Feature

Changing dynamics of MRO Mergers and Acquisitions

As majority of the aerospace market is focussed in US, several tier suppliers are penetrating the US markets through M&A.
In what seems to be like one of the largest mergers in the aviation industry, AerCap completed the acquisition of GE Capital Aviation Services business (GECAS) from General Electric.

The COVID 19 pandemic completely changed the dynamics of aerospace industry. As the world is slowly getting adjusted to new normal norms, we decided to take a plunge into the major aerospace mergers and acquisitions that took place in the pandemic year. Earlier the mergers and acquisitions were most for the purpose of cost savings and synergies. However today this market focuses on new product deliveries and robust market expansions into emergent MRO markets like Asia and Middle East.The acquisitions are used to gain new capabilities, access emerging technologies, and geographic expansion.

As majority of the aerospace market is focussed in US, several tier suppliers are penetrating the US markets through M&A. The M&A activities are also increasing in the Asia-Pacific region as several OEMs are opening manufacturing facilities in Asia. Let us look at some major M&A deals in the year since the pandemic started.

In what seems to be like one of the largest mergers in the aviation industry, AerCap completed the acquisition of GE Capital Aviation Services business (GECAS) from General Electric. This merger not only positions AerCap as the worldwide industry leader across all areas of aviation leasing: aircraft, engines and helicopters but will have large scale implication in commercial aftermarket. Commenting on this milestone CEO of AerCap, Aengus Kelly said, “Completion of this transaction represents an important milestone for AerCap that will generate benefits for our customers, partners, employees and investors for many years to come. In GECAS, AerCap has acquired the right business, for the right price, at the right time, as air travel continues to recover from the pandemic and demand for aircraft leasing continues to accelerate.”

Focussing on overall growth and expansion, this acquisition will serve approximately 300 customers around the world and will be the largest customer of Airbus and Boeing.

Many M&A take place to serve the growing aviation business and meet customer demands on time, like the acquisition and integration of Signature Aviation by StandardAero. Before the actual merger many companies cover the basic ground rules for a successful deal like the establishment of an Integration Management Office (IMO) and appointing a dedicated team to drive the work and execute the action plan. Commenting on this merger Tony Brancato, President of StandardAero Business Aviation said, “In addition to forming a dedicated IMO, we utilized processes and lessons learned from our prior acquisition of Vector Aerospace several years ago. We have learned that having a multi-disciplinary IMO is very important and using a disciplined, evidence-based approach ensures that there are adequate change management processes.  Our overall goal is to blend the best practices from both of our companies and emerge as a smarter, stronger and better collective team.”

As a part of their robust expansion plans into Asia and to serve the OEMs in Asia-Pacific StandardAero acquired Singapore-based component repair facility, Asian Surface Technologies Pvt Ltdby signing an agreement with Pratt & Whitney and SIA Engineering Company Limited. In 2017, StandardAero acquired PAS Technologies including a 40.8 per cent stake and management control of AST.  The transaction marks the final acquisition of 100 per cent ownership of AST.

Image Courtesy – StandardAero

XOJET Aviation has acquired a minority stake in Talon Air as a part of Vista Global Holding’s acquisition of Apollo Jets. Talon Air will complement XOJET’s capabilities and infrastructure to help them keep improving services in the market. Excited with this new acquisition, Kevin Thomas, XOJET Aviation President & COO, said, “Through this acquisition we will expand our global flight solutions offering and leading safety standards. We will be drawing on Talon Air’s leading aircraft management expertise and will integrate their knowledge into XOJET’s flight solutions. Their state-of-the-art facility and headquarters outside of New York provides us with additional infrastructure and a full staffed in-house aircraft maintenance team in of one the busiest aviation hubs in the world.

Certain companies like the GA Telesis have further broadened their definition on M&A and customised it as per their requirements. In 2020, they came up with a plan called Turbine Vision 2020 in which they will integrate M&A, Greenfield projects, and new OEM alliances with the vast array of know-how in the area surrounding jet engine technologies. TV 2020 will consolidate all aspects of component, hospital, and complete engine MRO services into integrated offerings, supported with maintenance financing programs.

Aerospace logistics companies are also entering into the M&A field to expand into the ever-increasing e-commerce Asian market. Kuehne+Nagel struck a deal with Apex International Corporation, one of Asia’s leading freight forwarders, especially in transpacific and intra-Asia. Commenting on this deal, Dr.DetlefTrefzger, CEO of Kuehne + Nagel International AG, said, “The combination of Apex and Kuehne+Nagel provides us with an opportunity to offer our customers a compelling proposition in the competitive Asian logistics industry, especially in e-commerce fulfilment, hi-tech and e-mobility. We are looking forward to welcoming the Apex colleagues to the Kuehne+Nagel family.”

Essex Industries expanded their business portfolio by the acquisition of Stevens Manufacturing in Milford, CT as the strategic location will provide improved services for theirNorth Eastern customers. While certain acquisitions like that of Jet Parts acquiring AeroSpares worked as symbiotic relationships. Jet Parts provided customer service, technical capabilities, and sales reach while AeroSpares focused their efforts on providing improved reliability with the products.

Some companies offered to sell a part of their shares due to COVID-19 pandemic, like SR Technics has announced the sale of its design engineering solutions department to groWING.aero effective October 1st 2020.  With this SR Technics primary focus will be engine services and maintenance in Switzerland.

Another major acquisition was the sale of Bombardier aero structures business to Spirit AeroSystems. Spirit became the owner of Bombardier’s aerostructures activities and aftermarket services operations in Belfast, U.K.; Casablanca, Morocco; and its aerostructures maintenance, repair and overhaul (MRO) facility in Dallas, US in exchange for cash consideration of USD 275 million.

Defense M&A

The dynamics of defense M&A are completely different as the chances radically increaseif it involves smaller players or those focused on tangential industries, like the United Technologies-Raytheon merger. Recently CAE acquired L3 Harris Military Training business for USD 1.05 billion thereby expanding their position as a platform-agnostic training systems integrator by diversifying CAE’s training and simulation leadership in the air domain, complementing land and naval training solutions, and enhancing CAE’s training and simulation capabilities in space and cyber. Since the start of the year, CAE’s main focus was on acquisitions as it completed four major M&A deals in the first quarter of 2021 thus demonstrating CAE’s commitment to thoughtfully deploying capital to broaden the company’s position across key markets. Commenting on the robust M&A plans Marc Parent, CAE’s President and Chief Executive Officer said, “The proposed acquisition represents a significant value creation opportunity for all CAE stakeholders. It accelerates our growth strategy in Defense and Security and is highly complementary to our core military training business, broadening our position in the United States. We are adding new customers, experience on new platforms and building our depth of expertise to address all domains – air, land, sea, space and cyber – as well as expanding into adjacent markets such as mission and operations support. This proposed transaction will provide greater balance to CAE across businesses and geographies, and like our recent acquisitions in the civil aviation market, it demonstrates our focus on bolstering and expanding our position in the markets we serve. We are making investments with a view to emerge from the pandemic stronger and prepared to meet the growing demands of our customers.”

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If we look at the broader picture, Mergers and Acquisitions has emerged as a commercially viable business strategy as it helps the participants enhance their technological know-how while dividing the risks associated with technological disruptions.While this is good news for the industry, aerospace and defense companies must understand the nuances of this change and prepare for the challenges and opportunities that result in executing a merger or an acquisition. For example, acquiring companies or investors must consider how to value a company that has a short financial track record, or has few competitors, or is in a country in which they have not previously operated. Integrating overseas has its own hurdles, potentially resulting in inefficient operations and failure to realize acquisition benefits.