October 24, 2013 / 5:32 AM / 4 years ago

UPDATE 2-Jet engine services boost Safran, eyes Avio Space

* Safran reiterates P+L targets, issues caveat on cash target

* Safran sees 1,500 CFM engine deliveries this year and next

* French company reafffirms interest in Avio Space (Adds executive quotes, details)

By Gwénaëlle Barzic and Tim Hepher

PARIS, Oct 24 (Reuters) - Stronger than expected sales of engine services pushed Safran revenues up 9.7 percent in the third quarter as the French aerospace group reaffirmed targets for the year, while sounding a more cautious note on currencies and cash.

The maker of the world’s most-sold civil jet engine, the CFM56 which it co-produces with General Electric, said suppliers were managing to keep up with production increases by planemakers as airlines in emerging markets snap up new planes.

Safran’s civil aftermarket, driven mainly by maintenance for the most recent version of the engine that powers popular medium-haul jets made by Boeing and Airbus, rose 45.2 percent in the third quarter after a particularly lacklustre year-ago period.

Shares in the French company rose 1.43 percent.

Chief Executive Jean-Paul Hertemann said the aftermarket growth put Safran in a position to meet its goals for the year, despite a tougher comparison in the fourth quarter.

“Today’s results are particularly strong and ahead of our expectations,” said RBC Capital Markets analysts Rob Stallard in a note, adding Safran had outstripped aftermarket growth of 17 percent at its main U.S. competitor Pratt & Whitney.

Safran expects mid-to-high single-digit percentage growth in revenue and around 20 percent growth in recurring operating profit for 2013 -- targets that it repeated on Wednesday.

But the company, which is also a contractor for defence and security equipment, said its cashflow targets could be affected by uncertainty over the timing of government advance payments that traditionally fall in the last quarter.

The company aims to turn 40 percent of its core operating earnings into cash.


It also shed further light on recent currency turmoil driven partly by the U.S. budget crisis, saying foreign exchange movements had sliced 4.6 percent from its security revenues.

Safran said total quarterly revenue rose 10.9 percent on a like-for-like basis to 3.437 billion euros ($4.74 billion).

Aerospace propulsion and equipment revenues, which drive the bulk of Safran’s profits, rose 11 percent and 16.5 percent respectively.

“We are reaching production levels that we have never seen before,” said aerospace propulsion head Marc Ventre.

“There is some tension in the supply chain here and there, but we are managing to resolve it as it emerges we are delivering to schedule.”

CFM expects to deliver 1,500 engines next year as well as in 2013, he added.

Safran meanwhile reaffirmed its interest in Italian space contractor Avio Space, which is reportedly close to being sold by Finmeccanica and private equity fund Cinven.

The French company wants to combine the booster engine maker with its own solid propellant business, but analysts say it faces tough competition from EADS unit Astrium for the business whose value is estimated around 300-400 million euros.

“We think at a time when Europe is launching a successor to Ariane 5...it would be good for Safran, Avio and the European space programme to combine the businesses that make solid rocket propellant,” Herteman said.

Asked whether Safran had made an offer, he said, “We generally follow our own logic”. He declined to say when he expected a decision.

Last year, Cinven and Finmeccanica reached a deal to sell other Avio aeronautics activities for 3.3 billion euros to General Electric.

$1 = 0.7564 euros Reporting by Tim Hepher, Cyril Altmeyer; Editing by James Regan and David Cowell

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