Aerospace supplier Safran's core profit drops by half

PARIS (Reuters) - Safran's <SAF.PA> core profit tumbled in the first half of the year, but the drop was not as bad as expected as the jet engine maker went into the coronavirus crisis propelled by the momentum from a strong first quarter.

The world's third largest aerospace supplier reported a recurring operating profit of 947 million euros (855.8 million pounds), down 49.7%, as revenues fell 28% to 8.767 billion.

Analysts had expected operating profit of 840 million euros on revenues of 8.5 billion, according to Refinitiv data.

Safran said it expected a 35% drop in revenue and an operating margin of around 10% for the full year, and positive free cashflow in the second half.

In the first half, the margin slid to 10.8% from 15.6% a year earlier when aerospace companies were enjoying record output.

Safran's shares rose around 4%.

Air travel has collapsed since the pandemic spread widely in March, depriving Safran and other contractors of revenues from the sale of new equipment as well as maintenance and spare parts that depend heavily on the number of hours jets spend flying.

Safran co-produces engines for the grounded Boeing 737 MAX and around half of Airbus's competing A320neo fleet.

Civil aftermarket revenues fell 34.4% in dollar terms and Safran said it expected these to fall 50% for the full year.

It predicted 800 LEAP engine deliveries in 2020.

Chief Executive Philippe Petitcolin described the crisis as "devastating" for the aerospace industry, which had previously enjoyed a bull run for the best part of a decade.

But he said Safran was remoulding itself in order to emerge stronger from the crisis when air travel eventually recovers.

Safran said it had signed a deal with unions in France capping pay and profit-sharing and targeting 3,000 early retirements by offering incentives. The deal will help improve Safran's finances from the second half, the company said.

Petitcolin said Safran's own supply chains were producing at roughly the required levels with few delays but that concerns remained about the financial health of some suppliers.

Safran has contributed 58 million euros to a new French support fund which earlier this week said it had raised an initial 630 million euros.

The crisis has hit cabin suppliers such as Zodiac Aerospace which Safran recently acquired. That is because wide-body jets, which have the most customised cabins, are facing a deeper recession than smaller models on domestic routes, which are expected to recover first.

Petitcolin said he had no regrets about taking over the French company, noting that it also supplied aircraft systems and equipment that were faring comparatively well.

(Reporting by Tim Hepher; Editing by Sudip Kar-Gupta and Jane Merriman)