TCI calls on Safran to drop Zodiac deal and fix engines

Fri May 12, 2017 5:57am EDT
 
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By Simon Jessop and Cyril Altmeyer

LONDON/PARIS (Reuters) - Activist investor TCI Fund Management has called on the board of French aerospace firm Safran (SAF.PA: Quote) to cancel a takeover of Zodiac Aerospace (ZODC.PA: Quote) immediately and instead focus on fixing design problems with a new engine.

The move is the latest attempt by TCI to stop Safran's $9 billion deal with struggling Zodiac, which the British hedge fund considered too expensive even before the latest profit warning from the maker of aircraft seats.

In a letter to the Safran board dated May 12, TCI said instead of pursuing the takeover, which would take up a lot of management time and focus, it should instead look to fix a problem with its new LEAP engine.

Boeing suspended some flights this week due to a problem with the design of Safran's LEAP-1B engine, which powers its 737 MAX jets.

"Due to the extreme pressure that Safran is under to ramp up production of the LEAP engine, the board should immediately cancel the agreement to buy Zodiac Aerospace," TCI founder Christopher Hohn wrote in the letter.

"Safran management currently has no capacity to integrate Zodiac or to execute the complex restructuring that will be required. At this critical time the company should be focused solely on the ramp up of the LEAP."

A spokeswoman for Safran declined to comment.

Boeing says it has identified a problem with some of the low pressure turbine discs in the LEAP engine, which is made by a CFM International, a joint venture between General Electric Co (GE.N: Quote) and Safran.   Continued...

 
A worker on a Safran production line assembles a LEAP-1A aircraft engine co-developed with General Electric for Airbus in Villaroche, France, May 11, 2017, a day after Boeing suspeded test flights of its 737 MAX jetliner due to turbine problems with the sister LEAP-1B model.  REUTERS/Tim Hepher