Safran SA Acquires Goodrich Electric Power Systems Conference Call

SAF.PA - Safran SA
Safran SA Acquires Goodrich Electric Power Systems Conference Call
Oct 16, 2012 / 06:30AM GMT 

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Corporate Participants
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   *  Ross McInnes
      Safran SA - Deputy CEO & CFO
   *  Jean-Pierre Cojan
      Safran SA - EVP

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Conference Call Participants
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   *  Robert Stallard
      RBC Capital Markets - Analyst
   *  Rami Myerson
      UBS - Analyst
   *  Ben Fidler
      Deutsche Bank - Analyst
   *  Patricia Quayle
      Bloomberg - Analyst
   *  Christophe Menard
      Kepler - Analyst

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Presentation
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Operator   [1]
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 Welcome to the Safran conference call. I'll now hand over to Mr. Ross McInnes, Deputy CEO and CFO; and Mr. Jean-Pierre Cojan, Executive Vice President, Strategy and Development. Mr. McInnes, please go ahead.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [2]
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 Hello. Good morning. As you've just heard, this is Ross McInnes, Jean-Pierre Cojan and, on the IR Team, Pascal Bantegnie, Peter Campbell and Antoine-Pierre de Grammont.

 I'll let Jean-Pierre Cojan kick off, please.

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 Jean-Pierre Cojan,  Safran SA - EVP   [3]
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 Okay. Good morning, everybody. I suppose everybody has the PowerPoint presentation that I'm going to use as support for this talk.

 As was announced this morning, we have acquired, from UTC, Goodrich Electrical Power Systems, which is a company specializing in electrical power generation and electrical systems integration.

 There were a number of reasons we were interested in GEPS. One was to create a world leader, and, I think there is no exaggeration in the term, being able to offer to the market innovative and competitive electrical power systems by relying upon the complementary strength already existing at Safran -- for example, in electrical wiring and in power electronics; this is (inaudible) Safran Power -- with a company that is the world's second largest player in electrical power generation; does have leading capabilities in electrical power systems integration. That is to say, the capability to design complete electrical network for an aircraft and does have some established capabilities in electrical distribution systems.

 Thanks to this, by the way, we will achieve sufficiency and independence in terms of power distribution systems.

 Obviously, this is going to bring us a wealth of new intellectual property and technology, which will allow us to go on with what we have already started, which is lead innovation in the electrification of aircraft equipment. The reason being that there is, basically, one type of technology, which is the same for electrical generation and electric motors; by and large, it is the same technology.

 So, the technology that we are acquiring, besides power generation, will also help us improve and develop the actuation part of the more electric aircraft, such as the electric thrust reversers, such as the electric braking, etc.

 We are going to considerably accelerate our time to market, and we are going to considerably save on research-and-development investment, thanks to the IP I was mentioning before that we are acquiring with GEPS.

 Obviously, we could have gone another path, but this would have triggered considerable research and development investment to bring us to the stage where we will be, thanks to the acquisition of GEPS.

 So, last, but not least, we have had so far a definite push into electrical systems activities, and this is why we had created Safran Power a few years ago. We have, indeed, obtained, started to obtain, some significant results. For example, our first large win; which was the KC390 electrical system last year.

 But we are going now to be able to buttress these activities on a business that does generate recurring revenues, because it does have a strong installed base and because it has an aftermarket revenue that will keep growing through the few years to come.

 On the next chart, as a reminder, you have a few examples of the growing trend towards a more electric aircraft.

 Going back to the good old 1960s, on aircrafts such as the Boeing 737, and we are essentially talking of the generation of aircraft that was there before aircraft such as the A320 or the Boeing 747-400 came to fly, electricity was of rather little use in an airplane. It was used for lighting. It was used so that passengers could have hot meals. It was used to power the electronics, onboard electronics, avionics and in-flight entertainment.

 Things really changed in the last decade, with aircraft such as the Airbus 380 and the Boeing 787 where, although these aircraft, for the non-propulsive energy that they require, these aircrafts still massively rely on hydraulics and, to some extent, pneumatic energy, some equipment that would have never been felt to become electric did become electric.

 Actually Safran had achieved a number of world's firsts with the world's first electric brakes of the Dreamliner on the Boeing 787; the first electrically actuated thrust reverser on the Airbus A380; and as well as a number of developments which are not flying commercially, such as electrically actuated ailerons that we flew on a test A320 and that will eventually find their way to the market.

 So these type of airplanes introduced what we could call a partially electric aircraft. And, obviously, what everybody who has an interest in electrical systems is looking forward to is the next generation of airplanes that will come after the A320neo and Boeing 737 MAX, and that will be the next generation narrow-body airliners, in particular, that will see revenue service by the middle of the next decade.

 Now you must think this is pretty far down the road, but we are in an industry where an aircraft program life is about 50 years and the preparation of the next programs to be born takes actually something like 10 to 15 years of research and technology and preliminary development before those new technologies can reach the market.

 On chart 3 we wanted to show in an airplane what we are going to find in GEPS and where that fits an airplane. First of all, we will find the knowhow for what we call the main electrical power generators. These are the electrical generators that are fitted directly to the engine, to the aircraft's engines, and that will provide the bulk of electrical power that is required by an airplane in flight.

 Typically you have one per engine and the big trend for the future will be that this main electrical power generator will also achieve the engine start.

 I mentioned before that the technology for generators and motors, electric motors, was basically the same and here is a great example of a machine that will be used as a motor to start the engine, as well as a generator to provide the aircraft with its electric power requirements.

 In an aircraft you also have another source of electric energy, electrical power, and that is what we call the APU electrical power generation. And I guess you know that the APU is a very small turbine engine that is generally fitted to the rear of the aircraft whose only purpose is not to achieve propulsion, but its only purpose is to drive other electrical generators, particularly when the aircraft is on the ground with its main engines shut off.

 Now this is basically how you can have light, feel warm when you get on board an aircraft and its engines are not operating.

 So on the main engine generation, GEPS is number 2 worldwide, where obviously the world leader is very large but we do intend to introduce a considerable dose of competition there.

 On the APU electrical power generation, GEPS has very strong positions on leading platforms, such as, for example, the Airbus A320, and this is really an area where we will acquire both technology and very strong market positions.

 Then there is the field of electric distribution. GEPS does have some -- both primary distribution -- that is the high power lines -- and secondary distribution -- that is the lower power lines capabilities -- and has demonstrated its capabilities to design and deliver complete distribution systems, particularly on top-of-the-line business trips. But, basically, this is very close to what would be required for airplanes such as narrow-body airliners.

 That goes with a number of components, such as transformers which they also provide. Plus, generally speaking for the whole what is on this chart, some electronics design capability, because all these systems and components are, indeed, controlled by electronic computers, small electronic computers.

 So, coming back to what we are going to be able to do now, basically we have now, with the acquisition of GEPS, all the bricks we need to be a comprehensive supplier of electrical system solutions.

 We have the power generation, which is where it all starts. That is where the electricity is produced.

 We have now the primary and secondary distribution systems capability. That is basically the distribution achieves the routing of electric power through different parts and power lines in the aircraft, depending on the requirement for electricity at a given time for a given component.

 We have, combining electrical power generation and distribution system skills we -- and adding to it some electronic capabilities that we have to control those systems, we now have a complete offering in power systems. That means that should an airframer be interested, we would be able to handle the whole electrical system of an airplane, or part of it, or just components. It will depend on what the customer requirements will be, but our capability will be comprehensive.

 And then we have our traditional areas of strength, which are the lines themselves, the Labinal electrical wirings, for which we are the world's number 1, as well as power electronics.

 Power electronics is what allows you to start from a certain type of electric current, generally DC current, and turn it into the type of electric power you need at the right voltage, the right power, the right frequency, in order to feed a particular component at a particular time during the flight.

 So when you have all this, you're able to design, handle, support -- you're like the equivalent for an aircraft for utility, for an electric utility. You are able to design and support the complete electric network.

 As I mentioned, but I think this has been pretty much covered already, this is one technology between generation and electric motors. Obviously it's not implemented exactly in the same way, depending on whether you are producing a generator or a motor, but it is still the same basic technology and this is going to give us tremendous help in our continuous development of new technologies, of leading-edge components, for basically for actuation.

 When you are moving from the hydraulics/pneumatic actuation systems to a more electric aircraft, basically, it means that you are replacing hydraulic actuation by electric motors, or pneumatic actuation by electric motors. And those need to be powerful. They need to be reliable. They need to be lightweight. They need to, in a number of instances, to be able to fit very small available space to accommodate them. So that's going to help us for nacelles, for brakes, for flight controls.

 And one thing in which I think we can be differentiating, because we are aircraft engine manufacturers and we do design our gearboxes, we will be able to optimize the interface between the gearbox and some of the electric components, such as the main power generators.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [4]
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 On some key figures, as we mentioned in the press statement, the current revenues for 2012 should be about $200 million. Current margins are low single digit; I'll come back to that later.

 This transaction includes the GEPS equity stake in Aerolec, which handles the A380 and A400 programs spoken about on one of the previous charts.

 On the right-hand side, you'll see the breakdown of the revenue; half OE, half spares and aftermarket. And they'll both grow apace over the next few years, contributing to significant improvement in margins.

 And at the bottom right-hand side, the pie chart splits the commercial, the regional and business airplanes on which GEPS is present. And some military programs, which are also shown on the subsequent page.

 In terms of the growth drivers we see, the mix of programs is attractive. There's a strong installed base, and we're extremely confident that the aftermarket revenue, which already represents half of the turnover, will grow, as will the OE base.

 And it's the conjunction of both those growths which make us confident that we will get the margins to where we target our overall equipment business to be. More of that a couple of slides from now.

 On most of the programs GEPS is sole source, and the combination of recent wins and mature programs reinforce the point I've just made.

 And, looking further into the future, and the next slide, which Jean-Pierre will cover, addresses that, there's significant growth on future platforms, which is the main driver for this strategic move.

 Jean-Pierre, back to you for slide 7.

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 Jean-Pierre Cojan,  Safran SA - EVP   [5]
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 Thank you, Ross. Slide 7 gives an overview of the current programs that GEPS supports, and the future programs on which it is going to focus its research and development activities, as well as its marketing efforts.

 Today the GEPS is strong on the A320 current engine option. That is the legacy product that will be replaced by the A320neo in a few years, and I'll come back to that.

 This is an aircraft that is still selling very well, despite the introduction of the A320neo, and that is going -- and its production rate is not going to go down in view of the Neo introduction. So the growth of the installed base will keep growing in the next five years and, as Ross mentioned, the GEPS aftermarket business.

 Another platform which is more at its -- at the beginning of its service life, the A380, GEPS, together with Thales in the joint venture, which is called Aerolec, is providing the main power generation.

 It is a very important platform because well obviously the A380 being at the beginning of its service life, the installed base is going to grow throughout the next 20 to 30 years. But also it's the first time that a main power generation is provided on a large wide-body aircraft.

 One military application now, the C130J, that's the latest model of the C130, is still in production and due to remain in production for a good number of years. There are not so many of this type of aircraft around the world.

 An area [that makes sense] for GEPS is business jets, Global 5000, and a variety of this jet with Dassault, in particular, in the Falcon family, as well as one-of-a-kind helicopter program around the world, which is the very large Boeing CH-47 machine.

 So these are good platforms, selling well, increasing the installed base, and which will be a nice source for aftermarket revenues.

 Now there are some new programs which are not yet in service, but on which GEPS has got systems.

 The first one is the A320neo, which will go into [range] service in 2016, and basically GEPS has maintained on this program the positions it had on the current A320. It will be a very high production rate aircraft, as is the current A320, so that will stretch into the future the growth of the installed base that is currently in place with the current model.

 A second military freighter program, the A400M; the same joint venture. Aerolec, between GEPS and Thales, is providing the main power generation there. It is not yet in service, but it will be. And, similar to the 730, we do believe this will be an airplane that will keep selling for decades and decades and -- but will be very interesting business for OEM and aftermarket for us.

 Two new helicopter applications, CH53K and Sikorsky S-76 D, that will stretch into the future the capabilities achieved in the market positions that GEPS has acquired in the field of helicopters.

 So the nice thing, when you look at these programs, ongoing programs and new programs, is that it does serve a very wide range of applications; rotary wing, fixed wing, bizjets, narrow-body airliners, and now, thanks to the A380, wide-body airliners. So we will have a basis to embark on any new type of programs -- helicopter and aircraft, and commercial aircraft -- that airframers would be interested to launch.

 And, as a matter of fact, there are some further prospects in the later part of this decade and the next decade; new bizjets on which GEPS is ideally placed. In particular the Cessna Latitude and Longitude on which Safran is, by the way, providing some other systems.

 Business jets, we -- actually we do believe at Safran in the bright future for business jets due to the price of oil; up to 100 passengers. There are some projects with Bombardier ATR and [ADIC], and this would be exciting prospects for our electrical systems business.

 New helicopters, as they come around, obviously I made that point before; the future brand new narrow-body airliner platforms that will be taking the place of the A320neo and 737 MAX by the middle to the end of the next decade.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [6]
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 On slide 8, on the left-hand side what we're seeing is the medium-term outlook; I've mentioned it before.

 We're very confident that, because of the margin-improvement measures which current management had initiated and we shall enhance and pursue, the assured growth in the aftermarket, given the good legacy programs, and the rising OEM sales, should get us, within three or four years, to the margins which will be in line with our overall aircraft equipment profitability targets, which, I remind you, are around 10%.

 On the longer term, I'll hand back over to Jean-Pierre because it fits in quite neatly with what was said on the previous slide.

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 Jean-Pierre Cojan,  Safran SA - EVP   [7]
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 Yes. On the longer term, what really we are doing by acquiring the last missing technology breaks that we needed is that we are really creating a business for the future.

 As was mentioned before, the trend towards -- from hydraulic and pneumatic non-propulsive energy on board of an aircraft, to an all-electric non-propulsive energy, is a gradual trend and it will only be fully achieved on the next generation of narrow-body airliners by the end of the next decade.

 So we want to be positioned. It takes time. It takes quite a bit of time because, for these sort of platforms, aircraft manufacturers will only consider suppliers who can offer some solutions which are technically sound, which are mature enough that they can expect immediate reliability [entering] into service. And it takes time to come up with these sort of solutions.

 So we can start a good 10 years ahead of time versus these future all-electric aircraft. And we will achieve a positioning which will be more and more competitive as this shift towards all-electric systems becomes more and more of a reality, whether on commercial airliners or on business jets which will be launched in the meantime.

 We will keep working on the benefits of a better integration between the electrical generation systems and the aircraft engines.

 For example, you could think instead of having an electric generator which is fitted to a gearbox, you could think of an electric generator that would be an integral part of the gearbox.

 These are the sort of things that we are better placed than anybody else to develop because of our dual expertise in aircraft engines and electrical systems.

 And, obviously, as I mentioned before, we continue to be leading-edge provider of electrified aircraft equipment but during actuation I mentioned we had been the world's first historically to introduce electric breaking. We had been the world's first historically to provide an electrically actuated thrust reverser. We do not intend to stay there. We intend to keep this leading-edge position, because this will be what will allow us to achieve the market positions we envisage.

 So, all in all, first of all that will increase the shipset value we can get on an airplane, because a lot of the systems actuation that exists today which is hydraulic or pneumatic is not provided by us, and will be replaced by electric actuation that we do ambition to supply.

 A couple of words on chart 9 about the facilities. Actually we are acquiring, together with GEPS, two very nice, very modern recent facilities.

 As you may know, GEPS is a mostly British-based business. It's actually part of the former Lucas Aerospace Aircraft Equipment Group, which got, in time, split up and sold to different companies. So, in a way, we can see that we are bringing home a European business that sort of may not be the purpose of the operation, but it's something nice to do as well.

 The Pitstone UK facility employs about 460 people. It was opened 10 years ago. It's a very nice, very well laid out modern facility. And, as being a modern recent facility, doesn't have anything such as environmental problems or whatever. Everything is very nice here to develop our business.

 And there is an even more recent facility in Twinsburg, Ohio, that is in the suburbs of Cleveland, Ohio, that employs about 100 people. It was custom built less than 10 years ago in 2005. It is basically a research-and-development and test center that also handles the customer relationships in North America.

 So two great facilities, model facilities, which are going to be an asset to the growth of this business.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [8]
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 And to wrap up, on page 10, cash consideration; paying EUR310 million. We expect to close towards the end of this year, early next year, subject to the usual regulatory approvals but it's unlikely that there will be any specific issues as this divestment is driven precisely by the regulatory requirement imposed on UTC and Goodrich in the context of their merger.

 And, finally, the other customary closing conditions. Before we, Jean-Pierre and I, address some questions, I'll try and summarize a lot of what we've tried to convey to you in these slides and in our comments this morning.

 Aerospace is obviously a long-haul business and acquisitions are justified in most cases both by the access they provide to existing platforms and because they give you access to technology and credibility to position yourself for aircraft which will come into service 15 or more years down the road.

 So, as Jean-Pierre described, this ex-Lucas Aerospace business, largely UK based, ticks all those boxes.

 Existing platforms, OEM and spares, gives us the credibility and the access to technology for programs which are 15 years from now in terms of their realization.

 If one were to think merely in terms of next year's EBIT, one would run the risk of missing the point. Having said that, in the next five years we will see significant progress in terms of the EBIT, thanks to the OEM and the spares which we have talked about on a wide range of programs.

 But the main thrust behind this type of acquisition is that it's needed to give us a head start and save on the alternative R&D spend which would otherwise have been required in order for us to protect and enhance our position in key areas; mentioned engines, and the whole range of equipment, Nacelles and brakes for aircraft design evolution over the past 25 years.

 So the price was paid. It's quite literally a market price, as if the result of an option where credible strategic aerospace companies assess the value of the business.

 And Safran can afford this type of investment. Think about it. It is less than three months of [R&T&D] spend, and we need to do this sort of thing in order to prepare the very long-term future.

 It's our duty to see as far ahead as our business commands and we have the benefit of doing so by buying a company which has a strong established base which will generate the margins over the next few years while we're preparing for the future.

 And, as I repeat, the improvement programs, which have been launched by the current management which are very credible and, if anything, conservative, coupled with our spares and OEM growth should take us within a few years to the targets and margins of our equipment business.

 So those are our wrap-up comments. Jean-Pierre and I can try and answer a couple of questions before we -- in order that we stay within the time limit we've given ourselves.

 Operator, are there are any questions?



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Questions and Answers
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Operator   [1]
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 Yes, we have a few questions. (Operator Instructions). Robert Stallard, Royal Bank of Canada.

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 Robert Stallard,  RBC Capital Markets - Analyst   [2]
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 The first question I have is I was wondering if you could explain why the operating margins in this business are currently so low and which programs perhaps and other factors could help you get towards 10% in two to three years?

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [3]
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 A lot of the programs they're involved in remain fairly young at this point, as you've seen on chart number 7. You see a lot of the platforms which are there, the A380 in particular, and our relatively recent programs. So in terms of the volumes they are still building up, as are the spares. It's a characteristic you'll see in some of our own equipment businesses.

 Having said that, given that they're in a modern production facility, they have initiated very significant margin improvement measures, which we audited, quite literally, in terms of their credibility. And the speed at which spares will continue to grow, and OEM, will very rapidly feed through to the bottom line. And that is what buttresses our confidence that we'll get the sort of margins we're aiming for in our own equipment business within three or four years.

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 Robert Stallard,  RBC Capital Markets - Analyst   [4]
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 Okay. And a second question. You mentioned that this would be helpful savings on the R&D expense going forward. I was wondering if you could quantify the amounts we're talking about here.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [5]
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 The assessment which we made in terms of if we were to go it alone, it's both a money amount and a credibility issue. I think, Jean-Pierre, the sort of range of expenditure we think it would take us over 10 years to get there would be somewhere between EUR150 million and EUR200 million in terms of R&D spent.

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 Jean-Pierre Cojan,  Safran SA - EVP   [6]
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 Absolutely.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [7]
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 Spread over that period.

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 Jean-Pierre Cojan,  Safran SA - EVP   [8]
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 Spread over that period. First, in addition the fact that we couldn't achieve that in a totally organic manner and be in time, in particular, for the new narrow-body platform of the middle of the next decade. So to that money would have to be added the acquisition of the company that does have already some power generation expertise. And there are not so many of them.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [9]
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 So we look at this acquisition as having two components of justification of value. The first is the intrinsic value of the existing businesses, which we see on slide 7 and the OEM and the spares. And the credibility [dash], I call it that R&D shortcut. It's a significant amount EUR150 million to EUR200 million. We would have spread it over a number of years. Here I think we're spending it under another guise in order to acquire that shortcut.

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 Robert Stallard,  RBC Capital Markets - Analyst   [10]
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 That's great. Thanks very much.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [11]
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 Can we have the next question, please?

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Operator   [12]
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 Rami Myerson, UBS.

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 Rami Myerson,  UBS - Analyst   [13]
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 Two questions from my end. First one is regarding the growth rate. In your recent presentation you'd said -- discussed about a 6% CAGR of Group revenues. Would we -- do you expect this business to grow faster than that, which should drive faster profit growth?

 And the second question is, at the Investor Day for your results, you talked about financial criteria for M&A and 10% to 12% ROI, based on, of course, the savings as well. When do you expect to achieve that 10% to 12% ROI on the current deal?

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [14]
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 The growth which we've put in our business plan is a shade below the 6%, which is for our overall business, but I think that's extremely conservative, because we've not actually taken the full potential in those assumptions. So we've put 4% in our business plan; we think we'll do better than that.

 On the basis of the improvement and the growth in spares, we should reach our criteria in terms of return on capital invested by 2016.

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 Rami Myerson,  UBS - Analyst   [15]
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 Okay. Thank you.

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Operator   [16]
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 Bed Fidler, Deutsche Bank.

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 Ben Fidler,  Deutsche Bank - Analyst   [17]
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 A couple of points. Firstly, can you just help me understand how much of GEPS' revenues come through the Aerolec joint venture? And is there a margin issue there? Is that part of the reason why the returns are pretty low for this business?

 Second question --

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [18]
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 Jean-Pierre will take that, and --

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 Ben Fidler,  Deutsche Bank - Analyst   [19]
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 Okay. Do you want to answer that and I'll come back with the second?

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 Jean-Pierre Cojan,  Safran SA - EVP   [20]
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 Yes, I don't have the precise figure, but it's right now very, very small, because the Aerolec joint venture serves two platforms, one which is not in service yet. The first delivery of [A380] and 400M is due to take place sometime next year, and the A380 is at the beginning of its service life, with delivery rates which are still fairly modest.

 Yes, here are the figures. The Aerolec revenue for last year, for 2011, was close to $17 billion of revenue versus total revenue for GEPS, which is around $200 million.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [21]
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 And, in terms of margin, is it fair to say that Aerolec is a program joint venture, so the margins are --

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 Jean-Pierre Cojan,  Safran SA - EVP   [22]
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 Aerolec is a program joint venture, so there's no margin in Aerolec. The margin is within the mother companies of the joint venture. And, as a reminder, GPS is 60% of Aerolec and Thales 40%.

 The only kind of -- the minimal margin that stays in Aerolec is what is required for the operations of the joint venture, which is probably a couple of hundred thousand dollars; no more.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [23]
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 You had another question, Ben?

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 Ben Fidler,  Deutsche Bank - Analyst   [24]
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 Yes, the other one, just working through some of the math, and picking up a comment you made earlier, Ross, about your -- the deal achieving the cost of capital by 2016. On my math, with 4% compound top line growth and a 12% margin in 2016, you're looking at about EUR23 million of EBIT, which implies about a 7.5% pre-tax return on invested capital.

 Just to remind me, what you think your pre-tax cost of capital is. Or am I missing something the math?

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [25]
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 You're not missing anything. It's approximately 8%, which we use, and I think we'll actually, by 2016, be slightly ahead of those conservative projections.

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 Ben Fidler,  Deutsche Bank - Analyst   [26]
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 Okay. And the final question, if I could, was just to step through some of the specific synergies that you are targeting through this deal, in terms of cost synergies, I guess, on R&D, on other areas where you see opportunity.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [27]
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 The word synergy suggests that you reduce costs, existing costs, somewhere else. That's not what this is about.

 What Jean-Pierre and I mean to convey is that, given that we have to follow this strategic direction for the sake of our equipment and engine business, if we were to go it alone, we would have to spend a significant amount of R&D over the next few years, and even then we probably wouldn't have the credibility which would be required on our own.

 And, therefore, this is not -- these are not cost synergies in terms of reducing today's R&D; it's a synergy versus -- savings versus what we might -- we would have otherwise had to spend.

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 Ben Fidler,  Deutsche Bank - Analyst   [28]
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 Thank you very much. Very clear.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [29]
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 We have time for one other question, I believe, operator.

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Operator   [30]
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 [Patricia Quayle, Bloomberg].

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 Patricia Quayle,  Bloomberg - Analyst   [31]
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 I'm just wondering on the cash consideration of EUR310 million, is there going to be any debt financing involved? And, if there is, which banks are leading it?

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [32]
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 Safran is generally one step ahead in that respect, in that we've funded our balance sheet extremely, stressing conservatism and liquidity, and earlier this year we put in place extremely long-term facilities in the shape of US dollar private placement in excess of $1.2 billion for periods of seven, 10 and 12 years and, hence, we have cash liquidity on the balance sheet.

 Given that was an easy question, can we -- we can do one more, before Jean-Pierre and I call it quits.

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Operator   [33]
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 Christophe Menard, Kepler.

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 Christophe Menard,  Kepler - Analyst   [34]
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 Two questions. A quick one. The first one, you mentioned self-sufficiency. Do you mean that you are -- there are no other acquisitions planned in the area of electrical power systems in the future?

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 Jean-Pierre Cojan,  Safran SA - EVP   [35]
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 What I think we said, we said what we said, which is that we always had, and I think we have explained that for two or three years now very consistently, we always had the ambition to become a comprehensive solutions provider for actuated electrical systems, which, so far, only one player had, which is UTC Hamilton Sundstrand.

 We have now acquired all those [brakes]. We have achieved the level of independence and autonomy that we need for each and every of these brakes, including electrical distributions.

 There are two aspects of electrical distributions; one is distribution systems and we have what we need. The other is the distribution hardware, and for that you can be adequately served by competition, because there are at least three or four providers of such components.

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 Ross McInnes,  Safran SA - Deputy CEO & CFO   [36]
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 Okay. (inaudible) about analysts' questions; they're like London buses, always come in twos. You had another question?

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 Christophe Menard,  Kepler - Analyst   [37]
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 Yes, just a quick one, thank you. It's on the APU. You are acquiring a solid position in APUs. Is it changing any of the JV agreements you have with Honeywell on the electrical system you are developing at the moment with Honeywell?

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 Jean-Pierre Cojan,  Safran SA - EVP   [38]
------------------------------
 Well, I go straight to the point. The answer is, no. It does not create any sort of particular problem with Honeywell.

 We are not acquiring a position in APUs, and I would like to stress that point. The APU is the turbo machinery that provides the mechanical power, and we are not into that.

 Where we are a very significant -- becoming a very significant market player is the APU electrical generation. That is the electrical generators that you fit to the APU, and this is where we, thanks to this acquisition, we are going to be a very strong and successful player. But the APU itself, the turbo machinery, we are not, and this does not bring us into it.

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 Christophe Menard,  Kepler - Analyst   [39]
------------------------------
 Thank you very much.

------------------------------
 Ross McInnes,  Safran SA - Deputy CEO & CFO   [40]
------------------------------
 Thank you. Peter Campbell and Pascal Bantegnie can answer any other questions you have later today, and we'll all be talking on the morning of October 25 for our third quarter turnover, so we'll have other opportunities to discuss any further issues at that point.

 Thank you all for making yourselves available at short notice.

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Operator   [41]
------------------------------
 Thank you, ladies and gentlemen. This concludes the conference call. Thank you all for your participation. You may now disconnect.






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