Safran Soars with 17% Revenue Surge in Q1: A Closer Look at Aerospace Resilience

The aerospace sector’s recovery continues to gain altitude, as French jet engine giant Safran reported a 17% year-on-year revenue jump in Q1 2025, driven by robust aftermarket demand, strategic acquisitions, and resilient defense contracts. With airlines rebounding from pandemic disruptions and defense spending at historic highs, Safran’s results underscore the durability of its business model amid macroeconomic headwinds.

Ask Aime: How is Safran's Q1 2025 performance impacted by the aerospace sector's recovery?

Revenue Breakdown: Aftermarket Dominance and Strategic Moves

Safran’s Q1 revenue reached €7.26 billion, with organic growth of 14% (excluding currency effects). Three divisions contributed to this surge:

1. Propulsion Division:
2. Generated €3.7 billion in revenue, up 16.4% organically, despite a 13% drop in LEAP engine deliveries (to 39 units) due to prioritized Airbus A320neo production.

3. Aftermarket brilliance: Spare parts sales for CFM56 and high-thrust engines soared 25.1%, while services revenue rose 17.6%, fueled by RPFH (rate per flight hour) contracts. Military and helicopter engine spares also surged.

4. Equipment & Defense Division:

5. Delivered €2.8 billion in revenue, up 11% organically.

6. Defense outperformance: Orders for satellite communications, land optronics, and inertial navigation systems (e.g., for the Finnish military) propelled growth. Nacelles for gulfstream and Airbus programs also shone.

7. Aircraft Interiors:

8. Achieved €800 million in revenue, a 14% rise, with business class seat deliveries tripling to 704 units.
9. Premium shift: Aftermarket spares for cabin systems grew 17.4%, reflecting strong demand in Asia and the Middle East.

Margin Trends: The Aftermarket Advantage

While segmental margin figures remain undisclosed, revenue composition hints at margin expansion:
- Aftermarket dominance: Services and spare parts typically carry higher margins than original equipment (OE). Safran’s aftermarket revenue grew 19.5% organically, outpacing OE’s 8.2% growth.
- Currency tailwinds: A weaker euro added €140 million to sales, though hedging strategies (e.g., options with EUR/USD barriers at 1.12) mitigate future risks.
- Tariff mitigation: Safran aims to offset potential U.S. tariffs via supply chain reconfigurations, duty drawbacks, and customer surcharges. CFO Pascal says the company will “significantly reduce exposure,” though propulsion (shared with GE) remains a wildcard.

Strategic Moves and Risks

• Acquisition payoffs: The 2024 Predigence acquisition boosted propulsion margins, while the pending Collins Actuation deal (pending regulatory approvals) could strengthen its aftermarket moat.
• Defense diversification: Contracts for Bell Textron’s Future Long-Range Assault Aircraft and Assandance’s VTOL programs highlight Safran’s shift toward high-margin defense tech.
• Risks: Tariffs, a stronger euro (currently at 1.13 vs. 1.05 in Q1 2024), and lingering supply chain fragility could disrupt margins.

Conclusion: Flying High, but Navigating Storms

Safran’s Q1 results are a testament to its ability to capitalize on aerospace’s dual engines—commercial recovery and defense spending. With aftermarket revenue now powering growth, margins are likely expanding, even if not explicitly stated. The company’s proactive tariff strategies and hedging suggest management is prepared for turbulence.

Crucially, Safran’s backlog remains robust, and its revised spare parts guidance (upgraded to “low teens” growth) signals sustained demand. While risks like tariffs and macroeconomic slowdowns linger, the stock’s valuation (trading at ~15x 2025E EPS) appears reasonable given its industry-leading aftermarket exposure and defense diversification.

Investors should watch for tariff resolution post-June and the execution of strategic acquisitions. For now, Safran’s Q1 results are a reminder that in aerospace, the companies best positioned to thrive are those with a grip on both the present and the future.