* Important development for Italian economy
* Part of GE drive to control more of its manufacturing
* Follows scrapped Avio IPO earlier this year
By Danilo Masoni
MILAN, Dec 21 U.S. conglomerate General Electric
Co has agreed to buy the aviation business of Italy's
Avio for $4.3 billion, in a sign of confidence about the
country's underlying strength despite its deep recession.
The deal comes as Europe's fourth-biggest economy labours to
become more competitive under a reform agenda set by technocrat
prime minister Mario Monti, who is due to step down on Friday
before general elections seen in February.
"We are convinced that Italy will exit the crisis," Nani
Beccalli, president and chief executive of GE Europe, told
reporters on Friday. "There are undoubtedly hurdles linked to
red tape. But the strategic value of the deal is so big (it
would offset other issues)", Beccalli said.
GE agreed to buy Avio from private equity fund Cinven and
Italian state-controlled defence group Finmeccanica.
The move frustrated the aspirations of France's Safran
and Italy's state-backed Strategic Fund, which had been trying
over the last few months to take over Avio.
GE, whose businesses range from infrastructure technology to
financial services, said Avio would boost its global supply
chain capabilities as its engine production rates rise to meet
growing customer demand.
Avio, which makes components for the GE Dreamliner engine
used by Boeing Co, ranks among Italy's industrial jewels
and is one of the most technologically advanced companies in its
William Blair & Co analyst Nick Heymann said the move, which
amounts to GE buying a supplier to its jet engine program, was
intended in part to protect new technologies.
"They're trying to get more vertically integrated and have
more control over critical aspects of the manufacturing
process," he said.
GE is developing composite ceramics for jet engines, a
technology it also plans to use in other products such as
electric turbines and equipment used in oil and gas production.
"Rather than developing (composite ceramics) and trust
someone not to give it away, you want to keep it in-house,"
The move could be a sign that GE in coming years might be
ready to consider larger acquisitions outside of the $1 billion
to $3 billion range that GE's CEO, Jeff Immelt, has described as
the company's sweet spot over the past few years.
"We're slowly inching our way back into larger capital
redeployment," Heymann said.
GE shares were down 0.6 percent at $20.92 on Friday morning
on the New York Stock Exchange.
GE said the purchase price values the aviation business of
Avio, which also supplies Rolls Royce Holdings, at 8.5
times its expected 2012 core earnings before interest, taxes,
depreciation and amortization.
"No nitpicks here. This is an excellent deal," said Brian
Langenberg, of independent research firm Langenberg & Co.
Debt-laden Finmeccanica, which owned 14 pct of Avio, will
use the 260 million euros it is earning from its stake sale to
lower debt. The sale is the first of a number of disposals the
company needs to carry out to keep its investment-grade credit
The U.S. group will not be buying Avio's space unit, which
the Italian government considers strategic. The unit, which is
expected to make sales of between 280 million euros and 285
million in 2012, will remain for the time being under the
control of Cinven and Finmeccanica.
Avio's revenue in the aviation sector was 1.7 billion euros
($2.25 billion) in 2011, with more than 50 percent derived from
components for GE and GE joint-venture engines.
Cinven had bought Avio in 2006 for some 2.6 billion euros.
Under GE's ownership, Avio will invest 1.1 billion euros
over the next 10 years, company executives said.
GE said it planned to pursue new opportunities for Avio in
the power generation, oil and marine products industries.
The GE deal comes after a planned initial public offering
for Avio was scrapped earlier in 2012 because of weak market