Safran gets ready for ‘more electric aircraft’

 - July 12, 2008, 5:36 AM

France’s Safran group plans to embark on a restructuring effort to better advance the so-called more electric aircraft concept and the increased application of electronics in aircraft systems and subsystems. In his first ever press interview, new CEO Jean-Paul Herteman told AIN that the revamp, due to start in early 2009, will “take on critical importance” in developing a generation of less fuel-hungry aircraft. He said that the strategy will unfold over the next decade with the replacement of the current generation of engines–including the CFM56 family made by Safran subsidiary Snecma in partnership with General Electric–and the development of new single-aisle airliners.

Simultaneously, if the dollar continues to slide in value against the euro, Safran companies will move more production outside high-cost Europe. Herteman confirmed that while the Snecma/ Sagem merger to create Safran has been positive for the electronics and engines side of the business, a lack of synergies in the communications sector forced the group to offload its Sagem Communications division.

Aerospace engineer Herteman, who became group CEO in September 2007 after various posts including CFM56 program manager, said Safran was restructuring to enhance its electrical power technologies and reorganizing to fully integrate equipment purchase with services. It will create Safran Power, a new operational unit responsible for developing Hispano-Suiza’s power electronics business to establish a position as world leader in all-electric technologies. There was a “positive outcome of synergies” within Sagem following the controversial French government-inspired merger in 2004. Afterwards Safran developed electric brakes on the Boeing 787, the first on a commercial aircraft.

Meanwhile, the engine controls systems will be transferred from Hispano-Suiza to Snecma, which is merging with Snecma Services to offer integrated engine sales and services packages. The group’s 1,500 electronics specialists will combine within a new entity, Safran Electronics, part of Sagem Défense Sécurité. Safran will also establish business development and materials and processes divisions. The group’s unions have expressed concern at the social repercussions of the reorganization. In January Safran announced that its 39,400-strong France-based workforce would fall by 1,000 this year.

The big question for the next five years involves further improvement to positions in short- to medium-range aircraft, he stressed. Safran is investing heavily in terms of engines and brakes systems–for example, its new Silvercrest turbofan for business jets.

In reorganizing, Safran seeks to be ready to take a “winning share” of its markets, including through acquisition. The group in June announced the purchase of Netherlands-based passport and secure ID document company Sdu-Identification BV and confirmed its $300 million “non-solicited” offer for Beaverton, Oregon-based secure identity company Digimarc Corp.  Meanwhile, Herteman insisted, there is no substance in the rumor of a tie-up with Thales.

Safran, to maintain a profile similar to its four main competitors–GE Aerospace, UTC, Honeywell and Rolls-Royce–is finalizing the spin-off of its communications business. “We get to keep the positive side and divest ourselves of the negative side of the tie-up with Sagem,” said Herteman. “Safran’s solution for Sagem Communications will ensure the best possible future for its customers, employees and Safran shareholders,” said Herteman, following the California-based Gores Group’s e383 million ($593 million) purchase offer in January. Safran retains a 10 percent stake and a supervisory board seat, and a large group of its managers and employees remain minority shareholders.

But the question of transferring work outside Europe remains on the agenda. About half of Safran’s advanced technology is produced in France-based plants and half outside Europe. Composite materials specialist Herteman said about 55 percent of Safran’s activity is dollar sensitive. By 2010 he expects the company to cut its exposure by 10 percent.

Since 2006 the equipment sector has spent just over $77.5 million in developing industrial facilities in “strategic” China and India, as well as Mexico, Morocco and Poland. Future investment abroad will probably fall as most of the sites are at the required size. But, to cut costs and encourage supply chains outside Europe, that plan could change if the dollar continues to plunge. Safran sub-contractors and suppliers were following suit with an increasing number of contracts in U.S. dollars, even with France-based firms. “The unions say we should produce more in France, but I think they understand that our business is global,” Herteman said. “I do not expect major problems as they see that most high technology will remain in Europe,” he said.

For Herteman, in terms of expectations following the election promises to help French industry from President Nicholas Sarkozy’s administration last year, things are “going in the right direction.” He welcomed movements to make the 35-hour working week more flexible and steps forward regarding R&D tax relief.