Safran has agreed to buy struggling French aircraft interiors supplier Zodiac Aerospace in a merger deal worth €8.5 billion ($9.1 billion). The merger, plans for which the companies announced on Thursday, would result in the third largest supplier in the aerospace industry, generating €21.2 billion in adjusted revenues and employing 92,000 people, including more than 45,000 in France.
The new entity would combine Safran’s expertise in landing gear, brakes, wheels, nacelles, power systems, actuation and avionics with Zodiac’s leading position in seats, cabin interiors, power distribution, lighting, fuel, oxygen, fluid systems and safety equipment.
In a statement, Paris-based Safran said the transaction would not only extend its product range and fuel organic growth, but also limit its exposure to aircraft OEM delivery cycles and improve its exposure to dollar-denominated cost-base, particularly in Zodiac’s well developed North American market.
“The acquisition of Zodiac Aerospace represents a unique opportunity at this point in Safran’s development, just a few months after initiating the refocus of the group on our core activities in aerospace and defense,” said Safran CEO Philippe Petitcolin. “The technological complementarities will ensure that we accelerate domains as strategic as critical systems and the more electric aircraft, which make up 40 percent of Zodiac’s activities.”
Safran added that it has already identified €200 million of so-called cost synergies, 50 percent of which it estimates it could achieve in the first year and 90 percent in the second year, allowing it to meet its RoCE (return on capital employed) goal in three years. Safran also said the tie-up would enhance Zodiac’s seats and interiors business to accelerate its recovery from a tumultuous period marked by delivery delays and quality problems.
Although Zodiac has said it has addressed many of the problems, its inability to deliver airline seats on time for Airbus and Boeing airliners already severely damaged its reputation, angering customers and prompting several to switch suppliers. Most recently, late delivery of lavatory parts for the Airbus A350 forced the European airframer to adjust its own delivery schedules. Although Airbus delivered 49 of the 50 airplanes targeted for shipment in 2016, it needed to scramble at the end of the year to compensate for Zodiac’s earlier failures.
Safran expects to complete the tender offer by the end of the fourth quarter of this year, following antitrust clearances and regulatory approvals. The companies expect to complete the merger in early 2018.
Zodiac Aerospace is active in the VIP private aircraft interiors market through its U.S-based subsidiary Greenpoint Technologies.