Zodiac Aerospace: sitting comfortably

For many passengers, the abiding memory of their time in an airliner is not the brusque service, nor the food - but the rock-hard seat. The seat business of Zodiac Aerospace has itself been in a hard place since the French company fell behind on deliveries to Boeing, prompting a profit warning last month. Investors were reassured by Zodiac's outlook in its March half-year results, marking up its shares on Wednesday by 7 per cent.

True, the cost of getting seat production back on track hit Zodiac's net income, which fell by a third from a year ago to €109m. The company also warned of a further hit in the second half but reckons the problem will have been contained by then.

Seats accounted for only 27 per cent of half-year sales of €2.3bn, however. It makes other kit, such as in-flight entertainment and seat technology (30 per cent of sales), cabin interiors and galleys (31 per cent) and safety systems including evacuation slides and parachutes (13 per cent).

Investors have no cause to bale out any time soon. Zodiac's outlook is supported for now by currency moves: its costs are euro-based and it bills in dollars. More than 90 per cent of fiscal 2015 exposure is hedged at $1.27 to the euro (the spot rate is about $1.07).

Demand for Zodiac's products in the buoyant commercial aerospace sector looks set to remain strong. Air traffic growth will accelerate to 7 per cent this year, on International Air Transport Association forecasts. Each percentage point of traffic growth calls for about 150 new aircraft, estimates Investec. Airlines are also switching to more fuel-efficient aircraft and, with the lower oil price, some are extending the lifespan of existing fleets through refits. There is everything to shoot for.

But Zodiac will need to show it has drawn a line under its production problems for its shares, trading on 18 times 2016 earnings (in line with closest peer BE Aerospace in the US), to sustain their upward trajectory. It is, in other words, sitting comfortably - but not yet sitting pretty.

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