercise financing activities and to conduct relatedoperations, but not operations covered by the BankingBusiness Act or the Swedish Act on Financing Activities.

THE BOARD OF DIRECTOR’S SEAT

The municipality of Linköping.

SHARE CAPITAL

The share capital shall comprise no less than SEK750,000,000 and not more than SEK 3,000,000,000.

SHARES

Each share will have a nominal value of SEK 16.

CONVERSION

Owners of Class A shares have the right to convert suchshares into Class B shares. Such request shall be made inwriting to the Board of Directors, stating the number ofshares desired to be converted. Other information anddocuments required by the Board of Directors should bepresented. The Board of Directors is obliged to registerthe application for conversion within one month of itsreceipt. The conversion is effective upon registration.

THE BOARD OF DIRECTORS

In addition to persons who may be appointed in anothermanner in accordance with pertinent statues the Boardof Directors shall consist of not fewer than six and notmore than twelve members, together with not more thanfour deputies. Members and deputies are electedannually at the Annual General Meeting to serve untilthe following Annual General Meeting.

VOTING RIGHTS

At the voting in a General Meeting, each Class A share isentitled to ten votes and each Class B share is entitled toone vote. In other respects, the shares of Class A and Bcarry equal rights. At the General Meeting, each personwith voting rights may vote for the full number of sharesowned and represented by him without restriction onthe number of voting rights.

FINANCIAL YEAR

Saab AB’s financial year is the calendar year.

VPC REGISTRATION

Saab AB is affiliated with the VärdepapperscentralenVPC AB (the Swedish Securities Register Center).

OTHER INFORMATION

Saab AB’s organization number is 556036-0793. TheCompany’s state of association is regulated by theCompany’s Act (aktiebolagslagen 1975:1385). Saab ABwas registered at the Swedish Patent and RegistrationOffice, on April 26, 1937, and has pursued business eversince. The Company’s name was changed on June 27,1995 to Saab Aktiebolag. The distribution of dividends ishandled by VPC.

Information from Saab AB Articles of Association

82 I Saab Group

Legal Structure of the Saab Group

SAAB AB

Saab Dynamics AB

Saab Ericsson Space AB (60%)

Ericsson Saab Avionics AB (49.9%)

Austrian Aerospace GmbH (78%)

Saab International AB

Saab Ericsson Space Inc (USA)

Saab International (Chile) Lida

Saab Ericsson Space Fastighets AB

CSM Materialteknik AB (50%)

Saab Treasury AB (Commission basis)

Lansen Försäkrings AB

Saab BAe Gripen AB (50%)

Industrigruppen JAS AB (20%)

Military Aerospace subsidiaries

Space subsidiaries

Training Systems subsidiaries

Combitech subsidiaries

Regional Aircraft subsidiaries

Corporate subsidiaries

Commercial Aircraft subsidiaries

Saab Helikopter AB

Saab Air AB

Industrikompetens AB (25% July 1, 1998)

Saab Far East Sdn Bhi Malaysia

Saab Training Systems AB

Saab Training Systems GmbH (Ger)

Saab Training Systems UK Ltd

Saab Training Systems Inc (USA)

Saab Combitech AB

Combitech Traffic Systems AB

IV Image Systems AB

Saab Marine Electronics AB

Saab Holdings US Inc

Saab Aircraft of America Inc

Saab Aircraft Ltd (UK)

Saab Aircraft International Ltd

Saab Aircraft AB (Commission basis)

Saab Tank Control Vertriebs GmbH (Ger)

Saab Marine UK Ltd

Scanjet Clean AB (50%)

Saab Systems Inc USA (Marine)

Combitech Electronics AB

Combitech Network AB

Combitech Software AB (65%)

Pronesto AB

Saab Survey Systems AB

Combitech Innovation AB

SAFG subsidiaries

Saab Aircraft Credit AB

Fairbrook Inc USA (subgroup)

Aero Three AB

2000 Aircraft Credit AB

SF 340 Leasing AB

Swedish Aircraft 2, 3, 4, 5 KB

Saab Scania Rental AB

Saab Marine RU (Russia) (54%)

Saab Group I 83

The following financial statements are mainly extracted from the statutory financial statements of Saab AB for the years1995, 1996 and 1997.

INCOME STATEMENT OF THE SAAB GROUP

1995 1996 1997(in SEK million) Note (pro forma) (pro forma)

Sales 3 7,925 8,159 8,674Cost of goods sold –6,471 –6,424 –6,400

Gross margin 1,454 1,735 2,274

Marketing expenses –602 –736 –824Administrative expenses –543 –589 –622Research and development costs –556 –625 –495Items affecting comparability 4 –1,219 –5,421Other operating income 5 180 154 133Other operating expenses 6 –333 –788 –364Share in income of associated companies 1 2 3

Operating income 9 –399 –2,066 –5,316

Result from financial investmentsOther interest income and similar profit/loss items 10 835 646 571Interest expense and similar items 11 –165 –152 –100


Income after financial items 271 –1,572 –4,845

Tax 13 –112 203 1,075Minority interest –11 –16 –20

Net income for the year 148 –1,385 –3,790

Statutory Financial Statements

84 I Saab Group

BALANCE SHEET OF THE SAAB GROUP

(in SEK million) 1995 1996 1997ASSETS Note (pro forma) (pro forma)

Fixed assetsIntangible fixed assetsCapitalized expenditure for research anddevelopment and similar 14 819 40Other intangible fixed assets 15 122Goodwill 16 141 76 12

960 116 134

Tangible fixed assetsLand and buildings 17 1,008 984 1,695Plant and machinery 18 667 665 667Equipment, tools, fixtures and fittings 19 418 162 173Lease assets 20 5,736 5,937 6,919Construction in progress and advancepayments for tangible fixed assets 21 25 9 48

7,854 7,757 9,502

Financial fixed assetsReceivables from Group companies 23 24 2,293Participations in associated companies 24 10 7 30Other securities held as fixed assets 25 15 35 36Other long-term receivables 26 527 531 532Deferred tax receivables 27 866

576 2,866 1,464Total fixed assets 9,390 10,739 11,100

Current assetsInventories etc.Raw materials and consumables 1,076 926 977Work in progress 2,276 3,458 3,250Finished products and goods for resale 407 450 529Advance payments to suppliers 148 131 240

3,907 4,965 4,996Current receivablesAccounts receivable 822 905 692Receivables from Group companies 9,559 6,986 9,104Receivables from associated companies 113 154 445Other receivables 204 165 212Prepaid expenses and accrued income 28 183 175 223

10,881 8,385 10,676

Short-term investments 29 3,374 6,620 5,672Cash and bank 585 679 336


Total assets 28,137 31,388 32,780

STATUTORY FINANCIAL STATEMENTS

Saab Group I 85

BALANCE SHEET OF THE SAAB GROUP

(in SEK million) 1995 1996 1997EQUITY AND LIABILITIES Note (pro forma) (pro forma)

Equity 30Restricted equityCapital stock (68,134,192 shares with a par value of SEK 25 each) 1,703 1,703 1,703Restricted reserves 2,064 1,315 1,832

3,767 3,018 3,535

Unrestricted equityProfit or loss brought forward 1,913 4,691 3,346Net income for the year 148 –1,385 –3,790

2,061 3,306 –444

5,828 6,324 3,091

Minority interest in subsidiaries 172 143 158

ProvisionsProvisions for pensions and similar commitments 32 2,058 2,161 2,243Provisions for deferred tax liabilities 27 347 274Other provisions 33 936 1,849 6,868

3,341 4,284 9,111

Long-term liabilitiesLiabilities to credit institutions 35 241 59 30Lease obligations 36 5,289 5,432 4,922Other long-term liabilities 36 426 760

5,530 5,917 5,712

Current liabilitiesLiabilities to credit institutions 34 420 288 918Advance payments from customers 6,860 8,017 7,538Accounts payable 806 661 840Liabilities to associated companies 74 8 69Income tax liability 179 198 383Other liabilities 37 520 592 357Lease obligations 253 309 285Accrued expenses and deferred income 38 4,154 4,647 4,318

13,266 14,720 14,708

Total equity and liabilities 28,137 31,388 32,780

Assets pledged 39For own liabilities and provisionsChattel mortgages 2,048 2,147 2,147Lease assets(1) 2,799 2,683 2,551Other long-term receivables 341 363 393Accrued income 61 61 61Bonds and securities 2,456 6,435 5,520

Total assets pledged 7,705 11,689 10,672

Contingent liabilitiesPension liabilities other than reported among liabilities and provisions 93Guarantees to the insurance company Pensionsgaranti (FPG) 36 39 41Sureties for associated companies 1 5Sureties(2) 4,855 6,046 6,381Less amount shown as liability in the balance sheet(3) –2,161 –2,685 –3,363

Total contingent liabilities 2,823 3,401 3,064

(1)In addition to the above lease assets pledged, the balance sheet containes assets reported in accordance with finance lease contracts.(2)Of this amount, $744 million (839) comprises guarantees for sureties of lease agreements related to 175 (170) Saab 340 and Saab 2000 aircraft.The amount includes a payment liability of SEK

118 million (113) which may arise as a result of the Group guaranteeing the tax outcome of lease transactions with external investors.(3)Of the above sureties, 52 aircraft (58) equivalent to $ 251 million (299) have been accounted for as finance leases in the Group. In the balance sheet, $211 million (94) has been accounted for as

liability related to a provision for future deficits according to valid leasing contracts.


86 I Saab Group

STATEMENT OF CASH FLOWS OF THE SAAB GROUP

1995 1996 1997(in SEK million) (pro forma) (pro forma)

Cash flows from operating activitiesOperating income –399 –2,066 –5,316

Adjustments for items not affecting cash flowDepreciation and write-down 848 977 789Items affecting comparability 1,219 5,421Share in income of associated companies –1 –2 –3

Total 448 128 891

Financial income 835 646 571Dividend from associated companies 1Financial expenses –165 –152 –100Tax paid 10 –86 –287

Cash flow from operating activities before changes in working capital 1,128 536 1,076

Change in working capitalIncrease in inventories etc. –455 –1,058 –31Increase in current receivables –254 –77 –173Decrease in advance payments 825 1,157 –479Decrease in current liabilities –246 373 –139Increase in other long-term liabilities –20 426 334Decrease in lease obligations 747 199 –534Decrease in provisions 48 521 –402

Change in working capital 645 1,541 –1,424

Cash flow from operating activities 1,773 2,077 –348

Cash flow from investmentsInvestments in intangible fixed assets –126 –6 –117Investments in tangible fixed assets –91 –316 –376Investments in lease assets –997 –541 –1,365Investments in financial fixed assets –10 –15 –22Increase in long-term receivables –144 –4 –1

Cash flow from investments –1,368 –882 –1,881

Operating cash flow 405 1,195 –2,229

Other itemsShareholders’ contributions and Group contributions 2,155Minority interest in subsidiaries –2 –45 –5Translation differences etc –32 –57 85

Total –34 2,053 80

Change in net liquidity 371 3,248 –2,149

FinancingRaised loans 293 630Amortization of liabilities –199 –315 –29Increase in provisions for pensions 188 103 82

Cash flow from financing 282 –212 683

Decrease in cash and bank, short-term investments, receivables from Group companies 653 3,036 –1,466Cash and bank, short-term investments, receivables from Group companies at the beginningof the year 12,889 13,542 16,578

Cash and bank, short-term investments, receivables fromGroup companies at year-end 13,542 16,578 15,112


Saab Group I 87

PARENT COMPANY INCOME STATEMENT

(in SEK million) Note 1996 1997

Sales 3 5,586 6,845Costs of goods sold –4,865 –5,593

Gross margin 721 1,252

Marketing expenses –360 –415Administrative expenses –352 –430Research and development costs –367 –126Items affecting comparability 4 –1,219 –4,079Other operating income 5 123 130Other operating expenses 6 –29 –14

Operating income 9 –1,483 –3,682

Result from financial investmentsResult from other securities and receivablesaccounted for as fixed assets 80 22Group contributions received 206 239Other interest income and similar profit/loss items 10 594 518Interest expense and similar profit/loss items 11 –118 –142

Net financial income and expenses 762 637

Income after financial items –721 –3,045

AppropriationsGroup contributions received 54Group contributions given –701Other appropriations 12 –20 43

Tax 13 1,401

Net income for the year –687 –2,302


88 I Saab Group

PARENT COMPANY BALANCE SHEET

(in SEK million)ASSETS Note 1996 1997

Fixed assetsTangible fixed assetsLand and buildings 17 286 1,285Plant and machinery 18 288 309Equipment, tools, fixtures and fittings 19 151 113Construction in progress and advance 21payments for tangible fixed assets 17

725 1,724

Financial fixed assetsParticipations in Group companies 22 726 2,414Receivables from Group companies 23 4 140Participations in associated companies 24 4 16Other securities held as fixed assets 25 2 6Deferred tax receivables 27 124 1,545

860 4,121

Total fixed assets 1,585 5,845

Current assetsInventories etc.Raw materials and consumables 795 812Work in progress 2,924 2,652Finished products and goods for resale 182 220Advance payments to suppliers 102 214

4,003 3,898

Current receivablesAccounts receivable 267 44Receivables from Group companies 7,391 9,591Receivables from associated companies 153 425Other receivables 124 154Prepaid expenses and accrued income 28 38 22

7,973 10,236

Short-term investments 29 6,620 5,672Cash and bank 211 86

Total current assets 18,807 19,892

Total assets 20,392 25,737


Saab Group I 89

PARENT COMPANY BALANCE SHEET

(in SEK million)

EQUITY AND LIABILITIES Note 1996 1997

Equity 30

Restricted equityCapital stock (68,134,192 shares with a par value of SEK 25 each) 1,703 1,703Revaluation reserve 500Legal reserve 368 368

2,071 2,571

Unrestricted equityProfit or loss brought forward 2,868 2,183Net income for the year –687 –2,302

2,181 –119

4,252 2,452

Untaxed reserve 31Accumulated excess depreciation 274 523

274 523

ProvisionsProvisions for pensions and similar commitments 32 1,479 1,648Other provisions 33 4,079

1,479 5,727

Long-term liabilitiesLiabilities to Group companies 3,050 3,547

3,050 3,547

Current liabilitiesLiabilities to credit institutions 34 259 984Advance payments from customers 6,859 6,373Accounts payable 187 581Liabilities to Group companies 1,074 3,364Liabilities to associated companies 8 64Income tax liability 197 399Other liabilities 37 257 152Accrued expenses and deferred income 38 2,496 1,571

11,337 13,488

Total equity and liabilities 20,392 25,737

Assets pledged 39For own liabilities and provisionsChattel mortgages 2,101 2,101Bonds and securities 6,435 5,520

Total assets pledged 8,536 7,621

Contingent liabilitiesGuarantees to the insurance company Pensionsgaranti (FPG) 25 30Sureties for Group companies 4,166 4,499Sureties for others 2,866 2,651Sureties for associated companies 1 5

Total contingent liabilities 7,058 7,185


90 I Saab Group

STATEMENT OF CASH FLOWS OF THE PARENT COMPANY

(in SEK million) Note 1996 1997

Cash flows from operating activitiesOperating income –1,483 –3,682

Adjustments for items not affecting cash flowDepreciation 319 143Items affecting comparability 1,219 4,079

Total 55 540Financial income 880 778Dividend from associated companies 1Financial expenses –118 –142Tax paid –216

Cash flow from operating activities before changesin working capital 817 961

Change in working capitalDecrease in inventories etc. –869 105Increase in current receivables –205 –63Decrease in advance payments 1,000 –486Decrease in current liabilities –205 –378

Change in working capital –279 –822

Cash flow from operating activities 538 139

Cash flow from investmentsInvestments in tangible fixed assets –189 –447Investments in financial fixed assets 7 –1,704

Cash flow from investments –182 –2,151

Operating cash flow 356 –2,012

Other changesTransferred untaxed reserves etc. –5 295Group contribution given –189 –701Shareholders’ contribution given –56

Change in net liquidity 106 –2,418

FinancingRaised loans 725Amortization of liabilities –298Increase in provisions for pensions 143 169

Cash flow from financing –155 894

Decrease in cash and bank, short-term investments,receivables from Group companies –49 –1,524Cash and bank, short-term investments, receivablesfrom Group companies at the beginning of the year 10,151 10,102

Cash and bank, short-term investments, receivables fromGroup companies at year-end 10,102 8,578


Saab Group I 91

General Accounting PrinciplesFrom and including 1997, the company is implementing thenew legislation and guidelines on annual accounts which areadapted to the requirements of the EU.This entails changes inthe layout of the income statement and balance sheet. Theincome statements and balance sheets for comparative yearshave been adapted to the new rules.The new rules have hadonly an insignificant influence on the company’s valuationprinciples.The company follows the recommendations of theSwedish Financial Accounting Standards Council(Redovisningsrådet) and the Swedish Accounting StandardsBoard (Bokföringsnämnden).

In conformance with the legislation on annual accounts, theincome statement is classified according to function, whichreflects internal reporting and provides a clear picture of thecompany's income. This layout has also been chosen by theParent Company in the Group, Investor.

The functions are as follows: Cost of goods sold comprisescosts for goods handling and manufacturing, including salariesand material costs, purchased services and costs of premises,and depreciation on fixed assets. Administrative expenses relateto costs for the Board, company management and corporatestaff functions. Marketing expenses comprise costs for thecompany’s own sales organization, including sales subsidiaries,advertising and exhibitions. Research and development costs arereported separately and comprise costs for new and furtherdevelopment of products, see below. Other operating incomeand expenses relate to secondary activities, exchange ratedifferences on items of an operating character and capitalgains/losses from sales of tangible fixed assets. Income from,among other things, the SAFG operation and at Group levelalso capital gains/losses from divestment of subsidiaries andgoodwill depreciation are included.

Group StructureIn the 1996 fiscal year, the customer finance operation forregional aircraft was reported as an independent group whollyowned by Investor, the Saab Aircraft Finance Group (SAFG).In 1997, a decision was made on terminating regional aircraftproduction and as a result SAFG was re-consolidated in theGroup owing to the strong relation between the customerfinance operation and the continuation of Saab’s Customer Sup-port for the aircraft fleet within Saab. Saab AB was the formalowner of the shares also in 1996.The Group’s financial state-ments for earlier years have consequently been adjusted toinclude SAFG.

Consolidated Accounts StatementsThe consolidated accounts comprise the Parent Companyand all subsidiaries and associated companies in Sweden andabroad. Subsidiaries are companies in which the ParentCompany directly or indirectly owns more than 50 percent ofthe voting rights of the shares, companies where the ParentCompany owns shares and is entitled to appoint or dismissmore than half the members of the Board or where theParent Company otherwise has a decisive influence and a

significant share in the income generated from theiroperations.Assocated companies are companies in which theParent Company directly or indirectly has a long-termownership interest and where the voting rights are between20 and 50 percent.

The consolidated statements are prepared in accordancewith the purchase method of accounting.This means that anacquired subsidiary’s assets and liabilities are accounted for atmarket value according to an analysis of the acquisition. If theacquisition value of the shares in the subsidiary exceeds theestimated market value of the Company’s net assets, accodingto the analysis, the difference is considered Group goodwill. Inthis way, only income that arises after the date of acquisitionis included in the Group’s equity.

Associated companies are accounted for in accordancewith the equity accounting method.This means that the bookvalue of the shares and participations in associated companesis valued at the Group’s share in the equity of the associatedcompanies. Thus, consolidated income includes only Saab’sshare in the income of the associated companies, providedthis does not result in a negative book value of the shares.

Minority interest comprises the minority share in netincome and shareholders’ equity.

Companies acquired during the year are included in theGroup’s income for the period following their acquisition.Income of companies sold during the year is not included inthe Group’s income.

Intra-Group profits and transactions are eliminated. Pricesof internal Group supplies of goods are determined byapplying commercial principles.

Foreign Subsidiaries and Associated CompaniesThe financial statements of foreign subsidiaries and associatedcompanies are translated to SEK in conformity with Interna-tional Accounting Standard No.21 (IAS 21).This means that theincome statements and balance sheets of these companies aretranslated to SEK using the current rate method.

With the current rate method, assets and liabilities aretranslated at the year-end exchange rate, while income andexpenses are translated at the average exchange rate for theyear. The translation difference that arises when translatingthe net assets of foreign companies at a different rate at thebeginning of the year than at year end is reported directly inshareholders’ equity in the balance sheet.

Valuation Principles, etc.Assets, provisions and liabilities have been valued at thepurchase value unless otherwise stated in the following.

Sales and IncomeSales and income are reported at delivery of products, andservices at the time the majority of risks and rights aretransferred to the purchaser.

For long-term development contracts, revenue isrecognized in pace with completion according to the“Percentage of completion” method. From the calculated total

NOTES WITH ACCOUNTING PRINCIPLES AND COMMENTS ON THE FINANCIAL STATEMENTS

Amounts in SEK million unless otherwise stated.


92 I Saab Group

revenue for a project, a deduction is made during therespective period in an amount corresponding to the incurredcosts as a proportion of the calculated total costs at the endof the period. In lengthy delivery contracts for militaryaircraft, revenue is recognized in pace with deliveries. Changesin anticipated total revenues and costs per contract arereported in the same period as they are noticed.

Depreciation Principles for Fixed AssetsDepreciation according to plan is based on the historical costand estimated useful life of an asset.Write-down is applied inthe case of a permanent fall in value.

The following depreciation plan is used:Intangible fixed assetsCapitalized expenditure on R&D, etc. 5 yearsComputer software, non-standard 5 yearsGoodwill and other intangible assets 5–10 years

Tangible assetsProperty 25 yearsAircraft 25 yearsRevaluation of property 20 yearsLand improvements 20 yearsMachines and other technical installations 5–10 yearsComputers, equipment, tools and installations 3–10 years

The difference between the above depreciations and fiscaldepreciations is, in legal entities, reported as accumulatedexcess depreciation, which is included in untaxed reserves.

Operating IncomeFor orders whose manufacturing cost is financed to asignificant extent by advances from customers, the effect ofadvance-payment financing on interest is reported underoperating income. See Note 10.

Research and Development ExpendituresThe Group’s definition of expenditures for research anddevelopment conforms with that used by Statistics Sweden.

Expenditures on internal research and development arenormally booked as costs when they are incurred. Onlydevelopment costs directly attributable to new and importantproducts for the Group are capitalized. Such capitalized costsare amortized annually with a minimum of 20 percent. Duringthe year, a write-down of SEK 40 million for Traffic Systemshas been considered necessary, after which the Group’sbalance sheet contains no remaining development costscarried forward.

For the development and manufacture of the Saab 340 andSaab 2000 commercial aircraft, the Swedish Governmentparticipates in the projects on commercial terms. Saab hasreceived a total of SEK 1,476 million for the years 1980–1994,according to the agreements.The amounts received have beenreported as income at the same rate as expenditures wereincurred for the projects. According to the agreements,compensation for the Government’s risk-taking was to bepaid by Saab in the form of royalties based on the projects’revenues and income. In a supplementary agreement signed inDecember 1997 between Saab and the Swedish Government,

payment to the Government will instead be based on incomefrom the Customer Support operation after production hasbeen terminated.

Guarantee CostsCalculated costs for product guarantees burden the costs inconnection with sales of a product.

Items Affecting ComparabilityRecommendation No. 4 of the Swedish Financial AccountingStandards Council is applied, whereby the effects on incomeof special events and transactions of significance are specifiedwithin the respective income concept. Examples of suchevents and transactions are capital gains/losses when divestingoperating areas and major fixed assets, write-downs andrestructuring costs.

Hedging Commercial FlowsExchange differences on forward contracts related tocontracted future currency flows are reported in the sameperiod as the underlying flow.

Non-contracted flows concerning provisions forrestructuring costs where settlement is made in foreigncurrency are hedged so that no exchange rate differenceoccurs upon settlement.

InventoriesInventories, which are valued in accordance withRecommendation No. 2 of the Swedish Financial AccountingStandards Council “Inventory Accounting”, are valued at thelower of acquisition value according to the so-called first in,first out principle and actual value. For internally producedsemi-manufactured and finished goods, the acquisition valueconsists of direct manufacturing costs and a reasonablemarkup for indirect manufacturing costs.

ReceivablesAfter individual valuation, receivables have been valued in theamounts in which they are expected to be received.

Receivables and Liabilities Concerning LeasingOperationsThe aircraft finance operation carried on by SAFG reportsleasing business in accordance with Recommendation No. 6 ofthe Swedish Financial Accounting Standards Council, whichentails a classification of the lease contracts into finance andoperating categories.

A finance lease implies that the lessee, even if he does notreceive the legal rights of ownership of an object, in allsignificant respects enjoys the financial rewards and acceptsthe risks associated with the object. Objects possessed inaccordance with a finance lease are reported in the lessee’sbalance sheet as a fixed asset and the obligation to pay futureleasing charges, as a liability.The lessor reports in its balancesheet his net investment in the lease contract, i.e. the presentvalue of future leasing charges, as a receivable.

In an operating lease, the financial rewards and risks linkedwith ownership mainly affect the lessor, who reports theobject as a fixed asset.


Saab Group I 93

For anticipated or real deficits according to lease contracts,provisions are made with the discounted present value of thecalculated deficit. Since the leasing portfolio is regarded as afinancial asset which in principle must be divestable at a givenpoint in time, a market valuation of the lease contracts is alsomade. Surpluses and deficits between lease contracts in theportfolio are thereby offset.

Receivables and Liabilities in Foreign CurrencyReceivables and liabilities in foreign currency have been valuedat the year-end exchange rate in accordance withRecommendation No. 7 of the Swedish Accounting StandardsBoard. Exchange rate differences in short-term receivablesand liabilities are included in operating income, whiledifferences in financial receivables and liabilities are reportedamong financial items.

Receivables and liabilities hedged by forward contracts arevalued at the current forward rate.

Receivables from Group CompaniesShort-term investments with Investor carry interestcorresponding to the interest rate on Treasury bills. Long-term receivables from Group companies relate to Groupcontributions received and shareholders’ contribution fromthe Parent Company. During 1997, no interest was receivedon these receivables.

Short-Term InvestmentsIn accordance with the Annual Accounts Act, short-terminvestments are valued at the lower of acquisition value andactual value.

TaxesThe Group’s total tax consists of paid tax and deferred tax.Deferred tax represents the difference between fiscal

valuation and the valuation in the accounts of assets andliabilities, but only if the difference is of a temporary nature.Deferred tax is also calculated on unutilized tax losses to becarried forward.

If the calculations result in a deferred tax receivable, this isonly accounted for as an asset if it in all probability is expectedto be realized.

Deferred tax is calculated in accordance with the latestdecided tax rate.

As from 1997, deferred tax related to the Parent Companyhas been accounted for in the Parent Company, with theexception of deferred tax in untaxed reserves. See Note 27.

Untaxed ReservesTax regulations in Sweden and certain other countries permitallocations to special reserves. In this manner, companies,within certain limits, can apportion and retain earnings in theirbusiness without subjecting them to immediate taxation.

Untaxed reserves are not subject to taxation until they areutilized. However, in the event the business should incur aloss, the reserves may be utilized to cover such a loss withoutthe payment of tax. The total value of the untaxed reservescan therefore be considered risk capital, because any lossescan be covered through use of the reserves.

In the Group’s balance sheet, untaxed reserves are dividedinto shareholders’ equity and the deferred tax liability. In theincome statement, tax attributable to the year’s change inuntaxed reserves is reported as deferred tax.

Group InformationOf the Parent Company’s sales, 17 percent (5) concernedsales to companies within the Saab Group, while 18 percent(22) of the Parent Company’s purchases were fromsubsidiaries.


Exchange rates for SEK used in the financial statements

Year-end rate Average rateCountry Currency 1995 1996 1997 1995 1996 1997

Australia AUD 1 4.97 5.48 5.15 5.29 5.25 5.68Austria ATS 100 66.00 62.82 62.51 70.85 63.39 62.62Belgium BEF 100 22.62 21.46 21.36 24.23 21.67 21.36Denmark DKK 100 120.00 115.55 115.45 127.44 115.71 115.68France FRF 100 136.05 131.15 131.40 143.09 131.02 130.91Germany DEM 100 464.45 442.05 439.75 498.47 446.00 440.71The Netherlands NLG 100 414.95 393.85 390.25 445.02 398.04 391.59Spain ESP 100 5.48 5.24 5.20 5.73 5.30 5.22UK GBP 1 10.33 11.60 13.12 11.27 10.47 12.50USA USD 1 6.67 6.87 7.87 7.14 6.71 7.64

94 I Saab Group

Note 1 Employees and personnel costs

Average number of employees in the Group of whom of whom of whom1995 men 1996 men 1997 men

Sweden 7,778 83% 7,798 84% 7,439 84%USA 91 71% 111 71% 107 71%Austria 67 84% 117 79% 104 78%UK 26 62% 28 61% 44 92%Germany 5 80% 8 88%Malaysia 2 0% 4 50% 4 50%Canada 1 100% 2 100% 3 100%France 12 75% 42 69% 3 100%Hong Kong 7 43% 6 50% 2 100%Hungary 1 100%Chile 1 100%Norway 4 100% 15 87%Australia 2 100% 2 50%China 1 100% 1 100%

Total number of employees 7,991 83% 8,131 83% 7,716 84%

Average number of employees in the Parent Company of whom of whom1996 men 1997 men

Sweden 5,006 85% 5,210 84%UK 2 100%Austria 1 100%Hungary 1 100%Chile 1 100%France 1 100%

Total number of employees 5,006 85% 5,216 84%

Salaries, other emoluments and social security expenses

1995 1996 1997Salaries Social Salaries Social Salaries Social

and other security and other security and other securityemoluments expenses emoluments expenses emoluments expenses

Parent company 1,193 567 1,282 647 1,398 632of which pension costs 137 112

Subsidiaries 850 377 960 402 868 360of which pension costs 72 58

Group 2,043 944 2,242 1,049 2,266 992of which pension costs 209 170

Of the Parent Company’s pension costs, SEK 3 million (18) relates to the Group’s Board of Directors and President, including deputies andexecutive vice presidents.The Company’s outstanding pension commitments to these amount to SEK 141 million (139), of which SEK 107 million(112) relates to previous Board members and the previous President.

Of the Group’s pension costs, SEK 8 million (22) relates to the Group’s Board of Directors and President, including deputies and executive vicepresidents.The Group’s outstanding pension commitments to these amount to SEK 156 million (155), of which SEK 116 million (112) relates toprevious Board members and the previous President.


Saab Group I 95

Salaries and other emoluments distributed per country and between Members of the Board etc. and other employees in the Group

1995 1996 1997Board of Directors Other Board of Directors Other Board of Directors Other

and President employees and President employees and President employees

Sweden 25 1,931 30 2,078 30 2,087(of which bonus, etc) (2) (2) (2)

USA 1 37 1 42 1 57(of which bonus, etc)

Austria 2 26 4 50 2 46(of which bonus, etc)

UK 3 13 2 16 4 30(of which bonus, etc)

Germany 1 3(of which bonus, etc)

France 4 1 10 2(of which bonus, etc)

Malaysia 1 1 1 1(of which bonus, etc)

Hong Kong 1(of which bonus, etc)

Chile 1(of which bonus, etc)

Norway 1 5(of which bonus, etc)

Total 31 2,012 39 2,203 39 2,227(of which bonus, etc) (2) (2) (2)

Salaries and other emoluments distributed per country and between Members of the Board etc. and other employees in the ParentCompany.

1996 1997Board of Directors Other Board of Directors Other

and President employees and President employees

Sweden 12 1,270 10 1,383(of which bonus, etc)

UK 3(of which bonus, etc)

Chile 1(of which bonus, etc)

France 1(of which bonus, etc)

Total 12 1,270 10 1,388(of which bonus, etc) (0) (0)

Note 2 Information on emoluments paid to leading company officialsIn accordance with the decision of the 1998 Annual General Meeting, the emoluments paid to Members of the Board amounts to SEK 700,000 tothe Chairman, and SEK 275,000 to each of the Members appointed at the Annual General Meeting, with the exception of the President.

In 1998, SEK 3,800,000 of base salary plus car and accommodation emoluments will be paid to the President/CEO. Bonus amounts to amaximum of 50 percent of the base salary, of which 25 percent is a qualitative bonus and 25 percent a results driven bonus. In 1998 the bonuspaid to the President relating to the financial year 1997 amounted to SEK 1,000,000. In the financial year of 1997, a total amount of SEK 4,367,238has been paid in salary and other emoluments to the President. In 1997, no bonus was paid.

In the case of retirement ordered by the Company, the President receives, in addition to his salary during the period of notice, i. e. six months,retirement compensation amounting to one year’s salary, based on his base salary the year before retirement. If no new position is obtained duringthese 18 months, an additional retirement compensation will be paid out in 12 months.After this period of two and a half years, the President isentitled to 60 percent of his base salary up to the age of 60. In the case of transfer to another employer or independent business operation, areasonable reduction of the emolument will be made.

In addition, the President and certain other senior executives are entitled, – or obliged if the Company so requests – to retire from theCompany on pension no earlier than the age of 60 or in certain cases 62. Pension up to the normal retirement age of 65 is paid at 70% of thesalary at the date of retirement.

Pension commitments for the President and other senior executives conform to the emoluments based on the ITP plan from 65 years of ageand upwards. This is linked to a supplementary agreement whereby the pension paid according to the ITP plan for the portion of the salarybetween 20 and 30 basic amounts is also paid for the portion of the salary between 30 and 50 basic amounts.

In addition to the ITP plan, the President receives a pension accordingly: for the portion of the salary between 30 and 100 basic amounts50 percent and above 100 basic amounts 32,5 percent of his salary in supplementary pension.

In the case of certain other senior executives, a special pension rule applies, with an increased old age pension from 65 and increased familyprovision amounting to 20 percent of salary at the date of retirement.An overhaul of the pension plans for the President and some other seniorexecutives will be carried out in 1998.


96 I Saab Group

Note 3 Sales by business area and geographical marketGroup Parent Company

1995 1996 1997 1996 1997

Sales by business areaMilitary Aerospace 2,698 3,471 4,480 2,870 3,901Space 383 467 594Training Systems 727 559 668Commercial Aircraft 259 278 244 278 244Combitech 792 932 1,073Regional Aircraft 3,391 2,902 3,035 2,819 2,900Less internal sales –325 –450 –1,420 –381 –200

Total 7,925 8,159 8,674 5,586 6,845

Sales by geographical marketSweden 3,148 3,739 4,225 2,886 4,433Other EU countries 1,493 1,200 1,437 1,230 689Other European countries 1,129 1.040 534 3 7North America 1,087 1,768 1,819 1,327 1,287Asia 595 290 524 94 386Australia 444 70 74 42 41Other markets 29 52 61 4 2

Total 7,925 8,159 8,674 5,586 6,845

Note 4 Items affecting comparabilityGroup Parent Company

1995 1996 1997 1996 1997

Termination costs regional aircraft production –4,079 –4,079Revaluation of leasing portfolio related to SAFG –1,342Write-down of product development –584 –584Write-down of machinery and equipment –243 –243Revaluation of commitments and guarantees –392 –392

Total – –1,219 –5,421 –1,219 –4,079

Note 5 Other operating incomeGroup Parent Company

1995 1996 1997 1996 1997

Exchange rate differences 19 69 41Trading income 99 15 99 15Income from secondary operations 39 36 31Guarantee fees 24 55Other 141 18 19

Total 180 154 133 123 130


Saab Group I 97

Note 6 Other operating expensesGroup Parent Company

1995 1996 1997 1996 1997

Operating income, aircraft finance (see below) –161 –664 –212Income from divestment of business –148Write-down of goodwill –63Other –172 –61 –4 –29 –14

Total –333 –788 –364 –29 –14

Aircraft finance SAFG 1995 1996 1997

Income statementLeasing revenue 1,177 1,285 1,554Interest revenue 59 93 123Other revenue 45 20 29

Total revenue 1,281 1,398 1,706

Leasing expenses –475 –479 –832Interest expenses –451 –508 –537Depreciation –301 –340 –383Other expenses –215 –735 –166

Total expenses –1,442 –2,062 –1,918

Operating income –161 –664 –212

Balance sheet summary SAFGAssetsLease assets 5,737 5,937 6,919Receivables, Group companies 462 3,223 3,466Receivables 786 621 712Liquid funds 9 377 7

Total assets 6,994 10,158 11,104

Equity and liabilitiesEquity –17 1,215 1,500Provisions 998 1,644 3,149Lease obligations1) 5,453 5,741 5,207Other liabilities 560 1,558 1,248

Total equity and liabilities 6,994 10,158 11,104

(1) Of which long-term obligations 5,143 5,432 4,922

The income statement and balance sheet for SAFG are mainly dollar-related since aircraft sales and leasing contracts are always made in U.S.dollars.The conversion rates used in the financial statements are shown on page 93.

Note 7 Lease contracts

Operating lease contractsGroup Parent company

Premises and Machines and Premises and Machines andOutcome buildings equipment buildings equipment

1996 48 41 15 161997 51 35 14 18

Contracted

1998 42 28 14 121999 34 17 9 92000 22 7 4 22001 12 42002 112003 and onwards 25

Total contracted 146 56 27 23


98 I Saab Group

Note 7 Lease contracts (cont.)Aircraft for lease

Payments PaymentsOutcome to lessors from airlines

1996 443 4431997 711 672

Contracted

1998 776 6611999 709 5192000 674 4412001 670 4252002 642 4252003 and onwards 4,541 2,763

Total contracted 8,012 5,234

The above commitments relate mainly to lease of Saab 340 aircraft placed with American investors and airlines.The difference between incomingand outgoing payments is mainly due to the leasing period in the sublease contracts normally being shorter than in head lease contracts.As con-tracts are extended and new contracts signed, further payments are received from airlines in addition to the contracted flows shown in the table.

Finance lease contractsAircraft for lease

1996 1997Acquisition value 2,388 2,121Accumulated depreciation -442 -460Residual value 1,946 1,661

Depreciation for the year -126 -135Leasing fees paid for the year 187 246Contracted future leasing fees (1) 1,866 1,930

(1)The above finance lease contracts relate to 35 Saab 340 aircraft in 1997 and 41 Saab 340 aircraft in 1996.

1996 1997USD million 267 230DEM million 7 6

Note 8 Depreciation on tangible and intangible fixed assets Group Parent Company

1995 1996 1997 1996 1997

Capitalized expenditure for research and development and similar –206 –206 –206Other intangible fixed assets –14Goodwill –11 –60 –45Land and buildings –54 –55 –56 –17 –37Plant and machinery –226 –254 –209 –81 –87Equipment, tools, fixtures and fittings –50 –62 –42 –15 –19Lease assets –301 –340 –383

Total –848 –977 –749 –319 –143


Saab Group I 99


Note 9 Operating income by business area Group Parent Company

1995 1996 1997 1996 1997

Military Aerospace 425 557 586 556 577Reversal of loss risk reserve 300 313 300 313Space 35 45 47Training Systems 172 115 156Commercial Aircraft 3 3Combitech –7 –159 –338Corporate –7 52 103 5 57Regional Aircraft –856 –1,093 –553 –1,125 –553SAFG –161 –664 –212Items affecting comparability –1,219 –5,421 –1,219 –4,079

Total –399 –2,066 –5,316 –1,483 –3,682

Note 10 Other interest income and similar profit/loss itemsGroup Parent Company

1995 1996 1997 1996 1997

Interest income, Group companies 853 482 278 557 355Interest income, other 264 424 536 293 404Dividends from other companies 1 6Exchange rate gains on financial assets 2 3 2Less project interest, accounted for as gross margin –284 –264 –249 –258 –241

Total 835 646 571 594 518

Note 11 Interest expense and similar profit/loss itemsGroup Parent Company

1995 1996 1997 1996 1997

Interest expenses, Group companies –9 –17 –5Interest expenses, other –38 –33 –24 –25 –20Interest on pension debt –118 –119 –76 –76 –54Write-down of participations in Group companies –59Other –4

Total –165 –152 –100 –118 –142

Note 12 Appropriations, other

Parent Company 1996 1997

Difference between book depreciation and depreciation according to planLand and buildings –30 24Plant and machinery 10 19

Total –20 43

Note 13 TaxesGroup Parent Company

1995 1996 1997 1996 1997

Tax on profit for the yearPaid –5 –86 –28 0Deferred –107 289 1,362 1,617

–112 203 1,334 0 1,617Additional taxes 0 0 –259 –216

Total –112 203 1,075 0 1,401

Additional taxes are taxes imposed by the tax authorities as a consequence of tax audits in Sweden and the USA.Taxes of SEK 229 million havebeen imposed on Swedish companies and SEK 30 million on U.S. companies. Several of the decisions of the Swedish tax authority are subject ofappeals.Approximately 80 percent of the additional taxes in Sweden relate to accruals, see accrued expenses Note 27.This has been taken intoaccount when calculating deferred taxes.

100 I Saab Group


Note 14 Capitalized expenditure for research and development and similarGroup Parent Company

1997 1997

Accumulated acquisition valueAt beginning of year 1,070 1,030Sales and disposals –1,030 –1,030

Total 40 0

Accumulated depreciation according to planAt beginning of year –446 –446Sales and disposals 446 446

Total 0 0

Accumulated write-downsAt beginning of year –584 –584Sales and disposals 584 584Write-downs for the year –40

Total –40 0

Residual value according to plan carried forward 0 0

Note 15 Other intangible fixed assetsGroup Parent Company

1997 1997

Accumulated acquisition valueAt beginning of year 0 0Purchases 136 0

Total 136 0

Accumulated depreciation according to planAt beginning of yearDepreciation for the year –14 0

Total –14 0


Note 16 GoodwillGroup

1997

Accumulated acquisition valueAt beginning of year 146Sales and disposals of business operations –107

Total 39

Accumulated depreciation according to planAt beginning of year –27Sales and disposals of business operations 54Depreciation for the year –45

Total –18

Accumulated write-downsAt beginning of year –43Sales and disposals of business operation 34

Total –9

Residual value according to plan carried forwards 12

Saab Group I 101


Note 17 Land and buildings

Group Parent Company1997 1997

Accumulated acquisition valueAt beginning of year 1,504 523Purchases 75 523 2)

Sales and disposals –3 –3

Total 1,576 (1) 1,043

Accumulated depreciation according to planAt beginning of year –537 –254Sales and disposals 2 2Acquired depreciation –179 2)

Depreciation for the year –56 –37

Total –591 –468

Accumulated net revaluationAt beginning of year 17 17Depreciation for the year Revaluations for the year 695 695Write-downs for the year –2 –2

Total 710 710

Residual value according to plan carried forward 1,695 1,285

Tax assessment value, buildings (Sweden) 831 597Tax assessment value, land (Sweden) 218 179

(1) Acquisition value includes capitalized interest of 11 0

(2) Of which acquired from subsidiaries SEK 516 million and SEK 179 million

Property possessed via finance lease contracts none none

Note 18 Plant and machinery

Group Parent Company1997 1997

Accumulated acquisition valueAt beginning of year 2,008 1,063Purchases 267 121Sales and disposals –244 –81

Total 2,031 1,103

Accumulated depreciation according to planAt beginning of year –1,343 –775Sales and disposals 188 68Depreciation for the year –209 –87

Total –1,364 –794


Assets possessed via finance lease contracts none none

102 I Saab Group


Note 19 Equipment, tools, fixtures and fittingsGroup Parent Company

1997 1997

Accumulated acquisition valueAt beginning of year 950 890Purchases 67 27Sales and disposals –60 –129

Total 957 788

Accumulated depreciation according to planAt beginning of year –788 –739Sales and disposals 46 83Depreciation for the year –42 –19

Total –784 –675


Assets possessed via finance lease contracts none none

Note 20 Lease assetsGroup Parent Company

1997 1997

Accumulated acquisition valueAt beginning of year 7,374 0Purchases 2,324Sales and disposals –1,072

Total 8,626 0

Accumulated depreciation according to planAt beginning of year –1,437 0Sales and disposals 113Depreciation for the year –383

Total –1,707 0

Residual value according to plan carried forward 6,919 0

Assets possessed via finance lease contracts noneCalculated acqusition value of the assets 2,121Leasing fees paid during the fiscal year 246Contracted future leasing fees 1,930

Note 21 Construction in progress and advance payments for tangible fixed assetsGroup Parent Company

1997 1997

At beginning of year 9 0Capitalized expediture for material and own work –9Accrued expenses during the year 48 17

At year-end 48 17

Note 22 Participations in Group companiesParent Company

1997

Accumulated acquisition valuesAt beginning of year 726New issues/shareholders’ contribution 1,500Purchases 247

2,473Accumulated write-downsAt beginning of year 0Write-downs for the year –59

–59

Book value at year-end 2,414

Saab Group I 103


Specification of Parent Company’s participations in Group companiesNo. of Share Book

Subsidiary/Corp. ID no/Reg. Office shares in % value

Saab Dynamics AB, 556055-9691, Linköping 1,000,000 100.0 167Saab Survey Systems AB, 556258-8854, Jönköping 1,000 20.0 –Saab Training Systems AB, 556030-2746, Huskvarna 150,000 100.0 42Saab Training Systems GmbH, Germany 100 100.0 –Saab Training Systems UK Ltd, England 100 100.0 –Saab Training Inc., USA 100 100.0 –Saab Aircraft AB, 556062-7647, Linköping 100,000 100.0 10Saab Combitech AB, 556108-8799, Jönköping 500,000 100.0 110IV Image Systems AB, 556319-3738, Linköping 2,000 100.0 –Combitech Traffic Systems AB, 556042-6289, Jönköping 80,000 100.0 –Combitech Traffic Systems (H.K.) Ltd, Hong Kong 98 98.0 –

Combitech Electronics AB, 556258-7930, Jönköping 5,000 100.0 17Saab Marine Electronics AB, 556043-5124, Gothenburg 15,000 100.0 71Saab Marine (UK) Ltd., England 1 80.0 –Saab Tank Control Vertriebs GmbH, Germany 1 100.0 –Saab Marine Liason Offica, Russia 6 54.0 –Saab Marine RU, Russia 6 54.0 –Combitech Innovation AB, 556055-1342, Jönköping 4,000 100.0 5Combitech Software, 556258-8862, Jönköping 3,250 65.0 2Combitech Network, 556261-3942, Jönköping 8,000 100.0 6Saab Combitech Far East Sdn Bhd, Kuala Lumpur, Malaysia 100,000 100.0 –Pronesto AB, 556112-6755, Stockholm 20,000 100.0 5Telelogic AB, 556049-9690, Malmö 6,000 100.0 25Telelogic UK Ltd., England 10,000 100.0 –Telelogic Inc., USA 1 100.0 –Fastighets AB Strömögatan 3, 556258-8870, Jönköping 1,000 100.0 –Fastighets AB Bataljonsgatan, 556378-6267, Jönköping 2,000 100.0 –Gårb Teknik AB, 556226-6899, Linköping 1,000 100.0 –Saab Ericsson Space AB, 556134-2204, Gothenburg 90,000 60.0 71Saab Ericsson Space Fastighets AB, 556230-7404, Gothenburg 1,000 100.0 –Saab Ericsson Space Inc., USA 1,000 100.0 –Austrian Aerospace GmbH,Austria 78 77.5 –Saab Survey Systems AB, 556258-8854, Jönköping 7,000 70.0 –Saab Systems Inc., USA 300,000 100.0 –Saab Holdings U.S. Inc., USA 1,000 100.0 168Saab Aircraft of America Inc., USA 1,001,000 100.0 –Saab Aircraft Holdings Inc., USA 100 100.0 –Saab Aircraft Ltd., England 100 100.0 –Saab Aircraft International Ltd., England 100,000 100.0 –Saab Aircraft Leasing Ltd., England 1,000 100.0 –Saab Aircraft Credit AB, 556020-4231 11,000 100.0 1.501Fairbrook Inc., USA 100 100.0 –Fairbrook Leasing Inc., USA 100 100.0 –Lambert Leasing Inc., USA 100 100.0 –Saab Aircraft Finance Inc., USA 100 100.0 –Saab Aircraft Financing Inc., USA 10 100.0 –Saab Finance Inc., USA 100 100.0 –Aero Three AB, 556258-8920, Linköping 1,000 100.0 –2000 Aircraft Credit AB, 556464-6031, Stockholm 629,600 80.0 –Swedish Aircraft Two KB, 916691-8194, Linköping – 50.3 –Swedish Aircraft Three KB, 916694-4364, Linköping – 50.3 –Swedish Aircraft Four KB, 916694-4372, Linköping – 50.3 –Saab Helikopter AB, 556026-9945, Nyköping 40,000 100.0 4Saab Credit AB, 556047-7779, Linköping 30,000 100.0 4Lansen Försäkrings AB, 516401-8656, Linköping 100,000 100.0 10Saab Air AB, 556061-1732, Linköping 25,000 100.0 3Industrikompetens i Östergötland AB, 556060-5478, Linköping 9,000 100.0 1Saab Treasury AB, 556147-5939, Linköping 30,000 100.0 3Saab Service Partner AB, 556083-5836, Linköping 100,000 100.0 12Saab-Scania Rental AB, 556056-9807, Linköping 1,000 100.0 –Investor Fond AB, 556025-1356, Linköping 2,500 100.0 –Saab International AB, 556378-6275, Linköping 2,000 100.0 –Saab International AB (Chile) Ltda., Chile – 100.0 –Dormant companies 177

Book value at year-end 2,414

104 I Saab Group


Note 23 Receivables from Group companiesGroup Parent Company

1997 1997

Accumulated acquisition valueAt beginning of year 2,293 4Additional receivables 136Reclassification –2,293

Book value at year-end 0 140

Note 24 Participations in associated companiesGroup Parent Company

1997 1997

Accumulated acquisition valueAt beginning of year 7 4Purchases 21 12Net income of the year 2

Total 30 16


The year’s purchases relate to Ericsson Saab Avionics AB and Scanjet Clean AB.

Specification of the company’s participations in associated companiesAdjusted

equity/Share Net income Book

Associated company/Corp. ID No./Reg Office in %(1) of the year(2) value

Ericsson Saab Avionics AB, 556460-1655, Stockholm 49.9 24/0 12CSM Materialteknik AB, 556517-3951, Linköping 50.0 14/3 7Industrigruppen JAS AB, 556147-5921, Stockholm 20.0 5/0 1Aviation Financial Services AG, Switzerland 20.0 0/0Saab-BAe Gripen AB, 556227-6721, Linköping 50.0 0/0Scanjet Clean AB, 556291-2427, Sjöbo 50.0 2/1 9Saab Bofors Missile Corp AB, 556147-5905, Linköping 50.0 1/0 1Transporter Tech i Skandinavien AB, 556168-6923, Järfälla 35.0 1/0Saab Smaaland Project Venture AB, 556509-1956, Jönköping 33.0 0/0

Book value at year-end 30

(1) Relates to the share of the capital, which is also equal to the share of the votes of the total number of shares.

(2) Adjusted equity relates to the owned share of the company’s equity, including equity in untaxed reserves. Net income of the year relates to the owned proportion of the company’s income

after tax, including the portion of equity in the year’s change in untaxed reserves.

Note 25 Other securities held as fixed assetsGroup Parent Company

1997 1997

Accumulated aquisition valueAt beginning of year 35 2Additional assets 1 4


Note 26 Other long-term receivablesGroup Parent Company

1997 1997

Accumulated acquisition valueAt beginning of year 531Addtional receivables 1


Saab Group I 105


Note 27 Deferred tax receivable/tax liability

Deferred tax receivable/tax liability relates to the tax result arising from the assumption that assets and liabilities are disposed of at book residu-al values.The deferred tax relates to the following assets and liabilities:

Group Parent Company1995 1996 1997 1996 1997

Deferred tax receivablesOther provisions 236 1,372 82 1,217Participations in Group companies 353 353Accrued expenses 86 48 170 170Other 277 203 42

Deferred tax liabilitiesTangible fixed assets –710 –761 –1,029 –195

Receivable/liability net –347 –274 866 124 1,545

Deferred tax liability on untaxed reserves in the Parent Company amounts to SEK 146 million (77).

Note 28 Prepaid expenses and accrued income

Prepaid expenses and accrued income in the Group amounted to SEK 223 million (175) and in the Parent Company to SEK 22 million (38).Theamount for the Group is mainly attributable to SAFG and relates to accrued leasing fees.

Note 29 Short-term investmentsBook value Market value

Interest-bearing securities 5,672 5,761

Total 5,672 5,761

The market value is higher than the book value since the securities were acquired at higher interest levels than those in force at year-end.Financial investments are made in Swedish Government bonds. The investment policy means that the fixed interest term must be about 15

months to avoid excessive fluctuations as a result of interest rate changes.At year-end, the average fixed interest term was 11 months.

Note 30 Equity

Equity in the Group has changed as follow during 1995:

Profit or Capital Restricted loss brought Net Income

stock reserves forward for the year Total

According to 1995 Annual Report 1,703 2,172 1,879 5,754Change in accounting policies 7 –68 –61

At beginning of year 1,703 2,179 1,811 5,693

Reclassification of deferred tax receivable –84 84Allocation to equity share reserve 1 –1Change in equity in untaxed reserve –83 83The year’s translation differences 51 –64 –13Net income for the year 148 148

Total at year-end 1,703 2,064 1,913 148 5,828

Specification of restricted reservesEquity share Translation

Equity Revaluation Legal of untaxed differencesfund reserve reserve reserves etc. Total

At beginning of year 386 1,755 38 2,179Reclassification of deferred tax receivable –84 –84Allocation to equity share reserve 1 1Change in equity in untaxed reserve –83 –83The year’s translation differences 51 51

Total at year-end 1 386 1,672 5 2,064

106 I Saab Group


Note 30 Equity (cont.)

Equity in the Group has changed as follows during 1996:



According to 1995 Annual Report 1,703 2,092 2,129 5,924Change in accounting policies –28 –68 –96At beginning of year 1,703 2,064 2,061 5,828

Shareholder contribution 1.255 1,255Group contribution in subgroup, exclusive of tax portion 648 648Reclassification of deferred tax receivable 281 –281Allocation to equity share reserve 1 –1Consolidation of SAFG –1,500 1,500Change in equity in untaxed reserves 464 –464The year’s translation differences etc. 5 –27 –22Net income for the year –1,385 –1,385Total at year-end 1,703 1,315 4,691 –1,385 6,324


Equity Revaluation Legal of untaxed differencesfund reserve reserve reserves etc. Total

At beginning of year 1 386 1,672 5 2,064Reclassification of deferred tax receivable 281 281Allocation to equity share reserve 1 1Consolidation of SAFG –1,500 –1,500Change in equity in untaxed reserved 464 464The year’s translation differences 5 5

Total at year-end 2 386 636 291 1,315

Equity in the Parent Company has changed as follows during 1996:



According to 1995 Annual Report 1,703 368 2,933 4,994Change in accounting policies –123 –123

At beginning of year 1,703 368 2,800 4,871

Shareholder contribution –56 –56Net Income for the year –687 –687

Total at year-end 1,703 368 2,744 –687 4,128

Equity in the Group has changed as follows during 1997:Profit or

Capital Restricted loss brought Net incomestock reserves forward for the year Total

According to 1996 Annual Report 1,703 1,253 2,154 5,110Consolidation of SAFG 62 1,152 1,214

At beginning of year 1,703 1,315 3,306 6,324

Change in revaluation reserve 500 500Reclassification of deferred tax receivable in previous year -281 281 0Allocation to equity share reserve 2 -2 0Change in equity in untaxed reserves 134 -134 0The year’s translation differences 162 -105 57Net income for the year -3,790 -3,790

Total at year-end 1,703 1,832 3,346 -3,790 3,091

Saab Group I 107


Note 30 Equity (cont.)


Equity Revaluation Legal of untaxed differences fund reserve reserve reserves etc. Total

At beginning of year 2 386 636 291 1,315Change in revaluation reserve 500 500Reclassification of deferred tax receivable inprevious year –281 –281Allocation to equity share reserve 2 2Change in equity in untaxed reserves 134 134The year’s translation differences 162 162

Total at year-end 4 500 386 770 172 1,832

No transfer to restricted reserves is required.A portion of unrestricted equity in foreign subsidiaries will be subject to taxation in the event it is transferred to Sweden.

Equity in the Parent Company has changed as follows during 1997:Profit or

Capital Restricted loss brought Net incomestock reserves forward for the year Total

According to 1996 Annual Report 1,703 368 2,057 4,128Deferred tax receivable in balance brought forward 124 124

At beginning of year 1,703 368 2,181 0 4,252

Change in revaluation reserve 500 500Other adjustments 2 2Net income for the year –2,302 –2,302

Total at year-end 1,703 868 2.183 –2,302 2,452

Following a decision on appropriation of profits in the parent company at the 1998 Annual General Meeting, SEK 119 million was transferredfrom restricted reserves to non-restricted equity.

Note 31 Untaxed reservesGroup Parent Company

1995 1996 1997 1996 1997

Accumulated excess depreciation Land and buildings 668 633 596 96 364Machinery and equipment 521 300 261 178 159Lease assets 1,241 2,157 2,422

Tax allocation reservesAllocated 1994 16 16 16Allocated 1995 23 23 23Allocated 1996 5 5Allocated 1997 8

Salary-based reserve 8 3Contingency reserve 58 6 15Foreign untaxed reserves 3 5 1Foreign exchange reserve 1 1

Total 2,539 3,149 3,347 274 523

Of the Group’s untaxed reserves, SEK 937 million (882) consists of deferred tax.

108 I Saab Group


Note 32 Provisions for pensions and similar commitmentsProvisions for pensions in the balance sheet correspond to the equivalent pension obligations actuarially computed.


Provision for pensionsFPG/PRI pensions 1,819 1,907 1,995 1,240 1,416Other pensions 117 135 129 120 113Other pension liabilities 122 119 119 119 119

Total 2,058 2,161 2,243 1,479 1,648

Of which with credit guarantees in Försäkringsbolaget Pensionsgaranti (FPG) 1,854 1,946 2,034 1,279 1,455

Assets pledged for this liability amounted to SEK 396 million (396). See Note 39.The Pensions Registration Institute (PRI) is a public organization responsible for the administration of employee pensions.Other pension liabilities relate to conditional commitments not covered by social security legislation.

Note 33 Other provisions


Costs of restructuring 4,079 4,079Provision for anticipated deficit in future leasing operations 936 1,370 2,728Losses in regional aircraft 459Other 20 61

Total 936 1,849 6,868 0 4,079

In 1997, a provision of SEK 4,079 million has been made in respect of costs for terminating production of regional aircraft.These costs relate tocustomer and supplier commitments, in addition to transfer of personnel.The provision also includes continued support commitments for theexisting aircraft fleet.The allocation of SEK 2,728 million in respect of the anticipated deficit in future leasing operations relates to the net presentvalue of the anticipated deficit in lease contracts for regional aircraft.

Note 34 Committed credit line


Approved credit limit 0 34 39 34 39Unutilized portion 0 –19 –39 –19 –39

Utilized portion 0 15 0 15 0

Note 35 Liabilities to credit institutes


Due date 1–5 years from closing day 241 59 30Due date more than 5 years from closing day 0 0 0

Total 241 59 30 0 0

Note 36 Other long-term liabilities


Lease obligations 5,289 5,432 4,922Other liabilities 0 426 760

Total 5,289 5,858 5,682 0 0

Liabilities with due date more than five years from closing day amount to SEK 4,122 million.Security provided for leasing commitments amounted to SEK 2,551 million (2,683) and for other liabilities SEK 393 million (363). See Note 39.Other liabilities mainly refer to prepaid leasing fees.

Saab Group I 109


Note 37 Other liabilitiesGroup Parent Company

1995 1996 1997 1996 1997

Value Added Tax (VAT) 200 242 114 215 99Personnel liabilities 48 67 75 32 45Spare parts credit 124 89 56Other 148 194 112 10 8

Total 520 592 357 257 152

Note 38 Accrued expenses and deferred income


Accrued expensesCosts of customer commitments 710 773 754Losses on regional aircraft orders 0 308 967Reserve for remaining costs in military business 158 361 441 262 377Vacation pay liability 227 294 271 122 164Social security expenses 171 190 187 76 112Expected invoices 210 225 268 99 126Guarantee reserve 25 43 40 3 6Other 564 203 236 22 30

Deferred incomeLeasing fees(1) 90 308 300Advance invoicing 1,994 1,942 854 1,912 756

Total 4,154 4,647 4,318 2,496 1,571(1) Assets pledged for this liability amounted to SEK 61 million (61). See Note 39.

Customer commitments relate to costs of future commitments linked with products already delivered, mainly in regional aircraft. Losses on air-craft orders have been calculated in accordance with the lower of cost or market. Reserves for remaining costs in military business relate to cal-culated costs and product commitments, mainly in military aircraft.

Note 39 Assets pledgedGroup Parent Company

1995 1996 1997 1996 1997

Guarantees provided for own liabilities and provisionsfor pensions commitmentsChattel mortgages 396 396 396 350 350to credit institutes none none none none nonefor lease obligationsLease assets 2,799 2,683 2,551for other liabilitiesLong-term receivables 341 363 393for accrued expensesAccrued expenses 61 61 61for advance payments from customersChattel mortgages 1,652 1,751 1,751 1,751 1,751Bonds and other securities 2,456 6,435 5,520 6,435 5,520

Subtotal 4,108 8,186 7,271 8,186 7,271

Total 7,705 11,689 10,672 8,536 7,621

110 I Saab Group


Operating MarginOperating Income divided by sales.

Profit MarginOperating income increased by financial income as a percentage ofsales.

Return on Capital EmployedOperating income increased by financial income as a percentage ofaverage capital employed.

Return on EquityNet income as a percentage of average shareholder’s equity. Returnbefore “items affecting comparability” is in the calculation subject toa 28 percent tax rate.

Capital TurnoverSales divided by average capital employed.

Equity to Assets RatioEquity to balance sheet turnover deduced by utilised part ofadvance payment. Upon calculation of the equity to assets ratioexclusive of SAFG, SAFG has been reported according to the equitymethod.The calculation represents complementary Information dueto SAFG’s extensive balance sheet turnover as a consequence of

prevalent leasing accounting.The equity to assets ratio for Saab isbased on Saab’s balance sheet, see page 18.

Interest Coverage RatioOperating income increased by financial income divided by financialcosts.

Net LiquidityLiquidity funds including receivables on affiliated companies deduct-ed by interest-bearing liabilities including pension provisions.

Capital EmployedTotal capital deducted by non interest-bearing liabilities and deferredtax liabilities.

Average Number of EmployeesAverage number of employees has been calculated according to astandard working year of 1,800 hours per employee.

Earnings per ShareNet income divided by the number of fully-diluted shares.

Shareholders’ Equity per ShareShareholders’ equity at the end of the period divided by the numberof shares.

Note 40 Pro forma 1996

The following calculations are based on the audited income statement and balance sheet of the Saab Group and exhibit pro forma statements for1996 after consolidation of SAFG.

Saab Elimi- ProGroup SAFG nations forma

Income Statements

Sales 8,249 –90 8,159Cost of goods sold –6,514 90 –6,424

1,735 0 0 1,735Other operating costs –3,137 –664 –3,801

Operating income –1,402 –664 0 –2,066Income from financial items 494 494Tax 219 –16 203Minority share –13 –3 –16

Net income for the year –702 –683 0 –1,385

Balance sheet summary

Intangible fixed assets 116 116Tangible fixed assets 1,820 5,937 7,757Financial fixed assets 74 2,475 317 2,866

2,010 8,412 317 10,739Inventories, etc. 4,965 4,965Short-term receivables 1,276 123 1,399Receivables from Group companies 6,699 1,246 –959 6,986Cash, bank and short-term investments 6,922 377 7,299

19,862 1,746 –959 20,649

Total assets 21,872 10,158 –642 31,388

Equity 5,110 1,215 –1 6,324Minority interest 52 91 143Provisions 2,640 1,644 4,284Long-term liabilities 52 6,062 –197 5,917Short-term liabilities 14,018 1,146 –444 14,720

Total equity and liabilities 21,872 10,158 –642 31,388

Note 41 Definitions of key ratios

Saab Group I 111

Interim Report January – March 1998Pages 111–115 encompass the entire interim report as disclosed.

• Sales SEK 1,817 million (1,996), of which Saab(excluding regional aircraft) SEK 1,817 million(1,586).

• Operating income SEK 281 million (–128), of whichSaab (excluding regional aircraft) SEK 281 million(37).

• Income after financial items SEK 349 million (–24).

• Saab’s business unit Collaborative Programs hassigned an agreement with Aerospatiale fordeliveries to Airbus. The total value of the order isput at approximately $145 million.

THE SAAB GROUP

Saab AB is the Parent Company in the Saab Group,which is a member of the group whose Parent Companyis the listed investment company Investor. Investor iscurrently studying the possibility of broader ownershipin Saab AB and listing the company on the StockholmStock Exchange.

The Saab Group includes Saab, Regional Aircraftand Saab Aircraft Finance Group (SAFG). Saab isactive in the aerospace and defense industries, and offersadvanced products and systems based on sophisticatedinformation technology. Many products are marketedinternationally. The business areas are Military Aerospace,Space, Training Systems, Commercial Aircraft andCombitech.

Business area Military Aerospace includes the businessunits Gripen, Dynamics and Avionics (associatedcompany). Saab produces the Gripen, the world’s onlyfourth generation combat aircraft in operative service,whose characteristics are largely based on advancedinformation technology. The orders from the FMV for atotal of 204 Gripen aircraft mean production and furtherdevelopment up to 2007. Up to March 1998, a total of 53aircraft had been delivered.

Saab is collaborating with British Aerospace inexports of the Gripen. Following inquiries frompotential customers, sales activities are in progress inseveral countries. These include Chile, where the Gripenmade demonstration flights at the International AirShow, FIDAÉ, during March. This was the first time theGripen flew in the southern hemisphere.

Dynamics is active in the areas of guided weaponsand optronic systems, and is taking part in the Europeanstudies for the new air-to-air missiles IRIS-T and Meteor.During the first quarter, a Memorandum ofUnderstanding for the development of IRIS-T wassigned by the participating countries. Avionics, which isowned jointly by Ericsson and Saab, develops and

produces systems for electronic warfare, display andsurveillance, in particular for the Gripen.

Space, which is owned to 60 percent by Saab and 40percent by Ericsson Microwave Systems, develops andproduces on-board computers, antennas and otherelectronic and mechanical equipment for the spaceindustry. During the first quarter, Space signed anumber of important contracts, including the supply ofdata handling systems and microwave electronics forthe world’s largest telecommunications satellite, Astra1K, and various antenna and data handling systems forthe new European meteorological satellites, Metop.

Training Systems is a world leader in military trainingequipment and specializes in the field of simulationequipment based on laser technology for aimedweapons. During the first quarter, add-on orders werereceived from the American and German defense forces.

Commercial Aircraft consists of two business units:Collaborative Programs and Customer Support.Collaborative programs supplies components and sub-assemblies to internal and external customers. Internalsales continue to dominate, but a successive transition toan increased proportion of external sales is expected.During the first quarter, two new important externalorders were received from the French companyAérospatiale for the development and manufacture offloor structures and main landing gear doors incomposite for the newly launched Airbus A340-500/600.The orders are estimated to have a value ofapproximately $75 million and approximately $70million respectively, and cover a period of several years.The first delivery is planned for the third quarter of 1999.

Customer Support for the approximately 500 Saab340 and Saab 2000 regional aircraft in service throughoutthe world forms part of Commercial Aircraft since thebeginning of 1998.

Combitech’s strategy is to develop and commercializespin-offs from Saab’s military operations. Thedivestment of Telelogic in January 1998 is part of thisstrategy. Traffic Systems continues to incur majordevelopment costs. Other companies in Combitech aredeveloping satisfactorily.

Regional Aircraft is manufacturing the remainingSaab 340 and Saab 2000 aircraft which are on order. Thelast aircraft is expected to be delivered in mid-1999.Deliveries during the first quarter of 1998 consisted offive Saab 340, of which four went to Mesaba and one toJAS in Japan, and three Saab 2000, of which two went toSAS and one to Med Air. Owing to the decision inDecember 1997 to terminate production of regionalaircraft, provisions were made in the financial

statements for 1997 which were calculated in such a waythat the remaining operations, including CustomerSupport, would not have a negative influence onincome. The termination of production is following theestablished plans.

Saab Aircraft Finance Group (SAFG) administers aportfolio which at the end of the period consisted of 306

regional aircraft from Saab, compared with 296 at year-end 1997. During the first quarter, seven new and threeused aircraft have been added to the portfolio. In thefinancial statements for 1997, provisions were madeconcerning the leasing portfolio as a result of thedecision to terminate production of regional aircraft.Operations are following established plans.

112 I Saab Group

INTERIM REPORT

Saab Group I 113

INTERIM REPORT

SALES AND INCOMEIncome statement 3 months 3 months 1997

1998 1997(in SEK million) (pro forma)(2)


Gross margin 556 335 2,274

Marketing expenses –189 –167 –824Administrative expenses –152 –157 –622Research and development costs –88 –100 –495Items affecting comparability –5,421Other operating income 119 30 133Other operating expenses –4 –72 –364Share in income of associated companies 39 3 3

Operating income (1) 281 –128 –5,316

Financial income and expenses 68 104 471

Income after financial income and expenses 349 –24 –4,845

Tax –98 0 1,075Minority interest –6 –3 –20

Net income 245 –27 –3,790

(1) of which depreciation –176 –177 –749

whereof depreciation on lease assets –97 –94 –383

(2) The income statement has been adjusted with regard to the change in Group structure concerning SAFG, which was not consolidated in the Saab Group in the first quarter of 1997.

SALES BY BUSINESS AREA3 months 3 months 1997

1998 1997(in SEK million) (pro forma)

Military Aerospace 1,115 1,010 4,480Space 136 111 594Training Systems 136 125 668Commercial Aircraft (1) 267 154 244Combitech 215 235 1,073(less internal sales) –52 –49 –193

Saab 1,817 1,586 6,866

Regional Aircraft 572 770 3,035(less internal sales –572 –360 –1,227

Saab Group 1,817 1,996 8,674

(1) Figures for full year 1997 include only Collaborative Programs. Customer Support is estimated to generate sales of approximately SEK 500 million per year.

114 I Saab Group

Saab’s sales increased by 15 percent to SEK 1,817million (1,586). During the period, 5 (6) Gripen aircraftwere sold. The sales increase was mainly attributable tothe Gripen and to increased sales by Customer Supportregarding regional aircraft. Group sales amounted toSEK 1,817 million (1,996). The decrease is mainly due tofinancing by SAFG of seven of the eight regional aircraftdelivered during 1998.

Operating income of Saab improved to SEK 281million (37). The improvement is mainly attributable toMilitary Aerospace and was due to larger sales of Gripenin Batch 2, five compared to three the previous year. Theimprovement was also attributable to the furtherdevelopment program for the Gripen and higherdeliveries of spare parts, in addition to considerablyimproved income in the associated company Avionics(partly of a non-recurring nature owing to projecttermination, SEK 31 million). Of the incomeimprovement in Combitech, SEK 70 million consists of acapital gain from the sale of Telelogic. Operations in

Regional Aircraft and SAFG are following establishedplans and have therefore not burdened the Group’soperating income during the first quarter.

Income from financial items amounted to SEK 68million (104), of which SAFG accounted for SEK 19million. The deterioration is due mainly to the lowerinterest level. The average return was 5.2 percent duringthe first quarter of 1998, compared with 6.0 percentduring the corresponding period in 1997. Group incomeafter financial items amounted to SEK 349 million (–24).

ORDER BOOKINGS

The Group’s order bookings during the first quarteramounted to SEK 1,419 million (1,832). Saab’s orderbookings amounted to SEK 1,527 million (1,256). Theorder backlog at the end of the period was SEK 26,248million (19,753) and includes military orders worth SEK22,400 million (15,400).

INTERIM REPORT

OPERATING INCOME BY BUSINESS AREA3 months 3 months 1997

1998 1997(in SEK million) (pro forma)

Military Aerospace 197 92 586Space 15 8 47Training Systems 19 11 156Commercial Aircraft(1) 0 0 3Combitech 42 –55 –338Corporate 8 –19 103

Saab 281 37 557

Reversal of loss risk reserve – – 313

Saab 281 37 870

Regional Aircraft 0 –134 –553SAFG 0 –31 –212

Total 281 –128 105

Items affecting comparability – – –5,421

Saab Group 281 –128 –5,316

(1) Whole year 1997 includes only Collaborative Programs. Owing to the provisions taken in the financial statements for 1997, Customer Support is calculated not to have any influence on the

income.

Saab Group I 115

Since year-end 1997, cash and marketable securitiesincluding group receivables less external borrowing hasdecreased by SEK 472 million to SEK 13,692 million(14,164). The decrease is mainly due to investments inleasing aircraft and lower advance payments fromcustomers. Net liquidity, less provisions for pensioncommitments, amounted to SEK 11,457 million,compared with SEK 11,921 million at year-end 1997. Theequity/assets ratio for the Group as a whole was 11.1percent, compared with 10.2 percent at year-end 1997,while the equity/assets ratio for Saab was 24.1 percent(21.9).

CAPITAL EXPENDITURES

The Group’s capital expenditures in property, plant andequipment, excluding leasing assets, amounted to SEK99 million (100), of which Saab accounted for SEK 96million (95).

PERSONNEL

The number of employees in the Group at the end of theperiod was 7,994, compared with 8,110 at year-end 1997.

INTERIM REPORT

FINANCE AND LIQUIDITYBalance sheet(in SEK million) March 31, 1998 Dec 31, 1997

AssetsGoodwill and other intangible assets 118 134Property, plant and equipment, etc. 2,497 2,583Lease assets 7,499 6,919Shares, etc 95 66Inventories, etc. 4,848 4,996Receivables 2,685 2,970Receivables on Group companies 8,825 9,104Cash and marketable securities 5,686 6,008

Total assets 32,253 32,780

Shareholders’ equity and liabilitiesShareholders’ equity 3,332 3,091Minority interest in subsidiaries 159 158Provisions for pensions 2,235 2,243Other provisions 6,855 6,868Interest-bearing liabilities 819 948Lease obligations 5,154 5,207Advance payments from customers(1) 7,104 7,538Other liabilities 6,595 6,727

Total shareholders’ equity and liabilities 32,253 32,780(1) Of which utilized part 2,196 2,460

Linköping, April 20, 1998

Bengt HalsePresident and Chief Executive Officer

The interim report had at the time of publication not beensubject to a special examination by the Company’s auditors.

116 I Saab Group

Auditors’ Examination Report

In our capacity as auditors of Saab AB, we have examined the Document. The examination was conducted in accor-dance with recommendations issued by the Swedish Institute of Authorized Public Accountants (“FAR”).

In compliance with the FAR stipulations, our review of forecasts included in the document was limited. The proforma financial statements included in the Document have been prepared in accordance with the conditions specifiedon page 15–16. Information from the accounts has been presented accurately and correctly. Information relating to theinterim report has been examined to a limited extent.

We have audited the Annual Reports for the years 1995, 1996 and 1997. Information from the Annual Reports hasbeen presented accurately and correctly.

Nothing has come to our attention to indicate that the document does not meet the statutory requirements of theSwedish Companies Act and the Financial Instruments Trading Act.

Stockholm, 8 May 1998

Gunnar Widhagen Caj NackstadAuthorized Public Accountant Authorized Public Accountant

KPMG Bohlins AB Ernst & Young AB

Saab Group I 117

Addresses

SAAB GROUP

Saab ABHead officeSupport departmentsSE-581 88 Linköping, SwedenTelephone: +46 13 18 00 00Fax: +46 13 18 18 02Internet: www.saab.se

Stockholm officeSaab ABBox 70373SE-107 24 Stockholm, SwedenTelephone: +46 8 700 67 77Fax: +46 8 700 67 79

Saab AB, Regional officeSaab Far East Sdn Bhd8th Floor, Tower BlockSyed Kechik Foundation BuildingJalan Kapas, BangsarMY-59100 Kuala Lumpur, MalaysiaTelephone: +60 3 252 11 61Fax: +60 3 252 11 63

Vienna officeSaab ABAT-1010 Vienna, AustriaTelephone: +43 1 402 24 340Fax: +43 1 402 24 349

MILITARY AEROSPACE

Gripen, General Military Programs,Future Products & TechnologySE-581 88 Linköping, SwedenTelephone: +46 13 18 00 00Fax: +46 13 18 18 02

Saab Dynamics ABSE-581 88 Linköping, SwedenTelephone: +46 13 28 60 00Fax: +46 13 28 60 06

Saab Dynamics ABBox 1017SE-551 11 Jönköping, SwedenTelephone: +46 36 19 41 00Fax: +46 36 19 45 00

Saab Dynamics ABBox 13045SE-402 51 Gothenburg, SwedenTelephone: +46 31 37 00 00Fax: +46 31 21 86 20

Ericsson Saab Avionics ABTorshamnsgatan 32C, KistaSE-164 84 Stockholm, SwedenTelephone: +46 8 757 30 00Fax: +46 8 752 81 72

CSM MaterialteknikBox 13200SE-580 13 Linköping, SwedenTelephone: +46 13 16 90 00Fax: +46 13 16 90 20

SPACE

Saab Ericsson Space ABSE-405 15 Gothenburg, SwedenTelephone: +46 31 335 00 00Fax: +46 31 335 95 20

Subsidiaries of Saab Ericsson Space ABAustrian Aerospace GmbHBreitenfurter Strasse 106-108AT-1120 Vienna, AustriaTelephone: +43 1 801 99Fax: +43 1 801 996 95

Saab Ericsson Space Inc.16341 Street, NWSuite 600Washington, DC 20006-4083, USATelephone: +1 202 783 1700Fax: +1 202 783 26 25

TRAINING SYSTEMS

Saab Training Systems ABSE-561 85 Huskvarna, SwedenTelephone: +46 36 38 80 00Fax: +46 36 38 80 80

Subsidiaries of Saab Training SystemsSaab Training Systems GmbHAugust-Horch-Strasse 10DE-560 70 Koblenz, GermanyTelephone: +49 171 210 8564Fax: +49 261 897 203

Saab Training Systems (UK) Ltd.Leworth House14-16 Sheet StreetWindsorBerkshire 5L4 1BG, EnglandTelephone: +44 1753 85 99 91Fax: +44 1753 85 88 84

Saab Training Inc.34 Sloan StreetRoswell, GA 30075, USATelephone: +1 404 317 0513Fax: +1 404 998 4804

COMMERCIAL AIRCRAFT

Saab ABCollaborative ProgramsSE-581 88 Linköping, SwedenTelephone: +46 13 18 33 33Fax: +46 13 18 27 06

Saab ABCustomer SupportSE-581 88 Linköping, SwedenTelephone: +46 13 18 26 16Fax: +46 13 18 44 95

COMBITECH

Saab ABSaab CombitechBox 1017SE-551 11 Jönköping, SwedenTelephone: +46 36 19 40 00Fax: +46 36 19 45 10Visiting address: Klubbhusgatan 13

Combitech Electronics ABBox 1052SE-551 10 Jönköping, SwedenTelephone: +46 36 19 42 00Fax: +46 36 17 49 40Visiting address: Bataljonsgatan 10

Combitech Innovation ABBox 1017SE-551 11 Jönköping, SwedenTelephone: +46 36 19 40 00Fax: +46 36 19 45 10Visiting address: Klubbhusgatan 10

Combitech Network ABBox 1017SE-551 11 Jönköping, SwedenTelephone: +46 36 19 47 00Fax: +46 36 16 60 44Visiting address: Slottsgatan 44

Combitech Software ABBox 1017SE-551 11 Jönköping, SwedenTelephone: +46 36 19 47 50Fax: +46 36 19 43 61Visiting address: Slottsgatan 14, 4 tr

Combitech Traffic Systems ABBox 1063SE-551 10 Jönköping, SwedenTelephone: +46 36 19 43 00Fax: +46 36 17 43 01Visiting address: Bataljonsgatan10

IV Image Systems ABTeknikringen 9SE-583 30 Linköping, SwedenTelephone: +46 13 20 01 00Fax: +46 13 20 06 83

Pronesto ABBox 6014SE-164 06 Kista, SwedenTelephone: +46 8 444 10 50Fax: +46 8 751 41 11Visiting address: Finlandsgatan 18

Saab Marine Electronics ABBox 13045SE-402 51 Gothenburg, SwedenTelephone: +46 31 337 00 00Fax: +46 31 25 30 32Visiting address: Gamlestadsvägen 18 B

Saab Survey Systems ABBox 1017SE-551 11 Jönköping, SwedenTelephone: +46 36 19 48 00Fax: +46 36 19 45 88Visiting address: Odengatan 25-29

Saab Helikopter ABBox 326SE-611 27 Nyköping, SwedenTelephone: +46 155 21 76 40Fax: +46 155 28 52 48

Project office Combitech Traffic Systems ABCombitech Traffic SystemsLevel 4, Suite 4.3 Illoura Plaza424 St. Kilda RoadMelbourne, VIC 3004, AustraliaTelephone: +61 398 64 04 00Fax: +61 398 64 04 01

Sales office Combitech Traffic Systems ABCombitech Traffic Systems ABC/La Fragua 2253La DhesaSantiago, ChileTelephone: +56 2 216 60 63Fax: +56 2 216 60 63

Saab Systems Inc. USATraffic Systems Division21300 Ridgetop CircleSterlingVirginia 20166, USATelephone: +1 703 406 72 84Fax: +1 703 406 72 24

118 I Saab Group

Combitech Traffic Systems (H.K.) Ltd.Suite 1313, Argyle Street 113Mong KokKowloon, Hong KongTelephone: +852 27 14 90 14Fax: +852 23 69 70 55

Subsidiary of Saab Marine Electronics ABSaab Tank Control DeutschlandVertriebs GmbHSiemensstrasse 14DE-63674 Altenstadt/Hessen, GermanyTelephone: +49 60 47 679 90Fax: +49 60 47 683 26

Saab Marine (UK) Ltd.2nd Floor, 30/32 New RoadChathamKent ME4 4QR, EnglandTelephone: +44 16 34 83 11 00Fax: +44 16 34 82 79 97

Sales office, Saab Marine Electronics ABSaab Tank ControlPO Box 200 49Government AvenueManama, BahrainTelephone: +973 22 66 10Fax: +973 22 77 21

Saab Marine RUc/o ConcordAntonenko Lane 2, room 9190 000 St. Petersburg, RussiaTelephone: +7 81 23 11 33 44Fax: +7 81 23 12 61 92

Saab Systems IncSaab Tank Control10700 Hammerly Blvd, # 115Houston, TX 77043, USATelephone: +1 713 722 91 99Fax: +1 713 722 91 15

REGIONAL AIRCRAFT

Saab Aircraft ABSE-581 88 Linköping, SwedenTelephone: +46 13 18 20 00Fax: +46 13 18 56 60

Saab Aircraft of America Inc.Loudoun Tech Center21300 Ridgetop CircleSterlingVirginia 20166, USATelephone: +1 703 406 72 00Fax: +1 703 406 72 24

AIRCRAFT FINANCING

Saab Aircraft Finance GroupSaab Aircraft Credit ABKungsbron 1G, 6th FloorBox 703 75SE-107 24 Stockholm, SwedenTelephone: +46 8 700 67 60Fax: +46 8 700 67 69

Saab Aircraft Finance GroupLeworth House14-16 Sheet StreetWindsorBerkshire SL4 1BG, EnglandTelephone: +44 1753 85 99 91Fax: +44 1753 85 88 84

Saab Aircraft Finance GroupAustralasia/Pacific Regional OfficeLevel 23, Tower 1, Bondi Junction Plaza500 Oxford StreetBondi Junction NSW 2022, AustraliaTelephone: +61 2 369 16 66Fax: +61 2 369 25 00

Saab Aircraft Finance GroupFairbrook Leasing Inc.Loudoun Tech Center21300 Ridgetop CircleSterlingVirginia 20166, USATelephone: +1 703 406 72 00Fax: +1 703 406 73 09

ADDRESSES

Saab Group I 119

The Swedish Document has been approved by the Swedish Financial Supervisory Authority inaccordance with the regulations of Chapter 2, Section 4 of the Act (1991:980) on FinancialInstruments Trading Act. The approval does not constitute a guarantee by the Swedish FinancialSupervisory Authority that the factual information in this Document is correct or complete.

Tryckindustri City, 1998

Saab ABSE-581 88 Linköping, Sweden

Documents

Invitation · Purchase Rights For each Investor share held, whether of class A or B, one (1) purchase right will be received. Four (4) purchase rights will be required to purchase