UK industry league reshapes

Kevin O'Toole/London

While attention focuses on the place of the UK's major aerospace players within Europe, the second tier of companies have been busy with their own restructuring further down the home league.

With most of the annual results now in, there are clear shifts in the UK league table as acquisitions and disposals make their impact felt. Analysts believe the trend will continue as UK aerospace companies and their parent engineering groups come under pressure to make the most of the opportunities presented by the current boom.

Among the high profile sellers has been the Hunting group and its programme of disposals within its loss making civil aviation division. Seven businesses have now been sold, including the aircraft interiors unit, where heavy losses first sparked the sell-offs over a year ago. The biggest sale to date came with the disposal of the Hunting Airmotive engine overhaul business in mid-March.

The remaining units include the cargo airline, aircraft engineering and contract services operations. It now looks as though all of these may go as Hunting presses ahead with disposals, although the group has said that any remaining units will be put into the defence division, with its lucrative outsourcing business. A key British Army training contract won by its Contract Services arm has already been transferred to defence.

Once the disposals are complete, Hunting will be increasingly focused on its core oil services business, with some analysts speculating about the logic of a sale for its profitable defence division.

TI Group has also been a seller, after reluctantly accepting the disposal of its share in the Messier-Dowty landing gear business to joint venture partner Snecma. The landing-gear overhaul operation is also following, leaving a Dowty division mainly focused on the engine component and actuation markets.

Although the TI Group is under heavy pressure to make new engineering acquisitions to put growth back on track, the management has expressed concern over the prices being asked in the aerospace sector. Chairman Sir Christopher Lewinton says that there are no plans to sell the remaining Dowty business, which is now helping to bolster group profits. Analysts at Salomon Smith Barney, however, believe that a sale could begin to make sense as aerospace markets turn down after 2000 and the group develops new businesses to take Dowty's place.

Smiths Industries is in a similar position, with the need to acquire, but few obvious aerospace targets that would not affect the strength of the group's balance sheet and profits. The aerospace business is growing strongly, however, thanks to the boom in the airliner market, which it reckons will last until 2000. Military markets are then expected to soften the blow when the civil downturn does come.

Among the potential emerging aerospace purchasers are LucasVarity. With the automotive parts group now over its post-merger sort-out it appears that Lucas Aerospace is again being targeted for growth. The last of the troublesome US aerospace units went with the sale of the Geared Systems unit, while over the last six months the group has been on the acquisition trail. That included the purchase of Boeing's cargo systems business in October and the Smiths engine controls unit in July, later backed up by a contract to supply controls for the Rolls-Royce Trent.

Lucas Aerospace managing director Ken Maciver says that the group has given clear backing for the unit to remain a major force in the systems and cargo business.

Meanwhile, Cobham has continued a long running acquisition spree that has doubled sales since its days as the FR Group. Analysts believe that the growth will continue in double digits over the next couple of years, helped by new contracts and last year's acquisition of ML and despite the sale of the non-core Hymatic unit.

Other groups are coming up fast, including Ultra Electronics which has been recording heady growth in its niche air and sea systems businesses, aided by bolt-on acquisition such as Flightline and EMS last year.

UK AEROSPACE COMPANY RESULTS (£ million)

Note: * Annual figures are to end of December except ** Smiths Industries (July) and Lucas (Jan). GEC and Racal have yet to report for their years to the end of March. *** TI Group has agreed the stake share in Messier-Dowty and associated overhaul business to partner Snecma. Figures in brackets are for the whole of the two businesses, other figure are for TI Group share. **** Cobham division margins at pre-tax not operating level.

Source: Flight International