May 11, 2017 / 11:02 AM / 4 months ago

UPDATE 2-Safran begins Boeing engine checks, shares fall

* Safran expects to complete inspections within weeks

* CFM aims to deliver as close as possible to 500 LEAP engines

* Safran shares down 2.2 pct (Adds quotes, background, updates shares)

By Tim Hepher and Cyril Altmeyer

VILLAROCHE, France, May 11 (Reuters) - France’s Safran said inspections of new-generation LEAP engines supplied to Boeing for the latest version of its 737 aircraft are expected to be completed within a few weeks and ruled out a design fault as the cause of problems that halted test flights.

The French engine maker is scrambling to transport dozens of engine turbines back from the United States, only days before Boeing had been due to start deliveries of the new 737 MAX.

Boeing said on Wednesday that it was suspending 737 MAX test flights while CFM International, an engine venture co-owned by Safran and General Electric, conducted checks after a quality problem was found in a turbine disc.

The problem is not related to the part’s design and does not suggest deeper problems in the industry’s tightly stretched supply chain, Safran Aircraft Engines’ Chief Executive Olivier Andries told reporters.

“There will be a temporary disruption to the logistics, which we hope to fix within a few weeks,” said Andries at a French factory where production is being ramped up to meet demand for the LEAP engine. A similar factory is based in Ohio.

The LEAP-1B engine is produced for Boeing. A LEAP-1A model made for Airbus A320neo jets is not affected, Andries said.

CFM’s shareholders said last month that between 450 and 500 LEAP engines are expected to be delivered this year rather than the previously stated 500.

Andries said production of engines would not be affected because a second supplier for the same part was boosting its supplies. CFM aims to deliver “as close as possible to 500” in total for Boeing, Airbus and China’s COMAC, he said.

Still, Safran’s share price was dented by the renewed focus on ambitious production schedules that had previously suffered barely a glitch.

EXECUTION RISK

“Late-stage discoveries occur on many new aircraft and engine programmes, and the cost impact historically has tended to be low to immaterial in our experience,” said Harry Breach, analyst at wealth management firm Raymond James.

“Nonetheless, this incident highlights execution risk on the key LEAP programme.”

Shares in Safran, which is aiming to complete a merger with parts maker Zodiac Aerospace, fell 2.2 percent to 75.82 euros by the close, among the worst performers on a CAC-40 index down 0.3 percent.

The head of Malaysia Airlines, which has ordered 25 Boeing 737 MAX jets, said he was not worried about the engine snag. The first 737 MAX was due to be delivered next week to smaller Indonesian-owned Malaysian carrier Malindo Air.

“I don’t see it affecting at all the introduction of the aircraft,” Malaysia Airlines chief Peter Bellew told Reuters on the sidelines of a CAPA airline conference in Dublin.

Despite the setback on the eve of Boeing’s first delivery, Safran said it had overtaken rival Pratt & Whitney as the engine supplier for most Airbus A320neo-family jets now in service and outlined new production techniques designed to speed output.

Pratt & Whitney has had a spate of problems with its new Geared Turbofan engine but says fixes are on the way.

Additional reporting by Sudip Kar-Gupta and Conor Humphries; Editing by Elaine Hardcastle and David Goodman

Our Standards:The Thomson Reuters Trust Principles.
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