Safran creation still questioned

Paris Air Show » 2007
June 18, 2007, 7:10 AM

Mixed results for Safran’s subsidiaries last year and an internal investigation into accounting irregularities last December that resulted in top executive changes have again raised the question of the wisdom of the controversial merger of leading French aerospace and engine and equipment manufacturing group Snecma and telephone and defense communications group Sagem.

As aerospace industry professionals continue to question the French government-inspired tie-up, announced in 2004, of two very different companies, here in Paris on Friday Safran chairman Jean-Paul Béchat told reporters, “The crisis with matters that raised questions of our credibility and created some internal disorder is over. I tendered my resignation to the supervisory board, effective as from September 2, 2007. On May 25 the accounts were accepted after the external auditors’ enquiry into Sagem Défense Security accounts and it was agreed there had indeed been a problem, but not with Jean-Paul Béchat.”

The board will decide, probably in July, whether he should continue until May next year, the end of his original mandate. A bitter fight for power between the two former companies led to former finance minister Francis Mer taking over in January from former Sagem executive Mario Colaiacovo as Safran supervisory board chairman. Mer is also charged with finding a successor to Béchat and defining Safran’s strategy.

According to Béchat, the losses Sagem reported on some activities are not a consequence of the merger but “due to cost overruns on some defense programs, or price tensions on telecom activities.” He confirmed there are no plans to sell any of the two loss-making sectors but from July 1, Defense Security is to be reorganized into two branches: Sagem Defense Security with avionics and optronics/defense divisions and a Security branch. Meanwhile “sometime this summer” Sagem Communcations will be reorganised into divisions for mobile telephones and other communications. Announcing Safran’s first-quarter results Friday, he reported a 11.3-percent jump in aerospace propulsion, a 4.8-percent rise in aircraft equipment, a 4.3-percent increase in Defense Security but a 17.2-percent fall in Communications. Consolidated sales registered an overall 3.3-percent increase. Safran expects a 5-percent rise in the full year 2007. Meanwhile, orders were taken for 1,011 CFM56 engines in the first five months of 2007.

The Safran chairman agreed from the outset the merger is “atypical” but continued to insist on the synergies existing between Snecma and Sagem. “We never believed in synergies between mobile telephones and engines. Indeed, some of the two companies’ products are far removed from each other, but both are in aerospace, defense and defense-linked security businesses. The industrial logic remains the same as when the companies merged: electronics are playing an increasing role in aircraft manufacture and there is a growing tie-up between Snecma’s mechanical expertise and Sagem’s electronic prowess with complementary technologies in electronics and aerospace equipment control systems.” Snecma, he said, developed the electrical braking system for the B787 and Sagem is involved with Safran subsidiary Messier-Bugatti on the electronics for these systems.

Béchat expressed “disappointment” that Dassault Aviation had selected a Rolls-Royce engine over its own Silvercrest for its new super-midsize aircraft expected to be launched at the end of the year.  The ground test for Silvercrest’s core demonstrator is earmarked for the fourth quarter of 2007. Other important events for Safran in the coming months include flight tests for the TP400-D6 engine for the Airbus A400M on a Lockheed Martin C-130 Hercules and rollout of the Sukhoi Superjet 100 regional jet with a first application of the SaM146 engine.

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