Purchase to boost investment firm's bid for stake in smaller European engine companies

US investment firm Carlyle Group and Italian state holding company Finmeccanica have agreed to acquire engine manufacturer FiatAvio for €1.5 billion ($1.7 billion), down from the original asking price of €1.6 billion. The deal has boosted the chances of Carlyle bidding for a stake in Germany's MTU, and possibly Sweden's Volvo Aero, in a move to consolidate Europe's smaller engine companies.

Fiat's aerospace businesses have been transferred to Avio Holding - 70% owned by Carlyle and 30% by Finmeccanica - which will purchase the share capital of FiatAvio. The deal needs approval from Europe's competition authorities, but is expected to close by the end of the year.

The acquisition is being financed by equity from Carlyle and Finmeccanica and debt from a group of banks. Finmeccanica is investing about €150 million. The US firm's equity commitment is reported to be more than $400 million.

The Italian government forced Finmeccanica to participate in the buy-out to protect Italian national interests, but the US firm's majority position is being viewed favourably in Germany, where DaimlerChrysler has begun moves to sell its MTU Aero Engines subsidiary. MTU had sales last year of €2.2 billion, compared with just over €1.5 billion for the newly renamed Avio.

Avio chief executive Saverio Strati supports efforts to consolidate Europe's engine manufacturers. "We would be very interested in participating in a consolidation process," he says. "The European engine industry is very fragmented. We think it is only sensible to consider consolidation, but with who and how has still to be decided."

Avio has a 21% stake in the Eurojet EJ200 engine for the Eurofighter Typhoon, builds General Electric T700-T6A/E turboshafts for the AgustaWestland EH101 and NH Industries NH90 helicopters, supplies the gearbox and low-pressure turbine for the Honeywell F124 engine powering Aermacchi's new M346 trainer, and is a partner on GE's F136 engine for the Joint Strike Fighter.

Avio is to supply gearboxes to EuroProp International for the TP400 turboprop on the Airbus Military A400M, even though Italy withdrew from the European airlifter programme.

Civil engines make up 40% of Avio's business, which includes involvement in the GE GE90-115B and Rolls-Royce Trent 900 large turbofans, and maintenance of the GE/Snecma CFM56. On the space side, Avio has an 8% stake in the Ariane launcher programme and 70% of the ELV joint venture to develop the Vega small booster for the European Space Agency.

Finmeccanica has completed its takeover of Aermacchi, purchasing 67.2% of Aeronautica Macchi's 100% holding of the Italian trainer manufacturer for €155 million. Finmeccanica now controls 94.6% of Aermacchi's stock.

Source: Flight International