Zodiac CEO’s future in doubt after $13 million 1H loss

TIN newws:  French aircraft equipment manufacturer Zodiac Aerospace—which is being acquired by Safran—has posted a €12 million ($13.1 million) interim operating loss, triggering CEO Olivier Zarrouati to offer his position.

“Olivier Zarrouati has placed his mandate as CEO at the disposal of the board of directors. Even if the recent results were disappointing, the board of directors recognized his outstanding achievement over his 10-year tenure. The total shareholders’ return is just below 300%, which is the second-best performance of the global sector,” Zodiac Aerospace chairman Didier Domange said.

Domange said Zarrouati will remain CEO “for a while,” focusing his attention on finalizing and executing the Safran deal, but the CEO and chairman of car seat firm Faurecia—Yann Delabrière—has been brought in as special adviser.

Delabrière has been tasked with accelerating and delivering the company’s recovery, in a coordinating role sitting between the board and operational teams, as part of the preparation for Zodiac’s potential future with Safran.

However, Domange cast doubt on whether the acquisition will come to pass, using conditional phrases such as “if Safran and Zodiac come to a renewed agreement” and “should the ongoing discussions succeed” —which is what Zodiac wants.

Delabrière’s other duty is to “ensure a robust and sustainable standalone scenario” if the Safran talks come to an end.

The governance changes come at a time that Domange described as a “crucial phase” in Safran’s history.

First-half sales fell 1.7% to €2.5 billion, or 2.6% down on a like-for-like basis, a decline that Zodiac said was caused by industrial disruptions in its aircraft interiors business—which have previously drawn criticism from Airbus—and an unfavorable mix in its aerosystems’ work.

Zarrouati said these factors had “strongly impacted” the 1H financial performance. He added that Zodiac will continue to “strongly and resolutely” implement its restructuring and cost-cutting plan to achieve a return on capital of €200-€220 million in the second half and mid-year double-digit profitability by 2020.

“Key steps have been taken and we anticipate a strong rebound of our profitability for the second half of 2016-17,” he said, adding that he had faith in the company’s mid-term future against the backdrop of “profound change” in the industry.

Zodiac’s net financial debt totaled €1.3 billion at the end of February, giving it a net debt to shareholders’ equity ratio of 0.41. “Compliance with covenants expected by end of August 2017, while financing is secured for the medium-term,” the company said.

The 1H results, covering the period from Sept. 1, 2016 to Feb. 28, 2017, were originally scheduled for release April 20, but extra work created by Safran’s acquisition bid pushed the release back to April 28.

If the deal goes ahead this time, the combined companies would rank as the third largest aerospace company in the world, with around 92,000 employees, €21.2 billion in revenue and a €2.7 billion operating income. They will also rank as the second-largest aircraft equipment supplier, with revenues of around €10 billion.