Piaggio sells one-third share to Indian firm

 - October 27, 2008, 12:05 PM

Tata Ltd., a UK-based subsidiary of India’s Tata Sons, has agreed to take a one-third share of Italy’s Piaggio Aero Industries, manufacturer of the Avanti II turboprop twin. The proposed investment by Tata Ltd., which was expected to receive regulatory and other approvals last month, includes the purchase of existing shares from current shareholders and a new share offering. The Ferrari and Di Mase families and the Mubadala Development Company of Abu Dhabi, UAE, the current primary shareholders of Piaggio, will also hold about one-third each of the Italian company when the deal is finalized.

“The future of Piaggio Aero is bright,” said Piaggio Aero Industries chairman Piero Ferrari at a press conference at the NBAA Convention last month in Orlando. “With the support of world-class investors and strategic partners like Mubadala and Tata Limited, I’m confident we can realize our full potential. We see ourselves as a big company and a big family. This is the most sensible thing we could do.” He explained that he met Ratan Tata, chairman of Tata Sons, “when Ratan was looking to buy a Ferrari. I told him about Piaggio and he became interested. He is interested in aviation and is a pilot himself.”

Under the agreement, Tata Ltd. will have three of the nine seats on the board of Piaggio Aero and one of the three seats on the company’s executive management committee. The increase in share capital, not disclosed, will enable Piaggio Aero to expand production rates, offer the Avanti II to new markets and develop new aircraft. The addition of Tata will help Piaggio establish a market presence in India, where the government plans to develop 500 operational airports by 2020. Today there are fewer than 100.

S.A. Hasan, director of Tata Ltd., said, “It was the business case that pushed the decision for us. There’s a burgeoning market for aviation in India. We can expertly talk of the India market, and Piaggio is on the cutting edge of aviation. Tata invests for the long term. As investors, anything we can do to support Piaggio, we will do. We have what it takes to make it work.”

Investment in Italy

The investment in Piaggio marks the first time that Tata Sons has invested in an aircraft manufacturer and is its first significant investment in Italy. The Tata Sons business group comprises 27 publicly listed companies that have expected collective revenue of $62.5 billion for 2007-2008, employs about 350,000 people worldwide and has 3.2 million shareholders. Sixty-one percent of its business comes from outside India. According to Hasan, India’s Tata family owns less than 3 percent of Tata Sons, while 66 percent of the group’s revenue goes to trusts that fund social causes, community projects and academic institutions. Jamsetji Tata founded the company in 1868.

Mubadala, established in 2006, bought a 35-percent stake in Piaggio Aero in April 2006 and holds a 5-percent share of Ferrari. Mubadala’s sole shareholder and source of capital is the Abu Dhabi government. Homaid Abdulla Al Shemmari, associate director of Mubadala, said in Orlando that the goal of his company is to establish an aerospace engineering and manufacturing base in Abu Dhabi. “Our involvement in Piaggio is helping us acquire capabilities we need.” Mubadala already owns stakes in Abu Dhabi Aircraft Technologies (100 percent), SR Technics (40 percent) and Horizon International Flight Academy (100 percent). The company has entered into a joint venture with Rolls-Royce to provide on-wing engine care and has a multi-faceted supplier agreement with EADS.

In the week following the NBAA Convention, Piaggio Aero appointed Taj Air, also part of Tata Sons, exclusive distributor for the Avanti II turboprop twin in India, Pakistan, Nepal, Bhutan, Sri Lanka, the Maldives and Mauritius. The Indian company will also establish a service center for the business/utility
aircraft at Mumbai International Airport. Piaggio Aero also announced orders
for two Avanti IIs from undisclosed Indian customers.