PARIS- France's Safran posted a stronger-than-expected rise in 2019 core profit led by jet engine spare parts, but warned of flat-to-lower 2020 revenue hit by Boeing's 737 MAX grounding crisis.

Safran co-produces the jet's engines with General Electric and makes the bulk of its cabling as well as equipment from oxygen masks to fuel systems, slides, lighting and cockpit doors after acquiring Zodiac Aerospace in 2018.

The plane's nearly 12-month grounding following two fatal crashes dominated a mixed outlook for 2020, with Safran predicting revenue flat or down by as much as 5% even as operating income is set to grow by around 5%.

To help reach that forecast, it said was targeting 300 million euros ($326 million) of cost savings and other belt-tightening measures to cope with the 737 MAX outage.

"2020 is a year of challenges but we have all the robustness ... to reach our objectives," Chief Executive Philippe Petitcolin told reporters.

Safran's 737 MAX plan involves cost savings, a hiring freeze and lower R&D and capital spending for 2020. 

Under a new agreement with Boeing, however, Safran will be paid for MAX engines supplied to the aircraft maker, instead of having to wait for their eventual deliveries to airline clients, which remain suspended.

The new terms will cover LEAP-1B engines supplied in 2020, less the initial deposits that many airlines are withholding, finance chief Bernard Delpit said, as well as retroactive payments applied progressively to last year's deliveries.

The world's third-largest aerospace supplier said its 2019 operating profit rose 24.6% on a like-for-like basis to 3.82 billion euros ($4.2 billion) on revenue up an underlying 9.3% to 24.64 billion.

Analysts had expected operating income of 3.75 billion euros on revenue of 24.48 billion, according to Refinitiv data.

The French company posted growth across the board, notably at its recently acquired and restructured interiors division.

 

CIVIL AFTERMARKET

However, some analysts said the outlook for 2020 was more conservative than expected and Safran cast doubt on its medium-term objectives, saying they would be reviewed after the MAX returns to service, which it expects in mid-2020.

As of 1233 GMT, Safran shares were down 1.1% in Paris, outperforming a 2.5% decline for the CAC-40 index.

Safran said its CFM joint venture with General Electric would produce 1,400 LEAP engines in 2020, down from an original forecast of 2,000.

The fuel-efficient engines are the sole source of power on the 737 MAX and compete with a Pratt & Whitney alternative on the Airbus A320neo.

The spread of coronavirus, which has sharply hit air traffic that in turn drives parts revenue, is another wild card.

Widely watched civil aftermarket revenue rose 9.9% in dollar terms in 2019 and Safran predicted growth in the "high single digits" in 2020 "as long as disruption created by the coronavirus on air traffic does not extend beyond Q1".

Petitcolin said he expected traffic to resume progressively from April based on the SARS epidemic in 2003.

He said between 74% and 95% of the company's 2,000 Chinese staff had reported back to work by the beginning of this week as China's manufacturing sector gradually resumes production.

Some of Safran's own suppliers closest to Hubei province, the epicentre of the epidemic, are running at closer to 40%, but others are already at full-speed production, he said.

Safran, which last year completed a 2.3 billion euro share buyback programme, raised its proposed dividend to 2.38 euros from 1.82 but said now was not the time to return more cash to shareholders.

"It seemed to us that in the context of the MAX and the coronavirus it wasn't pertinent," CFO Delpit said, adding that another buyback was "still on the cards but not yet decided".

(Reporting by Tim Hepher; editing by Maju Samuel and Jason Neely) ((tim.hepher@thomsonreuters.com; +33 1 49 49 54 52; Reuters Messaging: tim.hepher.thomsonreuters@reuters.net))