Surging growth in the use of composite materials for primary and secondary structures in commercial and general aviation aircraft could be about to spark a new wave of mergers and acquisitions in the aerostructures industry.
“We expect the volume [of mergers and acquisitions] to pick up,” said Richard Phillips, director of investment banking service provider Houlihan Lokey Howard and Zukin, at a recent Speednews conference in Los Angeles. “Expect a lot more composite transactions because traditional ‘metal bender’ companies will need a technology edge,” he added.
This could trigger a fresh wave of consolidation throughout the aerostructures sector and help the industry towards what observers already predict will be an increasing trend for transpacific mergers and acquisitions. Big players in the advanced materials business include Cytec, Hexcel, Toho and Toray, with a large subset of smaller companies providing composite structure capabilities.
At the Speednews conference Phillips said recent transatlantic activity, comprising acquisitions of US companies by European entities, showed signs of reversing in 2005 with the US dollar increasing in strength against the euro and UK pound. “With the dollar gaining strength, European acquisitions may become more attractive for US acquirers,” he said.
There were 20 US aerospace and defence company acquisitions by European groups and companies in 2004, against nine in the other direction. In 2005, the picture was reversed with around 19 US acquisitions of European companies, and only 12 European purchases. To date in 2006, the USA continues to lead with more than 22 mergers and acquisitions, against 17 European acquisitions.
Top transatlantic transactions by US companies include Eaton’s $270 million purchase of Cobham’s Fluid and Air Division in September 2005 and L-3’s $150 million takeover of SAM Electronics of Germany in January last year. Top European-led acquisitions include BAE Systems’ $4.2 billion acquisition of United Defense Industries in June 2005 and Zodiac’s $600 million acquisition of C&D Aerospace a month earlier.
In the aerostructure field, US-based Spirit Aerosystems in February agreed to buy BAE Systems’ UK-based aerostructures unit for £80 million ($142 million), bringing Airbus contracts within reach of the formerly Boeing-owned Spirit, but also representing a major transatlantic USA to UK deal affecting the structures business. The deal also follows the pattern of recent moves that have seen primes selling manufacturing facilities to focus on final assembly and systems integration.
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Although the transatlantic mergers and acquisitions arena is expected to “remain strong”, Phillips believes the globalisation of the supply chain and the massive wave of aircraft orders from Asia is eventually likely to “result in more transpacific mergers and acquisitions activity”.
The soaring prices of many metals employed in aerospace is bolstering the trend towards increased use of composites, but this in turn could lead to a supply squeeze as demand for carbonfibre outstrips supply. There has been a “pretty significant shortage of carbonfibre, and prices have risen, though not at the same rate as those of metals”, says Carmelo Lo Faro, product development manager for Europe at composite specialist Cytec Engineered Materials.
Prices have increased between 10% and 50% in the last five years, leaving standard modulus 6k fibre at between $12 and $15/kg and intermediate modulus 12k at between $16 and $19/kg, he says. Significant consolidation and capacity expansion has already taken place, as the industry has fought to keep up with rising demand, but Lo Faro argues that manufacturing process improvements are also needed in the composites industry.
The booming demand for composites is also leading to the establishment of new facilities. UK-based Umeco is building new carbonfibre plants, one of which will be dedicated to Boeing projects.
“Demand is ramping up at such a rate that supply is well behind,” says chief executive Clive Snowdon. Umeco is looking at further acquisitions in the composites arena as it seeks to broaden its product range on a global basis, targeting in particular cabin interior products.
GUY NORRIS / LOS ANGELES & HELEN MASSY-BERESFORD / LONDON
Source: Flight International
