Safran: A European Defense and Civil Aviation Powerhouse
Safran, a leading international high-technology group, is reaping the benefits of European defense efforts and the robust recovery of the civil aviation sector. With France’s proactive stance in defense and security, and the continued growth in the civil aviation aftermarket, Safran is poised for continued success.
European Defense: A Strategic Priority
European defense spending has been a strategic priority for Safran, with the company’s defense division accounting for approximately 35% of its total revenue. France, in particular, is a key partner in this regard. The French government’s focus on modernizing its military and increasing defense spending has resulted in significant contracts for Safran. These contracts include the supply of engines for the Rafale fighter jet, the supply of helicopter engines for the French military, and the development of the future European fighter jet, the FCAS.
Civil Aviation Recovery: A Boost to Margins
The civil aviation sector has also been a bright spot for Safran. The global aviation industry is recovering from the pandemic-induced downturn, with air travel demand picking up steadily. Safran’s aftermarket business, which provides maintenance, repair, and overhaul services for civil aviation engines, is benefiting from this recovery. The company’s LEAP engine, which powers the best-selling Airbus A320neo family, is a key contributor to this business.
LEAP Engine Sales: A Growth Driver
Looking ahead, LEAP engine sales are expected to turn to growth, providing a further boost to Safran’s margins. The LEAP engine has been a success story for Safran, with over 18,000 engines ordered and more than 12,000 delivered to date. The engine’s fuel efficiency and low emissions have made it a popular choice among airlines, and its wide usage across the Airbus A320neo family and the Boeing 737 MAX has ensured a steady stream of aftermarket revenue for Safran.
Investment Implications
Safran trades at a discount to most of its peers, with a forward price-to-earnings ratio of 15.4x compared to an industry average of 17.8x. Thales, another French defense and technology company, is even cheaper, trading at a forward price-to-earnings ratio of 12.8x. Despite the discount, we prefer Thales as a defense pick due to its stronger exposure to the defense sector and its more attractive valuation.
Impact on Individuals
For individuals, Safran’s success in the European defense and civil aviation sectors has several implications. First, the company’s investments in defense technology could lead to advancements in military capabilities and security, making our world safer. Second, the continued growth in the civil aviation sector could lead to more travel options and lower fares, making air travel more accessible and affordable for the average person.
Impact on the World
At a global level, Safran’s success in the European defense and civil aviation sectors could have far-reaching implications. The company’s investments in defense technology could contribute to the modernization of military forces and the development of new capabilities. In the civil aviation sector, Safran’s aftermarket business could help airlines maintain their fleets more efficiently and cost-effectively, contributing to the overall growth and competitiveness of the industry.
Conclusion
Safran’s strong position in the European defense and civil aviation sectors, driven by France’s proactive stance and the robust recovery of the civil aviation sector, positions the company for continued success. With LEAP engine sales expected to turn to growth, and the company trading at a discount to most peers, Safran is an attractive investment opportunity. The company’s impact on individuals and the world is significant, with advancements in defense technology and the growth of the civil aviation sector benefiting us all.
- Safran’s defense division benefits from European defense efforts, particularly France’s focus on modernizing its military and increasing defense spending.
- The civil aviation sector’s recovery is boosting Safran’s aftermarket business, with the LEAP engine being a key contributor.
- LEAP engine sales are expected to turn to growth, providing further support to Safran’s margins.
- Safran trades at a discount to most peers, but Thales is a cheaper defense pick.
- Safran’s success in the European defense and civil aviation sectors has implications for individuals and the world, including advancements in military capabilities and the growth of the civil aviation industry.
