Graham Warwick & Ramon Lopez/WASHINGTON DC
General Dynamics' purchase of business jet supplier Galaxy Aerospace, following hard on the heels of its bid to take over shipbuilder Newport News, signals the US company's determination to balance the growth of its different sectors.
The cash deals, potentially worth almost $3.25 billion, also show the strength of GD's balance sheet. Even after the transactions, the company's debt will be well below that of the rest of the US defence and aerospace industry.
GD's acquisition of Galaxy and Newport News promises to be a shot in the arm for GD's Aerospace and Marine Systems sectors.
If approved by the US Government, the acquisition of Newport News for $2.1 billion in cash and the assumption of $500 million in debt will allow GD to consolidate nuclear shipbuilding for the navy. This will produce savings which the company hopes will allow the US to buy more nuclear warships.
A $1.8 billion unsolicited take-over bid by GD failed in 1999 in the face of opposition from the shipbuilder and the US Department of Defense. This time, GD has New-port News' support and does not expect government opposition.
Newport News is the sole US builder of aircraft carriers and is teamed with GD's Electric Boat division on the navy's new nuclear submarine programme. Based on 2000 results, the merger will boost GD Marine Systems' revenues by 60%, to at least $5.5 billion.
Whereas the Newport News merger will allow GD to extract more money from a flat nuclear ship market, the purchase of Galaxy for $330 million (plus a possible $315 million by 2006, contingent on achieving certain revenue goals) catapults the company into a high-growth sector of the business jet market. Backed by a 100-aircraft deal with Executive Jet, GD Aerospace expects to increase sales of the Galaxy super mid-size jet.
The company also expects its Gulfstream subsidiary to benefit by capturing a bigger share of customers moving up from mid-size jets to large-cabin aircraft. Maintenance of Galaxy-supported business jets, meanwhile, is expected to boost revenues at newly-formed GD Aviation Services.
Galaxy is forecast to generate revenues of $635 million in 2002, and to increase GD Aerospace's revenues by 24% in 2004.
Source: Flight International
