Story ID: 674 Zodiac problem.doc
Zodiac Aerospace Facing its Toughest Crisis
By: AIN Staff
Caption: Massive back orders on seats are greatly reduced, but deliveries still lag, leading customers to grow impatient
Word Count: 724
French component supplier Zodiac Aerospace (Chalet A60) is facing its toughest crisis since selling its marine business in the 1970s. Current operating revenues are down to €549 million (around $700 million) in operating income, a shortfall of 40 percent for 2014/2015 in comparison to the last fiscal year.

Zodiac’s main problem right now is its inability to keep up with deliveries of its airliner seats. One of the world’s biggest suppliers next to B/E and German company Recaro, Zodiac is causing its shareholders great concern, but more importantly, making customers very unhappy.

From the 6,000 packs (one pack is equivalent to three economy seats) that were backordered as of the spring, Zodiac has managed to reduce this backlog down to 1,700 seats by September–a big improvement. But the company had promised to fully resolve the delay by the end of August.

“We acknowledged that delays have not been reduced any further since June because of a problem on the certification of some seats in August, which is really bad timing,” Pierre-Antony Vastra, head of communications, explained to AIN. Delays are making customers worldwide very unhappy with the French company. Some have lost trust, as reported in the French press. Fabrice Bregier, Airbus CEO, described the seat problems as “unacceptable,” sending Airbus experts to Zodiac’s production unit in Santa Maria, California–which specializes in business and first class seats, and ranks as the center of the seat-delay crisis. To help alleviate the bottleneck, Airbus experts are there to help engineers improve the production processes.

Other customers, however, have already decided to take even stronger action. American Airlines decided in September to bring the case in front of a judge, resulting in the cancellation of part of the contract it had with Zodiac Aerospace.

Zodiac is currently facing the consequences of rapid and steady growth in demand that has pushed its capabilities to their limits. “Each factory and production unit had a lot of independence,” a Zodiac spokesperson explained, going on to say that bad reporting and inappropriate stock management led to the problems with seat production: “The managers could not visit each factory as often as they used to, and some problems were not [discovered] in time,” Vastra admitted.

Wider Issues

The difficulties Zodiac is facing are not restricted to the seat-production issues. Three branches have been targeted for improvement, including: seats; cabin interior components; and aerosystems, which includes both the former aircraft division and aerosafety. The company has responded with its “Focus” plan, launched last spring after the first warning on the production problem. Focus is now reaching all areas of the group.

A new position of operating director has been created to plan and organize all the resources of the group, controlling and consolidating operating processes in all areas. One benefit is that qualified employees will now be able to move more easily to different jobs within the group, thanks to new common processes. Zodiac hopes the new plan will ease communications, overall.

Zodiac took in $4.9 billion in revenues in 2014 but has suffered from the lack of a common production process. “It is a growth crisis,” Vastra explained. External industry expansion has driven the past seven years of revenue growth. CEO Olivier Zarrouati decided to delve into a variety of “niches” by acquiring small companies with expertise in their specialist areas.

Zodiac Aerospace still has its headquarters at the historical factory in Plaisir, about 40 km southwest of Paris. Once the current crisis has passed, the group hopes its Focus plan will help it to become a strong company again. Its main asset is its share ownership: seven families, those of the former and current CEOs included, own about 25 percent of Zodiac shares, and 40.2 percent of the voting rights.

This gives long-term stability to the company and a good basis upon which to overcome the crisis. And, despite the current turmoil, the shareholders are still showing trust in the current direction of the company. Olivier Zarrouati was reaffirmed in his position on October 15 by the board, which considering that the group under its new organization, launched on September 1, is already showing improvement.

The next update will be on November 24, when Zarrouati will have to present the fiscal year result.