Industry Week in Review – October 14, 2011

In a competitive move to gain market share from rival General Electric and its CFM International partner Snecma, Rolls-Royce and Pratt & Whitney (“P&W”) have decided to create a new joint venture aimed at powering the next generation of 120 – 230 passenger aircraft that will eventually succeed the Airbus A320 and Boeing 737 aircraft families. Despite Rolls-Royce’s previously negative stance towards the geared turbo fan (“GTF”), the new joint venture (“JV”) will springboard off of current GTF designs, as Rolls-Royce and P&W believe this is the most likely starting point for developing future turbofan engines.

The aerospace industry was shaken by this unexpected announcement; however, the move has been seen as one of the few options left for CFM competitors.  After Boeing announced that it would follow Airbus and re-engine its 737’s rather than release a radically new design, Rolls-Royce and P&W quickly forgot their engineering differences and instead chose to collaborate.

Without this venture, GE and CFM’s exclusive deal with Boeing and its ability to offer package deals for both the A320 and A320neo may have pushed Rolls-Royce and P&W essentially out of the narrow body market, a market expected to reach $2 trillion including engine sales over the next 20 years.

Big Movers

Rolls-Royce Holdings (Up 15.4%) – Shares are up this week after the company announced a restructuring agreement and joint-venture with Pratt & Whitney.

EADS (up 12.3%) – Shares are up this week after Russia announced its need for 1,006 aircraft, valued at $95 billion, over the next 20 years. Airbus expects to supply at least half of all the deliveries.

Relevant Acquisitions

IBM Corp. to acquire Platform Computing Inc., a provider of cluster, grid, and cloud management software solutions for distributed computing environments. The acquisition strengthens IBM’s business analytics and optimization, as well as cloud computing capabilities. Terms of the deal were not disclosed.

CoorsTek, Inc. acquired BAE Systems’ Advanced Ceramics Business, a provider of lightweight ceramic armor systems for aerospace and aviation applications. The acquisition broadens CoorsTek’s customer base and expands its offerings in materials. Terms of the deal were not disclosed.

Stony Point Group, Inc. acquired Broadwing Air Repair, LLC, a provider of composite and sheet metal repair. Known particularly for its flight control surface and door repair, Broadwing’s capabilities and expertise in commercial aviation will be extended to other markets, including military and business aviation, and is consistent with Stony Point’s objectives for organic growth. Terms of the deal were not disclosed.

Click here to view the comparable company analysis.