Zodiac warning draws wary response from suitor Safran

(Adds comments from TCI Fund Management)

By Cyril Altmeyer and Tim Hepher

PARIS, March 14 (Reuters) - France's Safran (LSE: 0IU8.L - news) on Tuesday reaffirmed its interest in acquiring aircraft seats maker Zodiac Aerospace (LSE: 0NR6.L - news) despite the latest in a series of profit warnings, but pledged to take Zodiac's new forecasts into account in takeover discussions.

Paris-based Zodiac earlier posted first-half revenues down 1.8 percent to 2.445 billion euros and reaffirmed revenue targets while slashing its forecast for full-year operating earnings.

The French aircraft parts and systems supplier said it had been hit by industrial problems in its Zodiac Seats UK and Cabins activities and weak markets for helicopters, business jets and regional aircraft. Underlying sales fell 2.6 percent.

Zodiac now sees full-year core operating income falling around 10 percent, in stark contrast to its previous forecast of a 10-20 percent rise.

It insisted the new setback does not alter its goal to return to historical levels of profitability by 2019/20.

U.K. hedge fund TCI, which owns shares in both firms and opposes the takeover by Safran, has questioned the reliability of Zodiac's 2019/20 targets following a two-year industrial crisis and multiple profit warnings.

"Safran's deal to acquire Zodiac is hugely overpriced and will be enormously destructive to Safran shareholder value", TCI Fund Management said in an emailed statement sent to Reuters.

TCI said Safran must pull out of the deal.

Safran insists it can secure the goals, which are key to the deal's valuation, by using its greater industrial clout to improve efficiency and drive down costs.

But shortly after Tuesday's announcement by Zodiac, Safran (Milan: SAF.MI - news) said it reflected "new developments" compared with information available when it announced the merger plan on Jan. 19.

"Safran confirms the strategic interest for the acquisition of Zodiac. Safran confirms its confidence in its own ability to restore the operating profitability of the businesses currently in difficulty," it said in a statement.

"Safran and Zodiac Aerospace are continuing their exclusive negotiations and will take into account the consequences of these developments in their discussions," it added.

Zodiac CEO Olivier Zarrouati said first-half performance had been hit by problems on a seat production project for a major airline at a U.K. plant.

A spate of problems mainly at Zodiac's plants in the United (Shenzhen: 000925.SZ - news) States has upset both Airbus and Boeing (NYSE: BA - news) , which rely on parts arriving on time to keep production flowing smoothly.

Zarrouati said relations with Airbus had improved after Zodiac placed a large team in Toulouse to assist with deliveries of A350 aircraft following delays in seats and toilets.

That had weighed on costs in the first half.

"There is still a lot of work to do, but we don't think we will have the same type of incremental effort in the second half and we have reflected that in our forecasts," Zarrouati said. (Additional reporting by Adrian Croft in Brussels and Maiya Keidan in London; Editing by Ruth Pitchford)