French aerospace and defense group Safran is in talks to buy the flight controls unit of U.S.-based Raytheon Technologies, in what would be the engine maker’s first major acquisition since seat maker Zodiac in 2018.
Raytheon is one of the Pentagon’s top five “prime” contractors, with businesses including its defense and missile business, engine maker Pratt & Whitney and Collins Aerospace.
Safran confirmed on Monday that it was in talks for the unit, which makes mechanical actuators used in flight controls for most commercial aircraft models, as well as several military aircraft. It declined to say what valuation was being discussed as part of a bidding process open to other parties.
Bloomberg, which first reported the discussions with Safran, said the deal valued the unit at about $1 billion. The deal would be Safran’s first major deal since buying Zodiac worth almost 9 billion euros.
“It is not possible at this stage to assess the likelihood of any agreement being reached,” Safran said in its statement.
Analysts at Jefferies said the underlying “low-margin, low-aftermarket nature” of the business was a “potential negative, as any acquisition by Safran would compete with share buyback potential”. The unit expects sales of $1.3 billion and earnings of $106 million in 2024.
“Low aftermarket content would go against one of the key criteria for a Safran M&A: a strong aftermarket; high barriers to entry; profitable growth,” Jefferies analyst Chloe Lemarie confirmed at the French company Its interest was later expressed in a report.
Safran “may still be interested because it could create some synergies with its equipment business by integrating these mechanical actuator functions into its flight control systems,” Lemarie added.
Raytheon declined to comment.
Safran’s Zodiac deal ended up being a tortuous process involving a fight with activist hedge fund The Children’s Investment Fund, which launched a campaign in 2017 to drop a bid it deemed too generous.
Safran eventually cut its initial offer by 1 billion euros after a series of profit warnings from Zodiac. The deal is transformative for Safran, bringing together two major aerospace suppliers and making it one of the world’s largest equipment makers for the industry.
The aerospace industry has been hit hard by the Covid-19 pandemic since 2018 and is still grappling with supply chain and raw material issues as demand from aerospace customers increases again.