Safran sales up sharply

The Safran aerospace group posted Thursday a turnover up sharply in the third quarter, driven by its engine business despite the setbacks of the Boeing 737 MAX it equips.

Over the period, activity grew by 15.1% to 6.18 billion euros. Excluding currency and scope effects, adjusted revenue rose 9.8% to 6.095 billion euros, the group said in a statement.

This “strong” growth is “perfectly in line with our forecasts for 2019 which had been strongly raised on September 5”, noted the CEO of Safran, Philippe Petitcolin, during a conference call.

Safran was expecting an increase in its adjusted revenue of 7% to 9% for 2019, before revising upward its outlook, and now expects growth of “about 15%” (about 10% off foreign exchange and scope effects) and an increase in its adjusted operating profit “above 20%”.

In the third quarter, 455 Leap engines were delivered, compared to 303 last year. Produced by CFM International, a joint venture between Safran and General Electric, Leap equips all 737 MAXs (Leap-1B) and has a 63% market share for Airbus A320neo (Leap-1A), according to Petitcolin.

Initial delays in the production of this new engine were filled in June.

Despite the grounding of the 737 MAX for more than seven months after two accidents causing 346 deaths, “based on our current production rate of Leap-1B engines corresponding to 42 aircraft per month (currently produced by Boeing, Eds. ), we confirm a production of about 1,800 Leap engines in 2019, “says Mr. Petitcolin.

Saffron produces “20 to 25” Leap for Boeing a week. As of September 30, the order book amounted to 15,778 Leap.

“Cash Offset”

Shipments of M88 military engines fitted to the Rafale fighter aircraft are also up with 20 engines delivered in the third quarter, including the first six for the Indian army, up from seven last year.

Meanwhile, the older CFM-56 engine business was down “as expected” with 69 deliveries compared to 243 in the third quarter of 2018.

Including the 9.2% growth in civil engine services and helicopter turbine sales, the largest segment of the group, Aerospace Propulsion, reported an 18.3% increase the period (14.9% excluding currency effects), at 2.987 billion euros.

The Aircraft Equipment, Defense and Aerosystems division also recorded an increase of 12% (6.5% excluding currency effects), to 2.288 billion euros, while the Aicraft Interiors segment (seats, entertainment systems on board, etc.) rose by 4.7% (1.4% organic) to 805 million euros.

Concerning the 737 MAX, Safran reiterates that the immobilisation of the fleet weighs on its cash flow of about 300 million euros per quarter, due to a decrease in down payments by the airlines on future deliveries.

This is a “cash gap that should reverse in the coming quarters,” according to the group.

“We are stuck on Boeing's assumption of MAX re-commissioning this fourth quarter,” said Mr. Petitcolin.

Safran however slightly revised its free cash flow forecast if the MAX remained grounded until the end of the year. It is expected to account for “about 50%” of adjusted current operating income, versus “less than 50%” previously expected after an agreement with Boeing to receive an advance on the payment of Leap engines delivered to it.


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