Leeham News and Analysis
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Leeham News and Analysis
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Safran overcomes supply chain woes as revenues soar
By Tom Batchelor
February 15, 2024, © Leeham News: French engine, equipment and interiors specialist Safran said revenues soared by more than a fifth in 2023 despite a “challenging supply chain environment” and inflationary pressures.
Announcing the company’s full-year 2023 results, CEO Olivier Andriès hailed the progress made last year as “outstanding”. Revenues were up 22% in 2023, to €23.2bn, vs. €19bn in 2022.
Safran said this was in part due to its positioning on narrow-body markets, which are now above pre-COVID, 2019 levels and growing. With large order backlogs for single-aisle airplanes, the supply chain has struggled to keep up with demand.
The Paris-listed company’s operating income was up 31%, from €2.4bn in 2022 to €3.1bn in 2023, and free cash flow generation topped €2.9bn, which was above expectations and an increase on the €2.6bn in 2022.
Upbeat for 2024
The outlook for 2024 is equally upbeat. Safran expects to achieve full-year 2024 revenue of around €27.4bn, recurring operating income close to €4bn, and free cash flow around the €3bn mark.
This is driven by LEAP engine deliveries, which it expects to rise by up to 25%, and civil aftermarket revenue, which is forecast to climb by around 20%.
Andriès said: “Safran delivered outstanding results meeting or exceeding guidance…. Our teams have demonstrated remarkable agility, significantly increasing deliveries despite a challenging supply chain environment and successfully facing inflationary pressures.
“For 2024, we will continue our revenue and profit growth trend, ramping up deliveries further and increasing services to meet customer demand.”
Strengths and weaknesses
The chink in the armor for Safran is its exposure to the fallout from Boeing 737 MAX door plug incident. The LEAP-1B is the exclusive powerplant for the MAX, and is produced by Safran with GE through their CFM International joint venture.
In an investor call, Andriès warned of an impact from the crisis but said the full extent was not yet known. “We can expect there could be an impact, but I cannot quantify it today because it all depends on when the FAA will waive their decision to suspend the rate increase of the MAX,” he said.
Still, an insatiable appetite among airlines and lessors for single-aisle airplanes, notably in India and the Middle East, is driving what Safran called a “buoyant” engine market, with strong demand for CFM56 spare parts and LEAP rate per flight hour (RPFH) contracts. Spare parts revenue for high-thrust engines increased but at a slower pace.
LEAP deliveries reached 1,570 units by the end of 2023, compared to 1,136 the previous year. However, revenue from military engine activities was down year-on-year due to lower M88 deliveries than planned.
Aftermarket services, driven by increased traffic, grew in all businesses, in particular for nacelles and landing systems including carbon brakes, and there were higher volumes of landing gears for the A320neo and B787, electrical systems for the B787, A320neo, and B737 MAX, and avionics, notably the FADEC for LEAP engines. That said, nacelle deliveries decreased due to downward revised demand.
“This tension between very strong demand and a struggling supply chain is a tailwind for us on the aftermarket,” Andriès said.
Within the aircraft interiors division, revenue was up by 32.8% – though that sits 23% below the 2019 level.
In November, Safran won a series of contracts with Emirates, worth over $1.2bn. It included a $1bn list-price deal for Safran Seats for the carrier’s new fleet of Airbus A350, Boeing 777X-9, and existing Boeing 777-300 aircraft, and wheels and carbon brakes for the Emirates A350 fleet.
The company said interiors growth was driven by economy class seat deliveries, while certification delays were cited as a suppressing factor for business class seat deliveries, which were down year-on-year from 1,704 in 2022 to 983 units in 2023.
Interesting that Safran when measuring return on sales is significantly more profitable than Airbus (or Boeing).
It is spare parts sales that boost revenue. The profit margin on spares or engine service contracts are much higher than whole engine sales. The consumption of spare parts increase alot if airlines do not retire engines at approx. 30 000cycles. It is not the same effect on aircraft structural parts sold by Boeing/Airbus.
Everyone keeps pointing out that the LEAPA and LEAPB are not interchangeable, but once you have a good stock of LEAPB built up,of course you are going to devote more of your manufacturing capacity to Airbus
Yes, the other guys are not really a priority at this point.
Unless the other guys violate their contractual obligations then that would not be true.
They are sole source on the MAX and the 777X as well as the main engine by increasing margins on the 787.
On the other hand, CFM is only part of the A320 series and none at all on A330/A350.
Its worth keeping in mind that Boeing can go up about 7 a month producti0on from where they were at (31 per Leeham though 2023 is so up and down you can’t pin a rate on the MAX)
CFM has to keep producing LEAP-B at the agreed rates unless Boeing notifies them otherwise. Deliveries of the MAX continue and its going to be a while to see if they fall below 31 a month as the FAA intensified (its already intensified) inspection (checks)
Boeing will be shifting Fuselages from the -7 and -10 builds to the -8 and -9 as its going to be a year before the 7/10 can even think of production (keeping in mind EICAS can rear up as well)
Also keep in mind engines are made up of a lot of parts and a lot of those parts come from suppliers who have been given a rate to build at as well (in this case by CFM)
In theory Boeing is treating its suppliers better – so unless the MAX issues last more than 6 meths, you are not going to see engine adjustments, none of that turns on a dime and its all been pre-ordered. Complex items like engines and air conditioning packs are going to have long lead times.
Capped at 38 per month. (No doubt CFM is making at a rate higher than 31.) All investments for higher production rate are sitting idle!
Maybe Frank P can tell us what the numbers mean.
Revenues are not the same as profits.
https://www.bnnbloomberg.ca/boeing-737-max-woes-are-putting-suppliers-in-a-planning-bind-1.2035163
“Boeing supplier Howmet Aerospace Inc. said this week that it was basing its guidance on a 737 build rate of 34 Max jets per month.”
“Safran for now hasn’t adjusted its planning, Andries said. He affirmed Boeing factories are currently running below the 38-a-month cap imposed by the FAA.”
“Airbus said Thursday that it plans to continue ramping up its own commercial jet production, which could offer CFM an opportunity to shift more output to the European planemaker in 2025 should its share of the market continue to grow, Andries said.”