PARIS, FRANCE —Engine maker Safran anticipates continued aerospace supply chain challenges amid demand resurgence.
As the French jet engine manufacturer Safran grapples with an "unprecedented supply crisis," aircraft makers worldwide are fighting to procure necessary parts and personnel to meet the booming demand, a situation the company expects to persist into the coming year. Safran CEO Olivier Andriès, in a conversation with the Financial Times, acknowledged the persistent supply chain complications that have plagued the industry since the Covid-19 pandemic and Russia's invasion of Ukraine, which triggered a shortage of raw materials.
"There's a daily struggle to acquire the necessary parts. It's an industry-wide issue, not exclusive to Safran," expressed Andriès. "We have transitioned from a demand crisis in 2020 to a supply crisis now. This is an entirely new scenario for us."
Airbus and other industry players are wrestling with similar problems, predicting supply chain restrictions until 2024, given the rush by airlines to acquire new aircraft to accommodate soaring travel demand.
Andriès predicted that these constraints will likely extend into 2024, impeding the pace at which the industry can augment production. He admitted, "I wish I could say it will end in three months. But the reality is, it will persist."
Despite the hurdles, the Paris-based Safran anticipates a sales growth of roughly 20% this year. If the forecast proves accurate, the company is expected to regain its pre-pandemic 2019 revenue of €25bn by next year, according to analysts. This potential recovery has sparked a 55% rally in the company's shares over the past 12 months.
Generating significant revenue from both civilian and military engines and its aircraft interiors business—which combined for nearly 45% of the group's 2022 revenue—Safran is financially stable. The company is exploring larger acquisitions and potential additional share buybacks, the CEO revealed.
Safran recently revealed its ongoing discussions to purchase the flight controls unit of US-based Raytheon Technologies, valued at approximately $1bn, marking its largest acquisition since 2018.
This acquisition, according to Andriès, would establish Safran as a market leader in a sector where it had previously trailed competitors. The CEO noted Safran's inclination to participate in critical equipment sectors with high entry barriers and limited competition.
Analysts had speculated whether this acquisition would hinder Safran's ability to conduct further share buybacks. However, Andriès asserted that the company was open to buybacks. He mentioned, "Our balance sheet has become stronger. We've managed to maintain a robust cash generation profile over the past two years, and this trend is set to continue."
The aviation industry, both civil and military, faces significant challenges in hiring, following staff cuts during the pandemic.
Sanctions related to the Ukraine war have further complicated the procurement of materials such as aluminum.
In response, Safran, in conjunction with Airbus and Tikehau Capital, acquired French steel parts manufacturer Aubert & Duval earlier this year to diversify raw material sources. Yet, due to the complexity of certifying materials for essential aircraft parts, it does not plan to immediately cease imports of Russian titanium, which is not currently subject to sanctions.
For 2023, Andriès reaffirmed Safran's commitment to deliver 1,700 Leap engines, co-produced with America's General Electric. These engines, designed for the Airbus A320neo and Boeing 737 Max aircraft, have faced durability issues in harsh, dusty environments such as India and the Middle East. Andriès, however, reassured that no airlines have grounded aircraft due to these engine problems. "We keep their aircraft in flight," he stated.
