Safran shares rise as French jet engine maker raises outlook

By Tim Hepher

PARIS (Reuters) -French aerospace group Safran raised annual forecasts after posting higher-than-expected first-half profits on Thursday, pushing its shares up more than 4% as it benefited from brisk demand for spare parts for jet engines.

Safran, which together with GE Aerospace co-produces engines for Airbus and Boeing medium-haul jets, also reported higher maintenance profits and saw its recently troubled cabin interiors business edge further into the black.

The company's closely watched recurring operating income rose 27% after certain adjustments to 2.51 billion euros ($2.87 billion), as revenues climbed 13% to 14.77 billion euros.

Analysts were on average expecting first-half recurring operating profit of 2.39 billion euros on revenue of 14.74 billion euros, according to a company-compiled consensus.

Safran raised its full-year forecast for the same profit measure to between 5.0 billion and 5.1 billion euros, up from a previous range of 4.8 billion to 4.9 billion. It predicted revenue growth in the low teens, instead of around 10%.

Bernstein analysts said Safran's indicators for the aftermarket, where engine makers make most of their money during regular engine shop visits, had outpaced bullish expectations.

Growing air travel demand and a shortage of planes due to weak deliveries from planemakers have forced airlines to fly planes for longer, resulting in extra maintenance, analysts say.

Safran shares were up 3.9% in midday trading. Shares in UK engine maker Rolls-Royce also rose sharply after improvements to its larger wide-body jet engines drove strong first-half results and prompted it to raise targets.

ENGINE AGREEMENT

While enjoying strong maintenance earnings from existing aircraft, engine makers have been in the firing line from jet makers led by Airbus recently over delays in the arrival of new engines to jet factories as parts get diverted to repair shops where they are needed to keep existing planes flying.

The tug of war between airport hangar and airplane factory for access to parts has strained ties between Airbus and CFM, while rival engine maker Pratt & Whitney is also under scrutiny.

Safran CEO Olivier Andries acknowledged that CFM had fallen behind in deliveries to Airbus in recent months, in part due to a French factory strike, but told reporters that plans to catch up on the delays were "challenging but completely achievable".

He confirmed that CFM had an agreement in place with Airbus over the number of engine to be delivered over the rest of the year as the planemaker strives to meet its delivery targets.

Airbus CEO Guillaume Faury said on Wednesday that engine makers had agreed to support its delivery goals.

Safran separately announced plans to set up a half-billion-dollar carbon brakes factory in France near Lyon after a contest with Quebec and the U.S. state of Oregon for the major new site.

Founded from a merger of state engine maker Snecma and electronics firm Sagem 20 years ago, Safran last week closed the $1.8-billion acquisition of the actuation and flight controls business of Collins Aerospace.

It also sold a smaller U.S. business in line with regulators' demands for clearing the Collins acquisition.

Safran said the combined transactions would add between 600 million and 700 million euros to group revenues over the rest of the year.

($1 = 0.8747 euros)

(Reporting by Tim Hepher; Editing by Lincoln Feast and Louise Heavens)