The Safran group’strategy
Jean-Paul Herteman, Safran CEO | © Eric Larrayadieu / Interlinks Image
What would you say were the major events in 2009?
It was a very busy year, but I would like to single out a special milestone: in October, Safran celebrated the delivery of the 20,000th CFM56 engine. This is an unprecedented success in the history of commercial aviation, and clearly reflects the power and effectiveness of the partnership we started with GE in 1974. Celebrating this milestone also provides an opportunity to project ourselves into the future, since the LEAP-X, successor to the CFM56, was launched in 2009. Reflecting current trends, the launch customer for this new engine is a Chinese aircraft manufacturer, Comac, which chose the proposal submitted by Safran and GE – via their joint ventures CFM International and Nexcelle – to provide the integrated propulsion system for the C919, a new entrant in the single-aisle mainline commercial jet segment of the market. This was a major business win for us, the culmination of some thirty years operating in China. It is all the more significant since this country, already the world’s second largest aviation market, after the United States, will account for 20% of the world’s air travel in the future, versus 10% today. Among the other fundamental events that occurred in 2009, I would also include our acquisitions of the Printrak brand from Motorola, and the Homeland Protection division of GE.
How do these acquisitions fit in with your strategy?
Technology-based security markets are enjoying strong growth, driven by constantly increasing needs for both biometric identification and detection systems. We are deploying a targeted acquisition strategy to bolster our market positions. Early this year we completed our acquisition of Printrak. Along with the acquisition of 81% of the Homeland Protection division of GE, Safran, already the world leader in biometrics, is now the world leader in imaging systems that detect dangerous or illicit substances in luggage. We have formed a unified security business, with dozens of prestigious customers, including the FBI for our biometric ID solutions, and the Tel Aviv airport for explosives detection. These acquisitions are part of our long-term strategy, and are backed by the fast-paced organic growth of our security business, which logged a 38% increase in sales and a 60% jump in earnings. The security sector is set for strong, very profitable growth, with margins on a par with those in the aerospace sector.
Over and above this strong growth, how do you see the Group’s results?
Our results clearly reflect our robust performance, with sales up slightly, and operating income exceeding our target, despite the uncertain aerospace market and an unfavourable and volatile euro-dollar exchange rate. Our good results were largely driven by buoyant deliveries of the CFM56, standing at 1,263 for the year, about the same as in 2008. The extensive installed base of these engines also means that our service business proved resilient: 45% of the engines in service have yet to undergo their first shop visit (major overhaul). Furthermore, our corporate improvement initiative, Safran+, has generated significant free cash flow, a key indicator of financial performance. This is largely due to lower working capital requirements, despite the unfavourable impact of the new economy modernization law in France, reducing the time allowed for payments to suppliers. Our cash flow allowed us to reduce our debt lead, despite major investments in R&D and acquisitions. Although we are currently in a weaker period, we are doing everything in our power to capitalize on the next growth phase when it arrives.
How would you describe the general outlook for Safran?
We are expecting stable revenues and a slight increase in operating income, based on a recovery in the air transport market of about 4%, and with a backlog of more than 6,000 orders for CFM56 engines. The recovery will undoubtedly be sharper in 2011, in particular with the ramp-up of the Airbus A380 and Boeing 787, and a recovery in service business. Over the longer haul, growth in the aviation business will of course be driven by emerging countries, in particular China, Brazil and India. Safran is in perfect shape to take advantage of these major trends. We can count on especially solid fundamentals, in particular a systematic focus on technological innovation in our core markets of aerospace, defence and security. In fact, I would say that innovation, which is behind the success of our Safran ocean racing yacht, characterizes the Group as a whole. Along with our distinctive ability to make international partnerships a success, it is the key to our corporate identity.
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