Gilbert Sedbon reports on the progress of the French aero engine group following flotation
From a first partial flotation on the stock market, French aero engine group Snecma emerges greatly enhanced, soaring to new heights and taking its place alongside the world's top powerplant builders, says chairman and chief executive Jean-Paul Bechat.
Shares were oversubscribed, buoyed by heavy demand during a fortnight in its initial public offering (IPO). At the start of this month, 94.53 million shares out of a total of 270 millions had been taken up, netting €1.45 billion ($1.76 billion).
The French finance ministry had fixed the IPO price at €15.60 for private investors and €15.70 for institutional investors, setting the value of Snecma at €4.2 billion ($5.14 billion). More than 800,000 bids for shares came from private individuals, to a value exceeding €1 billion. Institutional investors oversubscribed their allocation by more than double.
Up to the last minute, renewed difficult stock market conditions threatened a further postponement. But an improvement in the aerospace industry and Snecma's resilience convinced the government to take a chance. The die was cast, and the gamble paid off.
Admittedly, priced near the bottom of a lower-than-expected range of between €15.45 and €17.20, the sale was attractive, though yielding below the €1.5 billion to €2 billion the government initially had hoped for.
Hailing the flotation as a success, Bechat says the move will give his group much more flexibility. He praises the government for deciding to go ahead and for setting an attractive offer price.
"Flotation gives Snecma greater freedom to manoeuvre," Bechat says. "Snecma now has the opportunity to take part in consolidation projects both through external growth and an exchange of shares."
The flotation puts Snecma on a more competitive footing with its rivals and will aid future acquisitions and alliances with other listed European companies in the same sector.
"In any case, whether public or private, Snecma is running a business concern, making good engines, systems, segments and equipment, and earning money," says Bechat. "Flotation now allows us to join other European companies."
With stable sales, profits on the rise and sustained investments in research and technology, Snecma has demonstrated its financial soundness as the air transportation industry experienced hard years in the wake of the 9/11 crisis. Over the last three years, Snecma has taken a significant share in all new aircraft programmes launched by Airbus and Boeing, covering both propulsion and equipment.
Snecma had been on the stock market 'launch pad' for more than a decade. From its previous shareholding of 97.2%, the state now owns 62% of the Snecma Group, with US giant United Technologies owning an historic 1.7%. Snecma's personnel hold a total of 10% of their company's stock. The remainder is in private hands.
General Electric (GE), Snecma's strategic partner in the successful CFM International, is a notable absentee from the flotation. This is not surprising as the government had said the first phase sale would be strictly to institutional and private investors.
Bechat has all along made clear he regards GE's interest in the Snecma flotation as "friendly" in view of the long-standing partnership. "GE did not obtain a stake in Snecma's first IPO process simply because no such transaction was originally envisioned by either party," he says. "The French government is looking at potential GE participation, possibly by the year's end."
Dave Calhoun, GE Aircraft Engines chief executive, has expressed interest in holding 5-10% of the Snecma shares. "More than 10% [ownership of Snecma]," he said as far back as last November, "would be harmful to our relationship."
That relationship is a sound one. This year General Electric and Snecma will celebrate the 30th anniversary of their CFM International agreement. The money-spinning CFM56 family of engines has passed the 240 million flight hours mark, with 14,100 engines in service powering more than 5,000 aircraft in the world.
The engine, which helped make the fortunes of the Boeing 737 series and gave birth to Airbus Industrie's A320 family, has become the best-selling engine in aviation history, holding 65% market share for short and medium-haul civil aircraft worldwide.
Bechat remains strongly attached to Snecma's GE partnership and is negotiating for a stake in the new 'Gen-X' engine. The result of those negotiations is likely to be announced at Farnborough this week with Snecma hoping for a stake of up to 25% in the project - the first engine to be certified on the Boeing 7E7 Dreamliner.
Snecma has taken a stake in almost all GE programmes. including 25% in General Electric's GE 90 engine, a primary partner since the inception of this high thrust class (116,000 lb) engine. It also holds 10% in GE's partnership with Pratt & Whitney for the Engine Alliance's GP7200 engine for the Airbus A380.
Though de jure a state-owned enterprise, Snecma has enjoyed de facto freedom of action. Admittedly, some foreign executives in the past used to say there were only three engine builders - GE, Pratt & Whitney and Rolls-Royce - in the western world Others even described Snecma as a "GE subcontractor", or associated Snecma with the French state, going so far as labelling it as one of its "arsenals".
Dismissing all that as "nonsensical", Bechat says: "Snecma is not an arsenal of the French state. Everybody in the aerospace industry knows better, and so do our partners and clients.
"We haven't received a cent or any instructions from the government for decades. The state behaves as main shareholder in a private company, no more. We're doing well, and continuing to do very well."
In summing up the competition, Bechat says: "Snecma is not at the same level as regards turnover, but we are at the same level of competence, and we are a stable group, standing on our own two feet."
Snecma, with a 39,700-strong workforce, draws 80% of its turnover in civil aerospace and 20% in military.
Under Jean-Paul Bechat's leadership, it has expanded, with facilities now in Asia, Latin America and even in the United States in competition with General Electric.
But it is in Europe that Snecma is itching to gain a greater footing.
For some time, Snecma has been eyeing Italy's Fiat Avio and Germany's MTU Aero Engines, and despite missing the chance of acquiring either or both companies, Bechat believes that talks with Avio and MTU may resume some day, in the not too distant future.
In the meantime, Rolls-Royce could be a likely partner. Their collaboration, which started 30 years ago with the Olympus 593 engine programme for the Anglo-French Concorde supersonic airliner, ended up in a few other minor projects. But it is now picking up with a new all-European joint venture building the TP400-D6 power plant for the four-engined Airbus A400M troop transport and heavy military aircraft now under construction for seven European countries.
Bechat, now 62, has been reappointed for a further three years as Snecma's chairman and chief executive officer.
Looking to new horizons, Snecma is now going into the business of building engines for UAVs (unmanned aerial vehicles) and UCAVs (unmanned combat aerial vehicles). In initial trials, Snecma's off-the-shelf Larzac is among engines being used by Dassault Aviation for its new experimental UCAV, known as Petit Duc. The larger stealth tactical Moyen Duc is due to make its first flight later this year, before maturing into the Grand Duc combat demonstrator.
With the booming market for reconnaissance and battlefield intelligence and in view of the French defence ministry's financial support to drone builders for demonstrator aircraft, Bechat says he is considering development and mass production of engines specially designed for next generation unmanned vehicles.
Source: Flight Daily News