General Dynamics to Boost Gulfstream With Jet Aviation Purchase
Wednesday, August 20, 2008
General Dynamics, a Falls Church defense contractor, said yesterday that it will buy a Switzerland-based aircraft service provider for about $2.25 billion in cash, a deal aimed at boosting its Gulfstream jet business.
The deal to buy Jet Aviation gives General Dynamics a larger foothold to provide maintenance, repair and other services on aircraft at facilities around the world. Jet Aviation has 5,600 employees at 25 facilities in Europe, the Middle East, Asia and the Americas -- locations where General Dynamics does not have many operations.
"Our ability to service the jets in parts of the world where we're selling still lags our ability to sell and manufacture them, so we wanted to change that," chairman and chief executive Nicholas D. Chabraja said in an interview. "Our principal interest in this was getting more into the maintenance, repair and overhaul business."
General Dynamics bought the Gulfstream business unit in 1999, and since 2004, sales to customers in Asia and other countries have risen rapidly. Last year, the company said that more Gulfstream sales were outside North America than inside, as planes were sold in places such as the Middle East.
For the first six months of this year, the company said revenue in its aerospace division, which includes Gulfstream sales and servicing commercial aircraft, was $2.6 billion, compared with $2.3 billion for the same period in 2007. Executives have said that they expect aerospace revenue for this year to outpace last year's $4.8 billion.
The company has six service centers for Gulfstream jets: one in the United Kingdom and five in the United States, including one in Savannah, Ga., where many of the planes are manufactured.
"I can't keep telling people, 'Bring your plane to Savannah to get it worked on,' " Chabraja said. "We sell Gulfstream jets in Russia, China and India and we need to be present there."
General Dynamics hopes to close the deal by the end of the year. Spokesman Rob Doolittle said the company expects Jet Aviation to generate $1.5 billion in sales in 2009.
Jon Kutler, an investor in privately held aerospace and defense companies, said that the General Dynamics acquisition is a sign of how large defense companies are focusing on making "niche acquisitions.''
"This is adding another leg onto what General Dynamics has done in business jet aviation," said Kutler, who is chairman and chief executive of Admiralty Partners in Santa Monica, Calif. Kutler and other defense industry analysts said General Dynamics may also be positioning itself for a possible cyclical downturn of Gulfstream sales.
"When the cycle changes and people are buying fewer jets, they are still going to want to service the outstanding fleet," he said.