Zodiac aims to complete Safran deal, CEO offers to go

* Zodiac says CEO offered to resign, to stay on for a while

* Hopes to complete Safran (LSE: 0IU8.L - news) merger deal, studies alternative

* Issues second profit warning in as many months

* Shares (Berlin: DI6.BE - news) recover partially after sharp fall on Thursday (Updates shares, adds context)

By Tim Hepher and Cyril Altmeyer

PARIS, April 28 (Reuters) - Zodiac Aerospace (LSE: 0NR6.L - news) 's chief executive has offered his resignation after another profit warning from the French company, which is continuing talks with Safran to seal a merger and end a crisis in its aircraft seat factories.

Zodiac said on Friday it had asked Olivier Zarrouati to stay on "for a while" to try to forge the world's third-largest aerospace supplier, but added it was working on an alternative standalone plan in case the Safran merger fell through.

The firms announced a deal for Safran to take control in January, but it ran into criticism over its complex structure, crafted to preserve tax breaks for a group of family shareholders, and new problems at Zodiac's UK plants.

Zodiac has hired a new special board adviser and asked Zarrouati to stay on to finalise and execute the deal "if Safran (Milan: SAF.MI - news) and Zodiac come to a renewed agreement, which is what we want."

Shares in Zodiac were up 3 percent at 21.48 euros after falling sharply ahead of the results, which were delayed by a week amid speculation that either side could pull out of talks over the merger, which Zarrouati called "our priority scenario".

One analyst said the rally reflected relief among ordinary Zodiac shareholders that the merger plan had not been abandoned and that there would be changes at the top of the company.

Others said another critical factor would be Zodiac's revised medium-term forecasts, whose status remained uncertain.

Zodiac shares remain well below the 29.47 cash offer embedded in the deal, and a bid that initially valued Zodiac at $9 billion is certain to fall if it eventually goes ahead.

A financial source said on April 14 Safran was weighing plans to reduce and possibly restructure the offer.

Zodiac on Friday posted a fiscal first-half operating loss of 12 million euros, blamed on its aircraft interiors business, and forecast a 200-220 million euro operating profit for the year to end-August, implying a 26 percent fall from the previous year, whereas in March it had forecast a 10-20 percent decline.

TCI UNHAPPY

Zarrouati, who has given 10 warnings since Zodiac's rapid expansion went wrong but who had been supported by Zodiac's chairman, appears to have realised his position was untenable as new problems arose in recent weeks and voluntarily stood aside.

He said Zodiac had added "an extra layer of caution" to its forecasts and would be able to meet its financial covenants.

But the strongest critic of the deal, UK hedge fund TCI Fund Management, was not convinced.

"These are disastrous results from Zodiac yet again... Zodiac's business continues to implode with no sign of recovery," TCI founder Christopher Hohn said in a statement.

"We think it needs an emergency rights issue, which would cause the Zodiac share price to fall substantially," he added.

Zodiac said it had appointed as its adviser Yann Delabriere, the outgoing president of Faurecia (Swiss: EO.SW - news) who analysts say has helped the French auto seats maker survive the financial crisis and refocus on its core businesses.

TCI, which wants Safran to cancel its proposed offer for Zodiac, called the appointment a "distraction", although some analysts said Delabriere would bring in more industrial clout.

Zodiac is now waiting for Safran's conclusions on a due-diligence exercise, Zarrouati said. (Additional reporting by Gilles Guillaume, Maiya Keidan; Editing by Andrew Callus/Keith Weir/Alexander Smith)