General Electric to Pay $4.4 Billion for Avio Aviation Business

Andrew Klips |

In a deal many thought would happen, General Electric Co. (GE) said on Friday that it is buying the aviation business of Italy-based Avio SpA for 3.3 billion euros ($4.4 billion U.S.) from European private equity firm Cinven and aerospace group Finmeccanica SpA. Avio, a maker of propulsion systems for satellite launch vehicles and commercial and military jet engine components, and General Electric have deep roots together. A supply partner with GE since 1984, more than 50 percent of Avio’s aviation business sales last year came from GE.

GE will not be purchasing Avio’s space business.

In business for more than a century, Avio’s aviation sector generated 1.7 billion euros ($2.2 billion U.S.) in 2011. The 3.3 billion euro price tag represents a multiple of about 8.5 times Avia’s 2012 projected earnings before interest, taxes, depreciation and amortization, according to GE.

Avio supplies GE components for some of the aviation industries best-selling engines, ranging from commercial aircraft to civil and military helicopters. The parts supplied by Avio to GE include components for GE’s latest engine, the GEnx, which is used in Boeing Corp.’s (BA) 787 Dreamliner. GE expects the engines “to provide a profitable, long-term revenue stream for the company.” The acquisition also allots an opportunity for GE to pursue growth opportunities in other sectors, such as power generation and marine products.

“This acquisition is a great strategic fit with our existing portfolio. Avio has technologies, capabilities and outstanding engineers to help grow our business,” said David Joyce, president and chief executive of GE Aviation.

The acquisition is another move by General Electric to bring its suppliers closer to the vest. In October, GE struck a partnership with Mitsui & Company and in November a joint venture with Parker Hannifin Corporation (PH). Parker Hannifin, a producer of motion and control technology, is also a legacy tier one supplier for Boeing.

The GE acquisition of Avio is still subject to regulatory and government approvals.

Shares of General Electric closed Thursday at $21.05 and are ahead 20 percent in 2012.

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Companies

Symbol Name Price Change % Volume
BA Boeing Company (The) 131.28 -0.51 -0.38 815,015
GE General Electric Co 29.66 -0.23 -0.77 10,111,632
PH Parker-Hannifin Corporation 121.90 -0.03 -0.02 396,817

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