Zodiac raises profits...and questions

Farnborough Air Show » 2006
November 15, 2006, 8:07 AM

Zodiac (Hall 1 Stand B18c) is a phenomenon in the French aerospace industry. It has survived for 110 years and descendants of the founders are still involved in the business. But, now, after 15 years of 14.5-percent average annual profit increases, questions have surfaced about the level of debt that Zodiac carries and where the group will head after 2008, when its chairman and CEO, Jean-Louis Gerondeau, retires after 30 years at the helm. In that time, Zodiac’s payroll has morphed from 525 employees to more than 16,000.

Zodiac’s many divisions include AeroSafety Systems, which fields aircraft evacuation slides, helicopter floats, emergency arresting systems, protection and parachute systems, flexible fuel cells, de-icing systems, wiring protection and electrical interconnect systems. Its Aircraft Systems division specializes in the supply of equipment such as oxygen systems and fuel and electrical power management systems. Cabin Interiors, Zodiac’s recently branded airline equipment segment, supplies aircraft seats, cabin equipment and integrated water and waste systems.

The group is involved in many new aircraft programs including the Airbus 380, Boeing 787, Bombardier Challenger 300, Embraer 170/190, Dassault Falcon 7X, Airbus A400 military transport aircraft and Sukhoi’s Russian Regional Jet. Commenting on the postponement of A380 deliveries announced by Airbus in June, a Zodiac spokesman said the delays are expected to represent “less than one percent of projected sales.” He also emphasized that the primary electrical distribution system Zodiac supplies for the A380 was “not in any way responsible for the delays announced by Airbus.”

Zodiac last month reported that revenues from its three aerospace divisions in the first nine months of its 2005-2006 financial year spiraled upward by almost 50 percent to ?1.27 billion ($1.59 billion). The figures reflect the acquisition last year of U.S. aircraft interiors firm C&D Aerospace, and show a strong 12.9-percent organic sales growth in aerospace, with performance in the commercial sector more than offsetting the slowdown in defense.

Consummation in July last year of the $600 million internally financed purchase of California-based C&D Aerospace (with 2004 revenues of $400 million) gave Zodiac a greater foothold in the U.S. and strengthened its cabin interiors business. It also extended its markets in the dollar zone, part of a concerted effort to mitigate its cost exposure to the strength of the euro.

After purchasing six companies in two years, Gerondeau said Zodiac is now getting off the acquisition trail to better integrate the new firms into its organization. But the move is also necessary to reduce the group’s debts, representing about 150 percent of shareholder equity. Gerondeau said his aim is to bring this down to 100 percent in two years. One option might be to jettison or downsize its marine and technology divisions, where sales are falling, observers suggest.

Another major question surrounds Gerondeau’s retirement, expected in October 2008 when he reaches 65. He indicated that Zodiac would create a post of managing director in the next two years but that he would always remain close to the group and ensure its transition.

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