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Shares of General Electric (NYSE:GE) were off about 2 percent in pre-market trading on Friday following (but not necessarily because of) the company’s announcement that it will acquire the aviation business of Avio S.p.A.
“In the jet propulsion industry, Avio is a provider of low-pressure turbine systems, accessory gearboxes, geared systems, combustors and other components. Avio’s 2011 revenues in the aviation sector were €1.7 billion ($2.4 billion U.S. dollars) with more than 50 percent of that revenue derived from components for GE and GE joint venture engines,” according to the statement released by GE.
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The acquisition looks like a smart play aimed at capitalizing on the existing relationship that the two companies have developed over a number of years. GE adds, “Avio will strengthen GE’s global supply chain capabilities as its engine production rates continue to rise to meet growing customer demand.”
Pending regulatory approval, Boeing will acquire the aviation business for 3.3 billion euros ($4.3 billion), a price multiple of about 8.5x based on estimated 2012 earnings.
The acquisition looks like it could strengthen GE’s relationship with both Lockheed Martin Corporation (NYSE:LMT) and The Boeing Company (NYSE:BA), which GE has historically partnered with on both civil and military projects.
Outside of aviation, GE reports that “other opportunities hail from the oil and gas industry. Energy companies need rugged and powerful pumping transmissions that help compress and run as much as four million gallons of water into deep shale gas wells.”
Avio also produces components for the LM2500 and LMS100 gas turbines built by GE, which are two of the company’s most-used engines.
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