Safran SA (SAFRF): A High-Conviction Play in Aerospace Industrial Supercycle

The aerospace and defense sectors are undergoing a structural transformation driven by decarbonization, digitalization, and geopolitical tensions. At the heart of this industrial supercycle stands Safran SA (SAFRF), a French industrial champion uniquely positioned to capitalize on these tailwinds. With a record operating margin of 14.9% in 2024, a free cash flow of €3.19 billion, and a strategic acquisition of Collins Aerospace's actuation business, Safran is not just navigating the cycle—it is defining it.

Strategic Momentum: A Catalyst for Outperformance

Safran's recent acquisition of Collins Aerospace's flight control and actuation activities for $1.8 billion exemplifies its aggressive yet disciplined strategy to consolidate market leadership. This transaction, finalized in July 2025, is projected to add €600–700 million to the company's revenue in the last five months of 2025 alone. The acquired business, with $1.55 billion in 2024 revenue, brings critical capabilities in mission-critical systems for both commercial and military aircraft, aligning with Safran's focus on high-margin, recurring revenue streams.

The acquisition is already delivering tangible benefits. Safran expects $50 million in annual pre-tax cost synergies by 2028, driven by operational efficiencies and cross-selling opportunities. Importantly, the deal enhances Safran's exposure to service activities, which account for 40% of the acquired business's turnover—a sector where Safran's aftermarket expertise is a major differentiator.

Margin Expansion: A Structural Advantage

Safran's operating margin expansion in 2024—from 13.5% in 2023 to 14.9%—underscores its ability to convert revenue into profit amid a volatile macroeconomic environment. This margin strength is driven by two pillars:
1. Aftermarket Dominance: Safran's civil engine aftermarket (CFM56 and LEAP engines) delivered 21.6% growth in spare parts sales in H1 2025. Its LEAP engine deliveries rose 10% year-on-year, with a 29% sequential increase in Q2 2025, reflecting strong demand for its high-thrust, fuel-efficient engines.
2. Defense Margin Resilience: The Equipment & Defense segment reported a 12.5% operating margin in H1 2025, fueled by robust aftermarket performance in landing systems and carbon brakes. Defense OE (original equipment) sales also benefited from contracts like the AASM/Hammer™ precision-guided munitions system.

Safran's margin discipline is further reinforced by its R&D strategy. Despite allocating €967 million to R&D in H1 2025, the company is leveraging its innovations—such as the RISE program for sustainable aviation—to create long-term value. This balance of short-term profitability and long-term innovation is rare in the aerospace sector.

Structural Tailwinds: Civil Aerospace and Defense Convergence

The convergence of civil aerospace and defense demand is a key tailwind for Safran. In civil aviation, the recovery in air travel has driven a surge in engine maintenance and spare parts demand. Safran's LEAP engine, used in Boeing 737 MAX and Airbus A320neo families, is a cornerstone of this growth. Meanwhile, its “Landing Life” service for Airbus A350 landing systems exemplifies its shift to value-added, subscription-based models.

In defense, Safran's exposure to military platforms (e.g., F-35, Eurofighter Typhoon) and its recent acquisition of Collins' actuation systems position it to benefit from elevated defense spending. The U.S. and European governments' push for industrial sovereignty further amplifies this trend. Safran's alignment with France's strategic priorities—such as AI-driven defense systems and carbon-neutral propulsion—ensures its relevance in a politically charged landscape.

Financial Strength: A Foundation for Shareholder Value

Safran's financials are a testament to its operational excellence. In H1 2025, it generated €1.83 billion in free cash flow, driven by strong operating cash flow and disciplined capital expenditures. The company has also accelerated its share repurchase program, canceling 3.6 million shares at a cost of €900 million—a clear signal of management's confidence in its intrinsic value.

With a net cash position of €3.4–3.6 billion for 2025 and a robust balance sheet, Safran is well-positioned to fund its R&D initiatives, acquire strategic assets, and reward shareholders through dividends and buybacks. Its hedging strategy against currency risks (€55 billion hedged portfolio) adds an extra layer of stability in a high-volatility sector.

Investment Thesis: A High-Conviction Play

Safran's combination of margin expansion, strategic acquisitions, and structural tailwinds makes it a compelling long-term investment. The company's full-year 2025 guidance—revenue growth in the low teens, operating income of €5.0–5.1 billion, and free cash flow of €3.4–3.6 billion—reflects its confidence in outperforming industry peers.

For investors, Safran represents a rare confluence of near-term earnings visibility and long-term secular growth. Its leadership in sustainable aviation (RISE program), digitalization (Safran.AI acquisition), and defense industrialization positions it to benefit from multi-decade trends. With a forward P/E of 14x and a dividend yield of 2.1%, Safran offers both income and growth potential in a sector poised for a prolonged supercycle.

Conclusion: Outperforming in a Sectors of Strength

Safran SA is not just a beneficiary of the aerospace industrial supercycle—it is a catalyst. Its margin expansion, accretive acquisitions, and strategic alignment with decarbonization and digitalization trends create a durable competitive moat. For investors seeking exposure to a company that is both a profit driver and an innovation leader, Safran offers a high-conviction, high-conviction opportunity.

Investment Recommendation: Buy Safran SA (SAFRF) with a 12–18 month time horizon, targeting a 25–30% total return potential. Positioning in Safran is a strategic bet on the future of aerospace.