IN FOCUS: GKN poised for transformaton in wake of Volvo Aero acquisition

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With its £633 million ($1 billion) acquisition of Volvo Aero complete, GKN Aerospace has embarked on what appears to be a 15-month transformation, as it adds manufacturing jet engine components to its competence as a top-tier aerostructures supplier.

The deal, agreed on the eve of the Farnborough air show in July, will turn GKN's relatively small engine components business into a global major player, with annual turnover of £800-900 million - Volvo Aero's 2012 sales will be about SKr7.3 billion (£680 million) this year - with rivals as significant as MTU Aero Engines and Italy's Avio.

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 GKN

GKN develops products with different OEM partners, resulting in a range of technologies

The addition of Volvo Aero will take GKN Aerospace turnover comfortably above the £2 billion mark - about a third of GKN group revenue - with a workforce numbering nearly 12,000, including more than 1,000 highly skilled engineers.

GKN plans to run Volvo Aero more or less as it stands for up to two years, while gradually adding relevant parts of the existing GKN operation.

Like all mergers or acquisitions this one shines a light on corporate cultures, which in this case are, of course, very much rooted in national preferences as GKN and Volvo are among their countries' most long-standing and successful industrial companies.

Indeed, GKN Aerospace chief executive Marcus Bryson says it is fascinating to observe the difference in cultures between GKN and Volvo. While the UK team is very entrepreneurial, he says, the Swedish team is very process-driven - akin to a German company - while at the same time focused on building consensus among all stakeholders.

GKN technical director Rich Oldfield adds that the two companies have historically employed very different approaches to product development. GKN, he says, develops its products with different OEM partners, resulting in a range of technologies for different manufacturers and programmes. Therefore, it is not unusual for GKN to employ different techniques to produce similar products for various OEMs.

Volvo, on the other hand, has taken a very different approach, says Oldfield, preferring to develop a technology of product independently, and then offering that capability to different OEM customers.

The move, which leaves Volvo group to consolidate around its heavy commercial vehicles business, will complement GKN's push into composite engine blade technologies, particularly via its joint venture with Rolls-Royce. Volvo Aero makes a wide range of key engine components, so the acquisition should put GKN in a position to rival its broad-based stance in metallic and composite aerostructures.

Only about 10% of Volvo Aero's revenue comes from military engines - including for Saab's Gripen fighter - and space applications, notably exhaust cones and engine components for Ariane 5 rockets. The combined business will achieve two-thirds of its sales from the fast-growing civil side of the aviation market.

Another significant benefit for GKN from the Volvo acquisition is a new level of exposure to, and opportunity in, the aftermarket. Whereas aerostructures are typically produced, delivered and forgotten, engine components have a service life and maintenance cycle. Volvo, then, promises to bring its new owner benefits beyond its technical expertise.