ALEXANDER CAMPBELL / LONDON
Successful bid by Snecma could kick-start second-tier consolidation in Europe
Fiat's financial position has worsened after it failed to obtain a promise of support from partner General Motors, putting the struggling car maker under increased pressure to dispose of its FiatAvio aeroengine arm.
Fiat plans a €5 billion ($5.5 billion) fundraising effort to help reduce debts of over €23 billion, but GM, which owns 20% of FiatAuto, has not committed to the deal. The Italian company sold its Fidis customer finance arm last week for €370 million, shedding c6 billion in debt at the same time. The Toro insurance business and FiatAvio could be the next to go.
Fiat chairman Umberto Agnelli last week said that he "hoped never to exercise" his alternative option: to use a three-year-old agreement to force GM to buy the lossmaking FiatAuto car division. With its debt now junk-rated, raising money by issuing debt rather than equity would be expensive for Fiat.
The US Carlyle Group has already made a €1.6 billion bid for FiatAvio (Flight International, 4-10 March) and French aeroengine manufacturer Snecma and the Italian engineering group Finmeccanica last month said they were interested in the company, although they have yet to produce a formal offer.
Sources say that Finmeccanica is reluctant, but a decision is expected before the end of this month. Politicians from all parties have been quoted in the Italian press opposing the outright sale of FiatAvio, described as a strategic national asset, to a foreign company, but the proposed 50:50 split between Snecma and Finmeccanica would avoid this problem.
If Snecma took on FiatAvio, it could mark the start of a round of consolidation aimed at transforming the company into a world leader in a market that is now dominated by three companies - General Electric, Pratt &Whitney and Rolls-Royce.
"Consolidation will happen, but probably through joint ventures rather than by outright takeovers," says industry analyst Graziano Freschi of PricewaterhouseCoopers. He adds that most countries prefer to retain control of their national military engine manufacturers - a factor which he blames for the recent collapse of the planned Alerion engine conglomerate in Spain (Flight International, 4-10 February).
Any consolidation will be led by Snecma, Freschi believes. "The big three just don't seem to be interested... the bottom line is that Snecma wants to drive for scale. Achieving market share and dominance is often a French imperative." he says.
Source: Flight International
