UPDATE 3-Safran asks for more time on Zodiac

* Safran won’t wait long before deciding next move – CEO

* Engine sales hit by factory flood in Poland

* CFM jet engine aftermarket “soft” but recovering

* Boeing 787 programme lifts equipment sales

* Shares down 1.1 percent

(Recasts after analyst conference call)

By Tim Hepher and Cyril Altmeyer

PARIS, Oct 22 (BestGrowthStock) – Safran (SAF.PA: ) asked investors on
Friday for more time to decide whether to chase down unwilling
target Zodiac (ZODC.PA: ), an aero parts maker worth $3.8 billion,
prolonging an uneasy stand-off between French aerospace groups.

Safran (SAF.PA: ) shares fell 1.1 percent as it kept open its
options on Zodiac, which snubbed a takeover approach in the
summer, and declined to give a forecast for bellwether
jet-engine parts sales which it said were “soft”.

The fresh uncertainty came as the maker of engines, military
infra-red goggles and biometric identification equipment
reported an 8.8 percent rise in third-quarter revenue despite a
dip in engine deliveries caused by a factory flood.

Revenue reached 2.59 billion euros ($3.6 billion), slightly
ahead of expectations, for a 0.5 percent rise after allowing for
acquisitions and negative currency effects.

Chief executive Jean-Paul Herteman said investors would not
welcome prolonged doubts over Safran’s intentions towards
Zodiac. “We need to make our mind up in a serious way but we
will not wait too long,” he told analysts on a conference call.

Safran shares were down 1.1 percent at 21.1550 euros at 0930
GMT, having risen 50 percent this year. Zodiac fell 0.5 percent.

Safran and Zodiac clashed in July after Herteman wrote to
the manufacturer of aircraft systems and cabin seats to suggest
talks on a tie-up, which Zodiac rejected, saying on July 28 the
matter was closed.

A month later, Safran reaffirmed its interest while denying
a report it was drawing up a formal bid. Last month, Zodiac’s
top family shareholders signed a pact not to sell until April
2012.

Herteman said Zodiac was not the only strategic opportunity
for Safran which last month agreed to buy most of U.S.
face-recognition software maker L-1 (ID.N: ) for $1.09 billion.

The L-1 transaction and the war of words over Zodiac reflect
increased nervousness in the aerospace and defence supply chain
as governments cut defence spending and the civil industry
emerges leaner from recession. [ID:nN20275579]

Safran’s main business is a joint venture with General
Electric (GE.N: ) to produce CFM jet engines which power most of
the world’s commercial short-haul airliner fleet.

Deliveries of CFM56 engines for Boeing (BA.N: ) and Airbus
(EAD.PA: ) jets fell 27 units to 294 in the third quarter due to
delays from the flooding of a factory in Poland, Safran said.

It pledged to catch up on lost parts production by end-year.

WARNING ON OVERHAUL DELAYS

Safran said widely watched CFM spare parts sales fell 16
percent in the third quarter year-on-year but had risen by the
same amount compared with the second quarter of 2010.

It declined to give analysts a forecast for CFM spare parts
sales in the fourth quarter even though it saw the sequential
improvement between quarters as evidence recovery was under way.

It reconfirmed its financial targets for 2010.

Aftermarket sales, where engine makers like Safran and
competitor Rolls-Royce (RR.L: ) make most of their margins, are
driven partly by the frequency of aircraft movements.

These depend in turn on passenger traffic, which Herteman
said was showing “clearly positive” signs going into 2011.

Pressure on the spares business comes from the flexibility
allowed to airlines, in the case of CFM engines, in deciding
when to send them back to the factory for shop visits, Herteman
said. Airlines can use this as a way to control cash outlays.

But he warned carriers against the cost of holding engines
back for too long, saying the longer an jet engine stays under
the wing the more fuel it burns and the more expensive the
maintenance ultimately becomes as parts serve for longer.

Aerospace propulsion revenue, which makes up more than half
of Safran’s sales, fell 1.1 percent in the third quarter. But
sales of aircraft equipment like landing gear and wiring rose
14.5 percent, boosted by the Boeing 787 Dreamliner.

“We had a significant bundle of deliveries (for the 787) in
the third quarter and expect that to continue in the fourth
quarter,” finance director Ross McInnes said.

Boeing this week reaffirmed its mid-first-quarter delivery
target for the new passenger plane, capping a relatively
trouble-free quarter after earlier setbacks. [ID:nN19134234]
(Editing by James Regan AND Dan Lalor)
($1 = 0.7181 euro)

UPDATE 3-Safran asks for more time on Zodiac