Safran Shareholders Pave Way To Zodiac Acquisition

2017 Paris Airshow

Safran has its work cut out to turn Zodiac around but new CEO has been charged with the task, as acquisition is approved.

Safran unveiled its new-generation airborne optronic system here Monday, describing it as “a major advance.” The Euroflir 410 is designed for all types of air vehicles, including special mission aircraft, helicopters, airships and UAVs. Very high resolution cameras provide coverage at longer distances than previous-generation systems. Because they cover multispectral bands, they can still provide imagery in dusty, foggy or smoky conditions. Safran said that the Euroflir 410 also introduces major innovations to facilitate situational awareness by its operators, with a focus on intuitive ergonomics. The new sensor has standard interfaces to enable integration with any mission system. An optional laser designator guides precision air-ground munitions. The Euroflir 410, inset below, can be seen in the static park, mounted beneath Safran’s Patroller UAV. This is the drone that will soon enter service with the French army.

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By Guillaume Lecompte-Boinet

June 19, 2017

During a general assembly held June 16 in Paris, 90.5 percent of Safran shareholders approved the acquisition of French aerospace supplier Zodiac Aerospace (Chalet 214). The approval came despite opposition from UK-based investment fund The Children’s Investment (TCI), which holds 5 percent of Safran shares. The initiative was first announced January 19 but encountered difficulties after several profit warnings issued by Zodiac. Other issues included a complicated purchase process and a price many considered too high at €29.50 ($33) per share for a total of €9.7 billion ($10.86 billion). The new offer is simpler and values Zodiac at 15 percent less—€25 ($28) per share, or €8.2 billion ($9.2 billion).

The acquisition is scheduled to be completed by the end of 2017, pending regulatory approval. Oliver Zarrouati, CEO of Zodiac and blamed by some for its industrial difficuties, will be replaced by Yann Delabrière, former CEO of the French automotive supplier Faurecia. Zodiac has issued 11 profit warnings in the past three years, the last one on April 28. At that time, it acknowledged a €24 million ($26.9 million) loss for the first half of 2017.

With revenues of €5.2 billion ($5.8 billion) in 2016, Zodiac will add several new dimensions to Safran's portofolio, including cabin interiors (61 percent of total operations) and aerosafety systems (39 percent). More than 21,800 commercial aircraft in service are equipped with a Zodiac systems, and over 90 percent of its revenues are generated as a Tier 1 supplier. The new Safran group will now have global leadership positions across the entire aircraft value chain, with revenues of around €21 billion ($23.5 billion) and a staff of 100,000.

Propulsion is traditionally the main activity of Safran, accounting for around 59 percent of its 2016 revenues. When the Zodiac purchase is completed, the group will have around €10 billion ($11.2 billion) in equipment, roughly half of the activity, versus 33 percent in 2016. This will also reinforce aftermarket activities at Safran, with Zodiac having generated 36 percent of its revenues in support and services. Safran is already a leader in MRO services, with €7 billion ($7.8 billion) in revenue in 2016.

Significant improvements will be necessary at Zodiac; Many of Zodiac’s factories are too small, or poorly organized. Zodiac experienced serious problems with cost overuns on programs such as the Airbus A350—notably the seats. A rationalization program is on track, but one Airbus official recently told AIN that even if the production rate has stabilized, "quality is an issue." Delabrière has a reputation as a tough manager, having successfully turned around Faurecia's finances.