December 24, 2012
General Electric is pulling more aero engine technology under its roof with the $4 billion purchase of Avio SpA, the Italian transmission, gearbox and turbine specialist that is simultaneously helping GE and rival Pratt & Whitney develop some of the era's biggest commercial engine programs.
Formal announcement of the deal was expected Dec. 21 in Naples, although it must pass European and U.S. antitrust approval. BCV Investments owns the controlling interest in the Avio Group, which is managed by Cinven and Finmeccanica.
Besides strengthening GE's control over its manufacturing capacity, the Avio purchase also helps ensure the integrity of the Evendale, Ohio-engine maker's intellectual property. When prime contractors bring in risk-sharing partners on new product development, they spread their financial risk. At the same time, they increase the possibility that their intellectual property will drift away. Strict controls of IP are every manufacturer's goal. There is no suggestion in the Avio purchase that IP has been a problem.
But the manufacturing process has become so complex that primes often must share IP with key suppliers—and vice versa—in order to derive all the advantages of including a specialist manufacturer into the fold of design and development.
With demand for its engines higher than ever, GE Aviation is stepping past potential IP problems while increasing the vertical integration of its manufacturing base by capturing the skills sets of suppliers through acquisitions or joint ventures. Its joint venture with Safran Group's Snecma unit that created CFM is its template for industrial cooperation.
The Avio announcement is another in a string of acquisitions and joint ventures GE has made in just the past two months. They include a JV with Parker Aerospace to develop an advanced fuel-nozzle technology center in Clyde, N.Y., and the acquisition of Morris Technologies and Rapid Quality Management of Cincinnati, to expand GE's use of additive technology and advanced machining for combustion chambers.
More expansion is anticipated. In a matter of weeks, GE is expected to complete the permitting process for two additional engine test cells, one at its main Peebles, Ohio, test and development center and another at an unnamed facility outside the state. The company has ramped up its capacity in composite fan blade production by adding two factories in Mississippi. And in the next few weeks, it is expected to announce a deal that will take it in quite a different direction—a joint venture to produce specialty forgings.