General Dynamics to buy Jet Aviation

 - August 28, 2008, 10:56 AM

Gulfstream Aerospace parent company General Dynamics has agreed to pay approximately $2.25 billion to buy Jet Aviation from the Permira Funds private-equity group. Subject to antitrust legal approval, General Dynamics’ acquisition of all Jet Aviation stock should be complete by year-end after Permira subsidiary Dreamliner Lux signed a SwF2.45 billion purchase agreement on August 19.

Permira bought Jet Aviation in October 2005 for an undisclosed sum (understood at the time to be in the region of $700 million) from its private shareholders (mainly the Hirschmann family). Earlier this year, there were rumblings that Permira intended to resell the company, but neither Permira nor Jet Aviation would confirm these reports at the time.

Jet Aviation will operate as an independent business unit of the General Dynamics Aerospace group. The Zurich-based company will continue to use its own brand name and that of the Midcoast Aviation FBO chain, which it acquired in March 2006.

According to a General Dynamics spokesman, the U.S. group sees the acquisition of Jet Aviation as a prime opportunity to give its existing flight support business a global dimension. Jet Aviation has 26 facilities throughout Europe, North and South America, the Middle East and Asia. General Dynamics Aviation Services currently has six bases in the U.S., in Las Vegas; Dallas; Minneapolis; Appleton, Wis.; Westfield, Mass.; and West Palm Beach, Fla.

Jet Aviation CEO Peter Edwards told AIN that General Dynamics intends to keep the group’s full product portfolio intact, including FBOs, aircraft maintenance and completions, as well as charter and management operations. Acknowledging possible legal issues relating to restrictions on foreign ownership of charter operators, he said that while “there may be some intricacies to look at in Europe” the new U.S. ownership of Jet Aviation might “simplify the charter certificate environment” in the U.S.

“We definitely want to keep the entire company [Jet Aviation] as a whole,” said Edwards.

Similarly, Edwards said that Jet Aviation will continue to work closely with all business aircraft manufacturers and their customers, despite the fact that it will soon have Gulfstream as a sister company. “Our independent support for the entire business aviation community allows for more rapid expansion into thin, developing markets because it is harder to get critical mass in developing markets with just one product,” he said. “The plan is to continue with our current orientation with the OEM community. We have invested many years in these relationships and we are telling OEMs let’s continue exactly as before.”

Jet Aviation is now targeting Brazil and India as platforms for further expansion of its service network, while consolidating its recently established new facilities in Moscow and Beijing. “With major backlogs there [in India and Brazil], the OEM community is requesting that we accelerate movement into these markets,” explained Edwards. “The support structure needs to be there ahead of the deliveries, and the key attraction in Jet Aviation for General Dynamics is that it has a unique position in setting up in developing markets and a clear objective to leverage power of the network.”

According to Edwards, initial feedback from Jet Aviation employees and customers about the proposed takeover by General Dynamics has been “overwhelmingly positive.”

“We are delighted to be acquiring Jet Aviation and partnering with the current management team to continue its success,” commented General Dynamics chairman and CEO Nicholas Chabraja. “Under the ownership of Permira, Jet Aviation has become a global market leader in business aviation services; as a unit of General Dynamics, Jet Aviation will support one of our core growth areas. Permira backed a period of significant capital investment in this business that drove rapid organic growth, and Jet Aviation strengthened its franchise globally through a successful acquisition strategy. As a result, the company is well positioned to capture further growth opportunities in the business aviation market.”

The sale of Jet Aviation is the fourth divestiture by UK-based Permira so far this year. The group has also sold its controlling stakes in satellite and communications companies, apparently as part of a growing trend for private-equity groups to seek to raise fresh capital by selling earlier investments to buyers from the industrial sector.