Safran Updates Profit Forecast Amid Supply Challenges

PARIS (Reuters) – French jet engine maker Safran (EPA:SAF) raised its profit forecast for the year, despite lowering its revenue predictions due to supply bottlenecks. The company is benefiting from high demand for services on existing aircraft.

Disruptions in industrial supply chains and ongoing strikes at Boeing (NYSE:BA) have exacerbated the shortage of new aircraft, leading airlines to operate older planes longer, which increases demand for engine repair services.

Safran expects a recurring operating income of around 4.1 billion euros ($4.44 billion) for 2024, up from an earlier target near 4.0 billion euros, citing strong aftermarket performance.

The company reported a 17.4% revenue growth to 19.686 billion euros in the first nine months of the year, driven mainly by Equipment and Defence and Aircraft Interiors. However, LEAP jet engine deliveries improved in the third quarter but faced challenges due to a limited supply of high-pressure turbine blades.

Safran, alongside its U.S. partner, revised its 2024 LEAP engine delivery forecast down by 10%, changing from flat growth to a contraction. It also lowered its full-year revenue target to 27.1 billion euros from 27.4 billion euros.

Chief Executive Olivier Andries indicated that Boeing was continuing to receive and pay for LEAP engine deliveries during the ongoing strike, which is affecting Safran's cabling supply to the Boeing 737 MAX.

Andries did not provide comments on aircraft deliveries at Airbus, which has also reduced its targets due to delays attributed to CFM, among others. Airbus's CEO noted that LEAP engine supplies will significantly impact their ability to meet targets.

Andries stated that while supply chains were improving, they would remain challenged through 2025, so Safran would continue to purchase parts to alleviate pressure on suppliers.

Jet engines are typically sold at minimal profit, with the real revenue coming from long-term service contracts. Safran's civil aftermarket revenues soared by 26.2% during the first nine months, with a mid-20% growth target for the year. Core propulsion revenues grew 11.9% in the same timeframe.

Andries confirmed plans for the interiors business to achieve breakeven this year, given an uptick in business class seat deliveries contributing to some aircraft delays.

Additionally, Safran warned that proposed temporary increases in corporate taxes by the French government could lead to losses of 320-340 million euros in 2024, as part of efforts to address a substantial budget deficit.