Despite a slow recovery in traffic, the third quarter improved compared to Q2 for all activities. Nevertheless, business was still strongly impacted by the Covid-19 crisis, both in OE and services activities. Therefore, Safran continues its efforts of costs optimization.
CFM56 and LEAP flight cycles improved slightly mainly in China.
As of October 25, 2020:
- Weekly CFM56 fleet cycles are down (48)% year on year improving from (52)% at the end of July;
- Weekly LEAP fleet cycles are down (15)% year on year improving from (23)% at the end of July.
Safran is adapting its organization to meet various health constraints. As of October 16, 2020:
- 67% of the workforce at Group level was on-site, 10% was working from home and 12% was under short-time working or furlough;
- 4 sites were temporarily closed compared to 30 as of May 18, 2020 and 14 as of July 17, 2020.
Safran continues to monitor key suppliers. Safran contributed Euro 58 million to the dedicated “Ace Aéro Partenaires” aerospace fund which has now started operating with its first investment in a group, which specializes in manufacturing machines and presses along with complex mechanical parts for the main aerospace players, including Safran.
CEO Philippe Petitcolin commented:
“After a second quarter strongly hit by the impacts of the Covid-19 crisis on all activities, the third quarter has seen a lesser deterioration. Thanks to the efforts of Safran teams worldwide, the implementation very early in the year of an ambitious adaptation plan has been key in a context of a prolonged air traffic crisis, which allows us to confirm our financial targets for the end of the year. More than ever, we keep cutting costs while preserving our technological roadmaps. I am convinced that innovation will be central to emerging from this crisis.”
Since the trough reached in Q2, Safran’s activity has edged up, especially in September. It was notably driven by services for civil engines, and by a slight upturn in Propulsion and Equipment OE activities in Q3.
- Improvement compared to Q2 due to OE (civil engines) and services (MRO activities and widebody engines spare parts);
- Sales improvement in helicopter turbines;
- Military activities in line with pre Covid-19 trends.
Aircraft Equipment, Defense and Aerosystems:
- Improvement seen compared to Q2 due to OE (landing gears and nacelles) and more particularly in September;
- Resilience of Defense activities with slight growth in sighting and navigation systems.
- Decrease in production rates for widebody programs as well as postponed sales in a context of increased deferrals and cancellations;
- Slight improvement compared to Q2 thanks to OE (Cabin). Unlike other divisions Aircraft Interiors showed a decrease in activity in September.
During the third quarter, Safran thoroughly worked on its adaptation plan. At the end of September, the Group was in line to reach or to exceed the targets set to lower its cost base:
- Workforce has been adjusted to around 81,200, as of October 16, 2020, a (16)% decrease in permanent employees, and a (20)% decrease including temporary workers;
- Purchasing programs have been scaled back in line with the drop in activity: decrease of (42)% in raw materials and supplies expenses and of (42)% in sub-contracting expenses;
- Capex commitments reduced by (74) % year to date, exceeding the (60)% reduction objective for 2020;
- R&D expenses reduced by (33)% in the first nine months of 2020, exceeding the (30)% reduction objective for 2020;
- Operating expenses reduced by more than 20% in the first nine months of 2020, in line with the target at year-end.
*excluding purchasing and including R&D expenses
Key business highlights
1. Aerospace Propulsion
Narrowbody engine deliveries
At the end of September 2020, combined shipments of CFM56 and LEAP engines reached 745 units, compared with 1,643 in the year ago period:
> LEAP deliveries
CFM International delivered 172 units LEAP engines in Q3 2020 (compared with 455 in Q3 2019) bringing total deliveries to 622 units in the first nine months of 2020 (compared with 1,316 in the year ago period).
> CFM56 deliveries
CFM56 engines deliveries reached 123 units in the first nine months of 2020, of which 39 in the third quarter. Last year, 327 engines had been delivered at the same period, of which 69 in Q3 2019.
Civil aftermarket revenue for the first nine months 2020 was down (41.8)% in USD terms including a decrease of (3.3)% in Q1 2020, (66.0)% in Q2 2020 and (56.2)% in Q3 2020. Spare parts sales for CFM56 engines led the decrease year to date. Spare parts sales for high thrust engines (notably GE90) and service contracts decrease less than anticipated in Q3.
On-going discussions with Dassault Aviation and the French MoD following Greece’s stated intention to acquire 18 Rafale (out of which 12 used and 6 new aircraft) to equip its Air Force.
The H160 helicopter, equipped with Safran’s Arrano engine, received its type certification from EASA (European Aviation Safety Agency).
**Civil aftermarket (expressed in USD): this non-accounting indicator (non-audited) comprises spares and MRO (Maintenance, Repair & Overhaul) revenue for all civil aircraft engines for Safran Aircraft Engines and its subsidiaries and reflects the Group’s performance in civil aircraft engines aftermarket compared to the market.
2. Aircraft Equipment, Defense and Aerosystems
In the context of the Covid-19 crisis, new contracts were signed for Defense. Safran’s new-generation Euroflir optronic (electro-optical) system has been chosen for the French Navy’s H160 helicopters.
Safran also signed contracts with two Asian airlines to provide carbon brakes for A320neo and Boeing 787-10.
3. Aircraft interiors
There were few OE order cancellations during the third quarter but airlines rescheduled their retrofit programs from 2020 to 2021 and beyond. Safran has been selected by a US airline to provide business class seats for its new Boeing 787 as well as an Asian airline to provide economy class seats for its future A321 and business class seats for its new Boeing 787.
Revenue for third-quarter 2020
Q3 2020 revenue amounted to Euro 3,382 million, a decrease of (44.5)%, or Euro (2,713) million, compared to the year ago period. Changes in scope had a net impact of Euro (10) million. The net impact of currency variations was Euro (141) million, reflecting a negative translation effect on non-Euro revenues, notably USD. The average EUR/USD spot rate was 1.17 to the Euro in Q3 2020, compared to 1.11 in the year-ago period. The Group’s hedge rate was at USD 1.16 to the Euro in Q3 2020, compared to 1.18 in Q3 2019.
On an organic basis, revenue decreased by (42.0)% coming from all divisions:
- Propulsion decreased by (45.9)% from services (civil aftermarket) as well as OE volumes (civil engines). Helicopter turbines sales increased (low double digit increase compared to 2019). Military activities were as planned;
- Aircraft Equipment, Defense and Aerosystems sales decreased by (33.6)% due to OE sales for wiring, nacelles, avionics and to a lesser extent landing systems activities. Within services, landing gear, carbon brakes and nacelles activities and to a lesser extent Aerosystems suffered the most. Electronics & Defense activities were more resilient to the crisis;
- Aircraft Interiors revenue decreased by (51.8)%, with the decline led by the Cabin and Seats businesses (both OE and services) and to a lesser extent Passenger Solutions activities.