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ANALYSIS: The logic behind ST Engineering's acquisition strategy

Gaining additional technical know-how and intellectual property through acquisitions is at the heart of ST Engineering's growth strategy.

The Singapore group has been highly acquisitive over recent years. In April, it completed the takeover of GE Aviation's nacelle division Middle River Aircraft Systems (MRAS). A separate deal for Belgium-based aircraft modem manufacturer Newtec Group – a key supplier to Panasonic – is also in the works.

And in 2016, ST Engineering increased to a majority stake its shareholding in Airbus's German modifications and composite structures subsidiary, EFW.

Speaking to FlightGlobal at the Paris air show, ST Engineering's aerospace president Lim Serh Ghee said that the acquisition of MRAS – since renamed Middle River Aerospace Systems – represented a significant increase in the group's composite design and manufacturing capabilities.

MRAS supplies 43% of components for the CFM International Leap-1A's nacelle – the engine is an option on the Airbus A320neo – under a risk-and-revenue-sharing partnership with Safran Nacelles.

While the French group is the main supplier of the nacelle, Lim describes the programme as a joint effort.

Beyond its involvement as OEM, ST Engineering has great scope to play a role in the aftermarket support activities for nacelles, in Lim's view.

Safran Nacelles chief executive Cedric Goubet told FlightGlobal earlier this month that the French manufacturer saw an opportunity for ST Engineering to provide MRO capacity, especially in Asia.

Noting the backlog of A320neo orders, he said: "We have a lot on our plate… We need partners to do that."

MRAS and Safran have a joint venture, Nexcelle, which produces the nacelles for the Leap-1C and GE's Passport engine, which power the Comac C919 and Bombardier's Global 7500 business jet, respectively.

ST Engineering's main criteria for the selection of acquisition targets is that candidate companies operate in a growth segment and provide complementary engineering capabilities to the group's technical know-how, says Lim

"We are always investing to ensure that we are relevant to customers in the market," he notes, adding that the strategy is one of "moving upstream".

AIRBUS FREIGHTER CONVERSIONS

Adding new composite capabilities was also a consideration in ST Engineering's initial acquisition of a 35% shareholding in EFW in 2013.

The Dresden-based company supplies composite floor panels for all Airbus aircraft from a highly automated production facility, and is an engineering specialist for composite structures.

Separately, EFW has established itself as an Airbus-designated A380 MRO and cabin refurbishment facility, Lim notes.

But perhaps more importantly, the acquisition of the former maintenance site of East German flag carrier Interflug opened up an avenue for ST Engineering to complete passenger-to-freight (P2F) conversions on Airbus aircraft.

ST Engineering has previously converted Boeing 727s, 757s and 767s, and still advertises a 757 freighter modification programme on its website.

Under ST Engineering's control, EFW has extended its original A300/A310 P2F line to include A330ceos and, more recently, A320/A321ceos.

EFW is responsible for the programme's marketing and sales, while ST Engineering handles the technical design and supplemental type certificate development for the modifications.

The first A321 P2F conversion is under way at ST Engineering's facility in Singapore, and Lim says an STC for the programme is scheduled to be granted during the first quarter of 2020.

Two further A321s are set to modified in Singapore, before ST Engineering's facility in Guangzhou establishes the capability with the conversion of a fourth aircraft.

Lim foresees that A320-family aircraft will be converted in Singapore, Guangzhou, Dresden and a US facility, as proximity to customers and available feedstock – to avoid lengthy ferry flights – is particularly relevant for narrowbodies.

Unsurprisingly, given ST Engineering's close P2F co-operation with Airbus, Lim says the MRO provider is not actively trying to become a freighter conversion partner of Boeing or develop its own conversion programme for one of the US airframer's models.

Noting the possibility of a 777 conversion programme, he says ST Engineering would be open to co-operation if approached by Boeing: "All the OEMs know us… They know what we can do, and if they think that we can add value to them I am pretty sure that they would approach us."

ST Engineering's immediate priority, however, is to integrate MRAS into the group and to maximise benefits from the acquisition, says Lim.

"I always believe that we must deliver [first]… Then people will know that we are reliable."

He sees room for "a lot of organic development" at MRAS. "This is a very major programme. It is not small," he says.

Under its new ownership, MRAS is in a position to bid for nacelles beyond GE's product line.

However, Lim indicates that ST Engineering has not stopped looking for potential further acquisition targets. Asked if the group sees any takeover opportunities on the horizon, he responds: "Never say never."

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