By Tim Hepher and Cyril Altmeyer
PARIS (Reuters) - Aero engine maker Safran (PA:SAF) reported a 0.9 percent dip in core first-half profit on Friday that was still just above forecasts, as aircraft equipment and defence earnings offset headwinds from a switch to a new engine type.
The French company, which recently sold its security business and won backing from its shareholders to make a reduced offer for Zodiac Aerospace (PA:ZODC), said it hoped to go ahead with a formal Zodiac bid by the end of the year.
Production of the world's most-sold aircraft engine, the CFM56 co-produced with General Electric (N:GE), is winding down in favour of its successor, the LEAP, which is ramping up. Progress is in line with plans but it is still making a loss.
Recurring operating income fell to 1.218 billion euros ($1.42 billion) from 1.230 billion, dragging the operating margin 0.2 percentage points lower to 15.2 percent, but profits slightly beat expectations because of growth in non-engine businesses which benefited from a two-year cost-cutting drive.
Safran shares fell around 1 percent, slightly outperforming a weaker market, as the company reaffirmed its targets.
Revenues grew 0.6 percent or 2.4 percent on an underlying basis to 8.038 billion euros.
Analysts were on average expecting an operating profit of 1.201 billion euros on revenues of 8.086 billion, according to Thomson Reuters I/B/E/S consensus data.
Civil aftermarket revenue grew 8.4 percent in dollar terms in the first half but was flat in the second quarter.
Safran said it expected the key services earnings figure to rebound in the second half amid strong airline traffic growth.
Safran aims to break even on LEAP in 2020, but together with GE it is in talks with planemakers over increased demand for engines that could theoretically speed the programme into the black earlier than expected.
Chief Executive Philippe Petitcolin cited a quality problem with a part on the model of the engine produced for Airbus. Any impact is expected to be minor, he said.
The engines are co-produced for Airbus, Boeing (NYSE:BA) and China's Comac through Safran's CFM International joint venture with General Electric (N:GE).
Although CFM has avoided the number of teething problems felt by rival Pratt & Whitney (N:UTX), India said on Thursday its state carrier had experienced some delays in getting Airbus jets fitted with engines from the joint venture.
Safran said its delayed Silvercrest business-jet engine was now on track but declined to comment on the progress of talks with Dassault Aviation (PA:AVMD) over penalties.