France’s Zodiac Aerospace maps out three-year profit recovery

The last stage of the plan will involve some restructuring to remove additional costs related to the turnaround, which saw cost overruns increase by $104 million in the past year

By: Reuters | Paris | Published:November 22, 2016 4:56 pm
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Zodiac Aerospace said on Tuesday it aimed to return to its historical profit levels by 2019-20 as the aircraft cabins’ supplier recovers from a series of profit warnings and production setbacks that dragged profits lower in the past year.

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The Paris-based maker of seats, galleys and aircraft emergency equipment forecast stable sales and a 10-20 percent increase in core operating profit for its current financial year after reporting a 14.1 percent drop in profit for 2015/16. Chief Executive Olivier Zarrouati set out a recovery plan which he described as a “three-stage rocket,” designed first to erase delivery delays and quality problems, then underpin the company’s operational performance and finally restore margins.

The last stage of the plan will involve some restructuring to remove additional costs related to the turnaround, which saw cost overruns increase by 98 million euros ($104 million) in the past year. Zodiac said this would bring its operating margins to the historical level of mid-double digits by 2019/20.

However, Zarrouati said it was taking longer than expected to reduce excess costs, while overheads were also above forecasts. “It is taking a long time because we are transforming industrial operations across the group,” he told analysts.

Zodiac shares fell 3.5 percent in early trading. The company has approximately halved the number of contractors brought in to resolve a crisis at its Santa Maria seat shells plant in California, where the extent of Zodiac’s recent production problems became apparent last year.

It has also developed new assembly facilities for the shells, which are part of all modern premium aircraft seats. On another troubled project, Zodiac said it was increasing production of toilets which have delayed deliveries of the Airbus A350, but remained near the beginning of the cost reduction path.

Zarrouati said plans by Rockwell Collins to buy competing cabins supplier B/E Aerospace highlighted the importance of connectivity in modern aircraft cabins. Although new airplane orders have peaked, the market for supplying seats for new jets or replacing seats on old ones is growing, he said.

Zodiac said it had received a letter of intent from an undisclosed airline for its largest ever business-class seats order. For the financial year that ended in August, core operating profit dropped to 269.6 million euros as the operating margin fell 1.2 percentage points to 5.2 percent.

Analysts were on average expecting operating profit of 268 million euros, according to Thomson Reuters I/B/E/S data.