Safran Earnings: Flat Leap Engine Deliveries; Full-Year Guidance Confirmed; Maintain Our Fair Value

Wide-moat Safran reported a strong set of results for first-quarter 2024, driven by narrow-body air traffic available seat kilometers, ahead of 2019 levels, with full-year narrow-body ASK at 113% of 2019's level and wide-body ASK at 94% of 2019 levels. The firm lowered the original equipment delivery rate of Leap engines for 2024 to 10%-15% compared with previous guidance of 20%-25% as Boeing decreased production rates below 38 planes a month in the short term to ensure stricter controls. However, Boeing plans to increase production again in second-half 2024 and deliver up to 50 planes a month by 2027. With the increase in ASK, lower deliveries, and low retirement rates, we expect strong demand in the aftermarket for legacy CFM56 engines—currently 70% of the firm's total fleet—to offset the short-term decrease in Leap engines. We maintain our fair value estimate.