French defence and technology group Thales has experienced no “critical supply chain” failures so far in the pandemic, despite the drag on revenues and profits from the ravaged aerospace market.
Chief executive Patrice Caine said in an interview with the Financial Times that he had made efforts to “keep his critical [aerospace] supply chain in good health, at least in a state of health sufficient so that it does not die” as the company announced tumbling profits in the first six months of the year.
The French government is putting €15bn on the table to support the aerospace sector — and try to maintain the supply chain — including €1.5bn for research and development of greener aircraft.
Thales says it is trying to support its supply chain in turn, and is not aware of any failures across its 4,300 suppliers, even if many are in trouble and being monitored.
Thales, which is 25 per cent owned by the French state and 24 per cent owned by defence group Dassault, is itself under huge pressure due to Covid-19, slashing forecasts and suffering from falling profits.
Over the first six months of the year, sales fell 5.4 per cent to €7.8bn compared with 2019, or a fall of 13.6 per cent after excluding Gemalto, the digital security group it took over last year.
Operating income fell 57 per cent to €348m, or a fall of 63 per cent in like-for-like terms. While consolidated net income fell 88 per cent to €65m.
Aerospace, the sector hardest hit by the pandemic, suffered a sales fall of 25 per cent; defence was down 7 per cent and transport, where it is hard to access some sites, is off by 14 per cent.
The company’s shares fell 3 per cent to €69 by lunchtime in Paris on Friday, having fallen more than 20 per cent this year.
Despite the hit so far, Mr Caine is betting his group can outperform rivals that have over-specialised. He argues his diversified group “will come out strongly from the crisis, while the pure player model . . . will emerge very affected, very weakened”.
The Thales boss derides that pure-player model as “fashionable for a while in the eyes of analysts” and contrasts it with Thales’ breadth in defence, aerospace, ground transport such as rail signalling and digital security.
Falling revenues have been met by cost cuts that have generated €320m in savings in the first half of the year. Thales also has about 15 per cent of its 40,000 staff in France on partial work schemes and is in talks with unions about restructuring measures. It is targeting savings of €800m in 2020.
Mr Caine said that Thales was hoping to start producing at a normal level once again soon, and that excluding areas where lockdowns were being reintroduced, factories were approaching full capability.
However, in the first half of the year, Thales signed just four large contracts — worth more than €100m each — compared with seven in the same period last year. All told, order intake was €6.1bn in the first half, a 23 per cent like-for-like drop.
Mr Caine ruled out acquisitions in the near term, saying there was “nothing in the pipe”, arguing that he did not need to bulk-up in rail signalling despite the agreed merger of Alstom and Bombardier.
