Watch out, Northrop Grumman, General Dynamics is getting back into the aircraft business. The company that dumbfounded the industry, when it spectacularly and lucratively dismembered itself in the early 1990s, is confounding observers by reassembling itself.
GD's agreement to acquire business jet manufacturer Gulfstream has surprised most and puzzled many - and invited speculation about where this latest acquisition spree could take the erstwhile defense and aerospace giant.
The acquisition makes financial sense, even if it makes nonsense of GD's historical actions. Gulf- stream is financially healthy, with strong cashflow and a solid backlog. With sales of $2.4 billion last year, it makes a suitably sized companion for GD's existing $2.7 billion warship and $1.3 billion armoured vehicle businesses.
But Gulfstream is an aircraft manufacturer, and a civil one to boot. Didn't GD get out of all that in the early 1990s? It sold Cessna - another business jet manufacturer - to Textron in 1992, its F-16 production line to Lockheed in 1993, and its MD-11 fuselage line to McDonnell Douglas in 1996.
That was not all the company sold at the time. In a break-up that made its shareholders very wealthy, the company offloaded its missile business to Hughes and its space launcher business to Martin Marietta, as well as getting rid of its defense electronics unit.
GD was almost single-handedly responsible for setting the stage for consolidation of the US aerospace industry. Bolstered by their initial acquisitions, Lockheed and Martin Marietta went on to merge, Raytheon acquired Hughes defence activities and McDonnell Douglas merged with Boeing.
That left GD as a tank and warship builder. When its bid to acquire the USA's only other nuclear submarine maker, Newport News, was blocked earlier this year by a US Department of Defense, which had lost its appetite for rationalisation, it was only a matter of time before the company looked elsewhere. It is already the USA's only main battle tank maker, so the bets were on GD acquiring in the defence electronics area, to boost its $800 million information systems business.
GD has been busy in that arena, buying Computing Devices in 1997. Now the company is in the running to buy GTE's defence electronics assets, which would make its information systems sector equal in size to its marine, combat and aircraft system groups.
Returning to civil aircraft was not something analysts expected of GD. The company now views selling Cessna as a mistake, but points out that GD was worth only $1 billion when the business jet manufacturer was sold for $600 million. Cessna now has a backlog to rival Gulfstream's.
It is worth noting that GD also once owned Canadair, which went on to form the core of Bombardier, Gulfstream's major rival. The sale of Canadair to the Canadian Government was the catalyst for development of the Challenger, the base from which Bombardier built itself into the world's third largest civil aircraft manufacturer. GD's actions have a history of producing unforeseen consequences, it seems.
It is hard to predict where GD will go next in the aviation world. Gulfstream may be enough involvement in the aircraft business for now, or it could form the core of a much bigger operation. GD may try to pry other business aircraft manufacturers away from their present owners, but if Gulfstream is any guide the price is likely to be high.
Or GD may get more ambitious. A merger with Northrop Grumman (which makes the Gulfstream V wing, incidentally) would create - or is it recreate? - a defence and aerospace giant to rival Lockheed Martin and Raytheon.
But this is only wild and idle speculation. What can be said is that, whatever GD's next move, history suggests it is sure to be one worth watching. Meanwhile, the one certain winner in this saga is investment firm Forstmann Little which for a $200 million investment in Gulfstream in 1990 will realise $3 billion from the sale and previous transactions - that's a return the industry can only dream about.
Source: Flight International
