Aero services lift Safran Q1 sales, talks with Zodiac continue

French engine maker Safran reported higher-than-expected first-quarter revenue on Tuesday, buoyed by aerospace services, and told investors it was pushing ahead with plans to increase production of its LEAP civil jet engine. Safran confirmed its 2017 outlook and said its adjusted revenue rose 5.5 percent to 3.982 billion euros ($4.36 billion).
It also said it continued to hold merger talks with French seats maker Zodiac Aerospace, after outlining an agreed offer in January, but declined to discuss how they were going or how it might go ahead with the two-pronged bid and merger plan. Zodiac said on April 14 it would delay publication of its half-year results by a week from April 20, saying it had too much on its plate due to the talks.
Reuters reported this month that Safran is exploring plans to lower its $9 billion bid for Zodiac Aerospace and may simplify its structure amid continued turmoil at the seats maker and pressure from its own shareholders. British hedge fund TCI renewed criticism of the deal on Tuesday, saying Safran should suspend the talks pending an audit.
Safran Chief Executive Philippe Petitcolin said the company was "not distracted by this or that investor which chooses to express itself publicly". Despite doubts raised by some investors over its plans to buy Zodiac, Safran shares have risen since the talks began. Jefferies analyst Sandy Morris said this may be explained by a relatively trouble-free launch so far of the LEAP engine, co-produced with General Electric in the CFM International venture, as well as mishaps affecting rival engine maker Pratt & Whitney.
CFM still faces a major hurdle in executing plans for LEAP engine deliveries this year but there have been few problems so far and the first Boeing 737 MAX is on time, he wrote in a note. Deliveries of Pratt & Whitney's engines, which compete with LEAP on the Airbus A320neo, have been slowed by various snags. One expert said as many as 72 Pratt engines have been taken off wing for inspection or repairs since entering service.
As of mid-April, industry sources say Airbus had delivered a total of 100 A320neo aircraft since the fuel-efficient plane entered service in January 2016, including 53 fitted with Pratt & Whitney engines and the rest with CFM's LEAP engines.