Should Safran become a conglomerate?

The aerospace market is booming, and attracting new players. The entry price is very high, of course, but these new players wield the resources needed. China, for instance, has hired hundreds of thousands of engineers to make sure the country has a state-of-the-art aerospace industry within a few years.

Industry leaders have to emphasize competitiveness if they want to continue to capitalize on the sector’s growth. They have to offer best-in-class products and services to contend with competition that will be even tougher tomorrow than it is today. They also have to be large enough to offer the best prices. This trend explains the recent consolidation trend, including mergers like United Technologies and Rockwell Collins in 2018, after the latter had just acquired BE Aerospace, and Zodiac Aerospace and Safran last November. This transaction made Safran the third largest aerospace company in the world, excluding aircraft manufacturers, with more than 92,000 employees and annual sales of around 21 billion euros.

Given this financial firepower, shouldn’t Safran expand into other, more lucrative sectors? Our Group’s business portfolio ranges from airplane, helicopter and rocket engines to aircraft seats and cabin equipment, along with landing gear, wiring, avionics, drones and in-flight entertainment systems.

Why not take the plunge into other sectors and become a conglomerate? I do not believe that this is the right path for Safran.

Instead, our Group should continue to strengthen its capabilities in areas where we are the best, namely high technology applied to aerospace and defense. And that’s the principle I have firmly applied since being named head of Safran in 2015. This approach resulted in the divestment of our Security business in 2016, then the acquisition of Zodiac Aerospace two years later, since their aircraft equipment business offered a good fit with our own.

Our status as a unified group delivers several advantages that I deem indispensable.

First, it allows us to concentrate our Research & Technology activities for the benefit of all of our businesses. Safran invests heavily in R&T. Our expenditures have grown from 314 million euros in 2014 to an estimated 600 million euros in 2022. By R&T, I mean fundamental research, mainly focusing on electrification, materials, additive manufacturing and artificial intelligence, technologies that will be applied to all our business sectors, given the bridges connecting them.

This type of consolidation also makes our innovation processes more efficient.

As a unified group, we can also offer combined work packages to our customers. Whether dealing with governments, aircraft manufacturers or airlines, our competitiveness is reinforced by having interfaces that are easier to manage, and by offering even lower prices. The same principle applies to purchasing, since we can leverage synergies when several of our entities have similar requirements from a given supplier – and we are already actively applying this approach across all Safran companies.

A unified group can also define a robust business model to maximize savings. A large part of Safran’s profit margin is generated by our service business, which engenders a special industrial and commercial organization.

Lastly, in a group with a unified business profile, employees’ feelings of “belonging” are strengthened by a shared passion and professions which are closely related. Furthermore, it’s easier to transfer between the different companies, and these diverse yet coherent experiences further enrich our people’s profiles.

Being coherent does not mean being inflexible. Within Safran, the production cycles of our businesses are complementary. This strategic fit shares risks at least as well as the variety of products, or even between different sectors in a conglomerate. In the case of Safran, we also have a resolutely international presence: this year, for the first time in our history, more than half of our workforce is based outside of France, in some 30 countries, which allows more effective management of geopolitical contingencies.

At Safran, you could say that we are “united in diversity”, to quote European Union’s motto. That means we share the same DNA, anchored in innovation, while also providing the critical mass needed in our markets. Our diversity gives us the agility needed to adapt to changing economic conditions.

That’s the thinking behind our goal of developing Safran and making our Group the world’s No. 1 aerospace company, excluding aircraft manufacturers, within 15 years.