Brisk overhaul demand for jet engines underpinned stronger than expected first quarter sales at France's Safran and pushed up shares by almost 10 percent on Thursday.
The French aerospace group posted first-quarter revenue of EUR€3.108 billion (USD$4.1 billion), above market forecasts of around EUR€3 billion, boosted by a 15.1 percent rise in the economically sensitive after-market for civil jet engines.
That marked a break with lower spares sales reported last week by General Electric, which relies more heavily on large jet engines than the smaller but most popular types it co-produces with Safran.
The two companies jointly own the world's largest civil jet manufacturer, CFM International, which supplies engines for all recent Boeing 737s and about half of Airbus A320s -- 150-seat models that form the backbone of most airline fleets.
Sales of spares for CFM, which celebrated 30 years of commercial service this week, are not only a key source of Safran's operating income but are also seen as a measure of economic activity. Maintenance has to be carried out on a regulated timetable that directly reflects traffic volumes, which in turn traditionally reflect patterns in GDP.
Global passenger traffic continues to rise driven mainly by growth in Asian economies, although there are fears that a new chapter in Europe's debt crisis could dampen activity elsewhere.
"We see passenger traffic holding up well and cargo not so well at the moment," chief executive Jean-Paul Herteman said.
"Based on the facts as we see them today, the market remains positive," he said.
REAFFIRMS OUTLOOK
With airlines also reeling from high oil prices, the maker of jet engines, infra-red military goggles and biometric scanning equipment also reaffirmed its outlook for 2012, which implies some softening of the tempo later this year.
Safran targets around 10 percent in revenue and 20 percent in recurring operating profit for the group as a whole in 2012. It expects growth in its sales from the civil market to be in the high single digits in percentage terms.
Widely watched CFM International spare parts generated 24.2 percent higher revenue in dollar terms in the first quarter.
"This was a strong quarter from a revenue perspective particularly for the all-important aerospace aftermarket," RBC Capital Markets analyst Rob Stallard said in a note.
The earnings came as UK aerospace suppliers Meggitt, Senior and Cobham all said they had started 2012 well, boosted by robust demand from commercial plane makers Airbus and Boeing.
Boeing itself turned in a stronger-than-expected quarterly profit and raised earnings forecast on Wednesday.
Airlines are replacing aircraft and adding new ones in record quantities as they seek fuel savings while trying not to miss out on emerging market growth, prompting warnings from some bankers and leasing companies of an unsustainable asset bubble.
"The term bubble is certainly an excessive one," Herteman said. "It is possible some customers see the possibility of future deliveries being deferred or reduced a little... but the broad trend of activity doesn't seem to me to be in doubt at all."
GE's aviation unit last week posted a 12 percent increase in first-quarter revenue to USD$4.89 billion.
An AFCA air finance conference in Barcelona this week heard warnings that airlines may be ordering more than they could hope to pay for, spurring Airbus, Boeing and their suppliers to take risks by overproducing. But industry leaders defended high production rates and insisted the record order books are solid.
CFM maintenance shop visits are rising partly because the last major generation of engines designed for the current model of 737 is hitting big overhaul milestones. The engine makers are meanwhile selling the next generation for aircraft that promise a further 12-15 percent in fuel savings from mid-decade.
