It is a time of unprecedented change in Europe's aero engine industry. Snecma, the French propulsion giant that owns Turbomeca and ranks No.4 in the world, has just merged with Sagem to form Safran. MTU, the German company that ranks No. 5 without building a single engine bearing its own name, has just been launched on the public scene with an IPO by investment bankers Kohlberg Kravis Roberts. And Italy's aero engine industry under the umbrella of Avio is dressing itself up for an IPO next year.
But there is little sign of consolidation behind all this activity.
"We are experiencing a period of great change, and we believe our strategies are both sound and robust within this scenario," says Avio CEO Saverio Strati. "We have well-defined strategies that we are carrying out with determination."
Avio, says Strati, is holding firm in its resolve to maintain leadership in its core areas of expertise, which include gearboxes and transmissions, low pressure turbines, space propulsion, and combustors.
"We are a world leader in the subsystems that we design and produce ourselves," says Strati, who notes that 14% of the company's staff work in R&D.
Avio has positioned itself well on powerplants for virtually every major program for the next couple of decades, including the A380, Boeing 787, Eurofighter, Joint Strike Fighter, Russian Regional Jet, and the Aermacchi M-346 trainer. It estimates its business on the A380 alone (it supplies gearboxes for the Rolls-Royce Trent 900) will be worth 1.2 billion euros over the life of the program, based on a total of 2,000 gearboxes.
And even while prepping for an IPO, Avio has been on the acquisition trail. Earlier this month it acquired an 80% share of the aeronautical operations of Philips Aerospace, the Eindhoven-based Dutch company that has been active in the aerospace sector since the 1960's and in recent years has specialized in High Tech Machining processes. Philips Aerospace produces complex components for the world's leading Aerospace manufacturers such as General Electric, Boeing, Rolls Royce, Lockheed Martin and BAE Systems.
"For us, this is a strategic investment," says Strati, "as DutchAero is responsible for a significant share of the F136 engine for the Joint Strike Fighter." The acquisition is Avio's second in Northern Europe (it already owns Avio Polska), where it intends to be more present.
Space is also a key element of Avio operations, since the company holds 70% of ELV Co.—the Italian Space Agency holds the remaining 30%. ELV Co. is leading the development of Vega, a European small satellite launch vehicle, which is slated for first launch towards the end of 2007.
One area that is taking a back seat at Avio is its MRO business, which it had hoped to grow internationally, and especially for components it produces itself. Now "it is an activity in which we do not foresee growth," says Strati, although it is now breaking even—an achievement attained, he adds, in a very short time. "We intend to maintain our presence in this sector without seeing any significant changes at the moment," he says. —John Morris
Powering the U.S. Presidential helicopter was a major win not only for GE Aircraft Engines, but also Avio of Italy, which owns 40% of the latest T700 turboshaft chosen for the US101.
But in a strange twist of circumstance Italy's main player in the aero engine industry is not only U.S.-owned, but is owned by a company that has strong ties with the father of U.S. President George W. Bush.
Avio was purchased from Fiat in September 2003 for 1.6 billion euros by Finmeccanica (30%) and The Carlyle Group (70%). The latter is known as the investment fund for former world leaders and Washington insiders including former U.S. President George Bush and former British Prime Minister John Major. The Carlyle Group, which claims no other motive than good investment, plans to take Avio public with an IPO in 2006.
"There is a window in 2006, possibly the second half of the year," says Avio CEO Saverio Strati.
In the meantime, Carlyle is pushing Avio to maximize its potential for the public launch.
"Company results are good, and we are repaying the debt contracted at the moment of the leveraged buyout much faster than at first planned. This allows us to look at a market listing with confidence," says Strati.
He is unable to say how Finmeccanica fits into the future plans. The Italian industrial complex has previously said aero propulsion is not one of its core businesses, and it will have to weigh its investment opportunities in Avio versus national considerations of whether Italy needs to maintain a stake in its own aero engine industry.
Avio, says Strati, is holding firm in its resolve to maintain leadership in its core areas of expertise, which include gearboxes and transmissions, low pressure turbines, space propulsion, and combustors.
