Zodiac Aerospace warns on H1 profit after seat delays

(Adds CEO comments, detail)

By Tim Hepher

PARIS, March 19 (Reuters) - Zodiac Aerospace (Paris: FR0000125684 - news) issued a profit warning on Thursday after a rise in costs as it tries to stem delays in seat production that have strained relations with planemakers Airbus and Boeing (NYSE: BA - news) .

The French company, one of the leading producers of seats for passenger jets, said it had carried out management changes in its Seats unit and hoped to erase a 10-day average backlog in production by the end of its September-August financial year.

"We have gone on a combat footing to regain control of the situation," Chief Executive Olivier Zarrouati told analysts.

On Wednesday, industry sources said Airbus and Boeing had stepped up pressure on Zodiac (Other OTC: ZODFF - news) over persistent delays in the delivery of aircraft seats.

Its shares fell 4.3 percent on Wednesday and as much again on Thursday, before stabilising to close fractionally higher at 33.15 euros ahead of the company's trading update.

Announcing first-half revenue up 16.2 percent, Zodiac said current operating income would be "significantly" impacted in its fiscal first half by the seat delays.

Dealing with the mounting problems had taken longer than expected and caused "significant extra production costs". It predicted some charges when it reports full results on April 22.

Zodiac said full-year core income could be similar to that of 2013/14.

Zarrouati confirmed problems at Zodiac's Santa Maria plant in California, which makes shells for premium seats, but said there had been progress after a management shake-up.

A plant in Gainesville, Texas, which makes economy-class seats and which was disrupted by a strike last year, is getting back to normal, he said.

He said Zodiac, which also has plants in France and Mexico, had slowed its commercial activities to devote itself to speeding up production but was still bringing in business.

However, he acknowledged that planemakers themselves were no longer recommending Zodiac's seats to airlines while the crisis continued.

"I think that our planemaker clients are not recommending Zodiac seats for the time being," Zarrouati said on a conference call, asked whether it had been removed from any planemaker catalogues.

Reuters reported on Wednesday that at least one of the top two planemakers, Airbus and Boeing, had discussed removing Zodiac from its seats catalogue.

That would not necessarily cost Zodiac orders, but would mean any new contracts with airlines had to be approved one by one, using an exceptional procedure that takes more time. (Editing by James Regan)