GE buys parts maker Avio in bid to fatten margins

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GE has agreed to buy the aviation business of Italian engine components maker Avio for $4.3 billion.

Guernsey-based private equity group Cinven has controlled Avio since acquiring it from The Carlyle Group in 2006. Italian aerospace group Finmeccanica also holds a stake, of 14%.

The sale of Avio remains subject to regulatory and governmental approvals, and excludes Avio's space unit.

"Avio will strengthen GE's global supply chain capabilities as its engine production rates continue to rise to meet growing customer demand," says GE. "Avio and its customers will benefit from GE's planned investment in expanding Avio's products and services. Additionally, GE sees excellent opportunity in the acquisition of Avio related to margin expansion."

The purchase price represents a multiple of 8.5 on 2012 estimated earnings before interest, taxes, depreciation and amortisation.

Avio employs 5,300 people, 4,500 of whom are in Italy, including 800 in the space unit. Its product range spans the civil and military sectors, and includes low-pressure turbine systems, accessory gearboxes, geared systems and combustors.

In 2011, revenue totalled $2.4 billion, more than 50% of which derived from components for GE and its joint venture engines. These include the Boeing 777's GE90 and the GEnx turbofans for the 747-8 and 787, plus the smaller CT7 and T700 turboshafts.

"Cinven and Finmeccanica will work together to establish the most appropriate set of industrial alliances to ensure long-term competitiveness and compliance with national and European interests," says Avio chief executive Francesco Caio.

Avio's first-half 2012 revenue of €1.13 billion ($1.48 billion) represented a 25% premium over the equivalent period last year. Deliveries to GE have been increasing in line with the gaining momentum in deliveries of 747-8 and 787 aircraft.

The Italian company is also a partner to Pratt & Whitney, including on its PW1500G geared turbofans for the Bombardier CSeries and Airbus A320neo; Safran, on the Sukhoi Superjet-powering SaM146; and Rolls-Royce, including the Trent 900 used on Airbus A380s.

In the military domain, it supplies Eurojet - which manufactures engines for the Eurofighter Typhoon fighter - and MTU.

In 2012's first half, the military engine components business grew by about 7%, driven partly by helicopter engines demand.

Avio had intended to go public on the Milan stock exchange in the first half of 2011, but shelved the plans because of market conditions.