Zodiac rebound under scrutiny as Airbus steps up pressure

By Tim Hepher and Victoria Bryan

PARIS/BERLIN, Jan 12 (Reuters) - Planemaker Airbus cast doubt on the pace of recovery at French cabin equipment supplier Zodiac Aerospace (Paris: FR0000125684 - news) on Tuesday, saying the company was still "in the ditch" despite repeated pledges to resolve output delays.

The comments came in a rare public warning from Airbus planemaking chief Fabrice Bregier, who accused Zodiac's management of being "in denial" as it waded through repeated delays and profit warnings related to seat production last year.

Bregier told an annual news conference he expected improvements from Zodiac this year after the planemaker "suffered a lot" in 2015, including missing a target for A350 deliveries due to delays in receiving toilets made by Zodiac.

A spokesman for Zodiac said it had no comment ahead of its annual general meeting on Thursday.

Its shares were down 0.2 percent at 20.06 euros, ignoring a 2 percent rise in the European market.

In November, Zodiac reported a 45 percent drop in core annual earnings, hurt by its aircraft seats division.

Zodiac Aerospace Chief Executive Olivier Zarrouati said in November the company was no longer discovering bad news but declined to set a target date for ending the production delays.

Industry sources say the French company has collided with Airbus and Boeing (NYSE: BA - news) in the past year as it missed deadlines for seat deliveries, but Tuesday's comments represent the strongest public evidence of soured relations to date.

Reflecting Airbus concerns that Zodiac needed to focus on its existing order book, Bregier took the unusual step of announcing that it had been thrown off the A330neo programme, an upgrade of a popular Airbus jet.

He said the company wanted suppliers that "do the job" and while this was the case for 99 percent, there were occasionally some which failed to live up to this.

"Last year it was clearly Zodiac," Bregier said. "We expect they will manage to do a lot better this year, especially as A350 deliveries are linked to their performance on lavatories and seats."

He added: "Yes, it is a message, but they know it already."

Zodiac's troubles reflect the problems of executing a rash of orders driven by fierce competition between aircraft interior suppliers, alongside rapid increases in aircraft production.

The industry is on high alert to find out whether Zodiac's problems at a recently acquired U.S (Other OTC: UBGXF - news) . plant are isolated or reflect deeper strains in the global supply chain.

Bregier said problems in the supply of interiors equipment went beyond Zodiac, but were in a more ordinary category.

Zodiac confirmed last month it was behind schedule in supplying toilets for the A350, but said resolving the delays would take only a few months. (Additional reporting by Cyril Altmeyer; Editing by James Regan and Mark Potter)