UPDATE 3-France's Safran sees gradual recovery after crisis-hit 2020

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(Adds CEO quotes, shares)

PARIS, Feb 25 (Reuters) - France's Safran predicted a gradual recovery from the aviation industry's worst crisis, after seeing demand for its jet engines and other equipment drop sharply last year.

The world's third largest aerospace contractor said 2020 recurring operating income fell 56% to 1.686 billion euros ($2.1 billion) as revenue fell 33% to 16.498 billion.

Operating margin dropped 530 basis points to 10.2%.

For 2021, Safran expected the key profitability gauge to recover by more than 100 basis points, with the recovery kicking in starting from the third quarter.

It predicted 2021 revenues would decrease 2%-4% on a like-for-like basis, disappointing some analysts who had expected Safran to hold its ground this year.

"We believe Safran acquitted itself extremely well in 2020. The snag is 2021 guidance looks weak," Jefferies analyst Sandy Morris said in a note.

Shares in the French group fell around 3%.

Unveiling results for the first time since succeeding Philippe Petitcolin as chief executive, Olivier Andries linked the lower revenue forecast to recent cuts in Boeing 787 output and a strong pre-crisis comparison period in first-quarter 2020.

He told reporters a slump in Chinese air traffic in recent months, as Beijing took preventive measures to avoid a new wave of coronavirus infections, had bottomed out last week before seeing a "very, very strong" rebound this week.

Air traffic drives the majority of the company's engine business through services and parts, for which demand is based on the number of hours flown.

Safran's widely watched civil aftermarket revenue fell 43% in dollar terms in 2020 amid pandemic travel restrictions.

Safran co-produces civil jet engines with General Electric for Boeing and Airbus medium-haul jets.

Joint shipments of the latest-generation LEAP engine more than halved last year to 815 units from 1,736 in 2019. Safran said its forecasts assumed more than 800 deliveries in 2021.

Andries, a former Airbus strategist who helped launched the A350 and went on to run Safran's engine division, backed plans by Airbus to boost single-aisle output by 12.5% to 45 a month by end-year, saying Safran could accommodate the rate "with no problem". Engine manufacturers have previously warned planemakers not to stress the industry's fragile supply chain.

"There has been no critical deterioration of the situation," said when asked about the health of Safran's own supply base.

He described alloys maker Aubert & Duvall, for which a group including Airbus and Safran has submitted a preliminary offer after Eramet put it on sale, as a strategic supplier but added no decision had been made on whether to buy it.

Safran cut its workforce by 17% in 2020, or 21% including temporary posts. Andries said the company had already shed another 1,500 positions this year.

On defence, Andries said Safran remained ready to supply a version of its M88 military engine for India’s Tejas light combat aircraft in a long-delayed deal.

The Tejas entered service in 2016, 33 years after it was approved as the country sought to build a fighter from scratch but has been dogged by production delays. It is currently powered by engines from GE. (Reporting by Tim Hepher; Editing by Sudip Kar-Gupta, Edmund Blair and Chizu Nomiyama)