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Safran shares rise on third-quarter revenues, confident outlook

A view of Safran Composites, their new research center dedicated to next-generation aerospace materials in Itteville, near Paris, May 13, 2014. REUTERS/Gonzalo Fuentes

By Tim Hepher and Alexandre Boksenbaum-Granier PARIS (Reuters) - France's Safran posted solid third-quarter sales and said it would easily meet 2014 profit forecasts on Thursday, pushing its shares up as aerospace investors put aside recent concerns over the economy. The maker of aero engines, defence and security equipment said the commercial aviation market, which has generated record production levels as airlines upgrade their jets to reduce their fuel bills, remained "very active". The remarks by Chief Executive Jean-Paul Herteman matched an upbeat picture painted by General Electric , whose chief executive Jeff Immelt told investors this month that the aviation sector remained "very strong". Their optimism was echoed in Germany on Thursday, where MTU Aero Engines raised its revenue goal. Safran and GE are equal partners in CFM International, the world's largest maker of jet engines by the number of units sold, while MTU works closely with CFM's main competitor in the market for short-haul jets, U.S. engine maker Pratt & Whitney. With global markets under pressure, investors have expressed mounting concerns that a three-year bull run in aerospace is drawing to an end as worries over the economy divert some airlines from their growth and fleet acquisition plans. But Safran's shares rose over 3 percent to 48 euros, outpacing a 0.8 percent gain in the French CAC40 index <.FCHI>. "Management confirmed all of its guidance which will clearly reassure the street as some investors feared they would warn on some divisions," a Paris trader said, asking not to be named. Safran said third-quarter revenues rose 6.8 percent to 3.589 billion euros (2.83 billion pounds), driven by demand for new aircraft for which Safran makes items like engines, brakes and landing gear. On a like-for-like basis, revenues were up 6.3 percent. The widely watched aftermarket for civil aero engines rose 11.9 percent in dollar terms in the third quarter and 10.3 percent in the first nine months of the year. The figure remains towards the low end of the assumptions built into Safran's profit forecasts but the company dismissed any concerns about spares demand, which closely tracks airline traffic and therefore reflects activity in the wider economy. COMFORTABLE ABOUT TARGETS "The mix in our civil aftermarket is of such good quality in terms of profits that we are very easily and comfortably confirming our profit outlook for the full year," Deputy CEO and Finance Director Ross McInness said. "We have no concerns about the contribution to results that our services activity will have this year," Herteman added in a conference call with reporters. For 2014, Safran is targeting a percentage growth in the "mid-single digits" for revenue and "approaching the mid-teens" for its core operating income, based partly on a percentage growth of the civil aftermarket in the "low to mid-teens". As in 2013, its cash goals are subject to uncertainty over the timing of government advances due in the last quarter. RBC Capital Markets said concerns about Safran's ability to hit its all-important aftermarket goals were receding because year-on-year comparisons would be easier in the fourth quarter. "The trends in SAFRAN's aerospace aftermarket business remain favourable," RBC's Rob Stallard said in a note. CFM has seen more resilient demand than it originally expected for current-generation CFM56 engines, which continue to be sold at "good prices and production costs", McInnes said. Development of the joint venture's new LEAP engine is "well on track" following a first test flight earlier this month, Herteman added. Asked to comment on the search for a potential replacement when his mandate as chairman and CEO expires in the spring of 2015, Herteman said Safran had hired outside recruitment experts and that the board-managed process was going "very smoothly". The 63-year-old has not confirmed whether he will seek to stay at Safran when he reaches the current age limit next year, but is widely expected to step back at least from the CEO role. A top Airbus executive, Marwan Lahoud, last month ruled out applying for the post, which is up for discussion just as another part-privatised French aerospace defence group, Thales , faces a vacuum after its boss was picked to run power firm EDF (Additional reporting by Victoria Bryan; Editing by James Regan)