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Safran Sees 737 MAX Drag This Year; 2019 Profit Rose — Update

- Safran expects flat-to-lower adjusted revenue in 2020 due to Boeing's 737 MAX crisis

- The French company has implemented a cost-cutting plan to mitigate the effect of the situation

- Safran has no supply-chain issues related to the coronavirus epidemic, CEO Philippe Petitcolin said

 
  By Olivia Bugault 
 

Safran SA said Thursday that its adjusted revenue will be flat or lower in 2020 on the back of Boeing Co.'s 737 MAX crisis, and posted rising revenue and profit for 2019.

For 2020, Safran expects its adjusted revenue to decrease by 0% to 5%, while adjusted recurring operating income should grow by roughly 5%.

Safran based its outlook on the assumption that the 737 MAX jet will return to service in mid-2020. The company said it should produce an average of 1,400 LEAP engines a year, including 10 LEAP-1B engines a week. Previously, Safran estimated its LEAP annual average production at 2,000 for 2020.

The MAX jet is powered exclusively by the LEAP engines made by a joint venture of Safran and General Electric Co.

Boeing halted the production of the grounded jet in January following two fatal crashes in which 346 people died.

The French aircraft-engine manufacturer said it has implemented an "adaptation plan" that includes savings on direct costs, overheads, and a hiring freeze to adjust to the situation. The plan represents roughly 300 million euros ($326.3 million) of spending adjustment, Chief Executive Philippe Petitcolin said during a conference call Thursday.

The coronavirus could also hurt 2020 figures. Safran's civil aftermarket should grow in the high single digits this year if air traffic returns to normal after the first quarter, the company said.

All plants have reopened in China and between 74% and 95% of employees are working on the sites, Mr. Petitcolin said during the call. He said the company has no supply chain issues related to the coronavirus epidemic.

Safran will also update its mid-term ambitions in order to "reflect the impact of the 737 MAX grounding," it said. "Mid-term ambitions will be updated after the 737MAX return to service and new ramp-up are clarified," Safran said.

The plan disclosed in November 2018 included organic revenue growth in a mid-single digit range on average over the 2019-22 period.

In 2019, adjusted net profit stood at EUR2.67 billion compared with EUR1.98 billion a year earlier.

Adjusted revenue rose to EUR24.64 billion from EUR21.05 billion a year earlier, and civil aftermarket--a key performance metric--grew 10% in dollar terms, partly driven by spare-parts sales.

Free cash flow came in at EUR1.98 billion, after taking an expected EUR700 million hit due to the 737 MAX issue. In 2020, free cash flow should be higher, Safran said.

The company declared a dividend of EUR2.38 a share for 2019.

 

Write to Olivia Bugault at olivia.bugault@wsj.com

 

(END) Dow Jones Newswires

February 27, 2020 04:19 ET (09:19 GMT)

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