WASHINGTON General Dynamics Corp. said Tuesday it will buy Jet Aviation for about $2.25 billion in cash, part of the defense contractor's push to expand its private civilian jet business and tap into robust demand for luxury planes overseas.
With the purchase, General Dynamics pairs its existing private-aircraft maker, Gulfstream, with Jet Aviation's global network of maintenance and service centers that can fix planes and outfit them with custom features for wealthy customers.
While General Dynamics is perhaps best known for its tanks, ships, submarines and other military equipment, it has significantly expanded its aerospace unit in recent years and now expects its fleet of flying business jets to double in the next decade to roughly 30,000 planes.
Analyst Cai von Rumohr of Cowen and Co. said in an investor note that the deal was a "great fit" for General Dynamics and its aerospace unit.
"Jet Aviation brings GD a complementary portfolio of services, global presence and 'trusted partner' image that should bolster potential to hold/expand market share of its Gulfstream products, particularly abroad," he wrote.
General Dynamics, based in Falls Church, Va., has seen orders for its Gulfstream jets grow in the past several years, as wealthy buyers from burgeoning areas like the Middle East and China have helped push international sales past those in North America, traditionally the largest market for private jets.
International orders at Gulfstream topped U.S. sales for the first time last year and the company recently introduced its largest and widest-ranging jet, the G650. Orders have been strong for the plane that costs roughly $60 million.
Jet Aviation, meanwhile, generates roughly 60 percent of its sales in Europe, Middle East and Asia and has 25 service and maintenance centers in Europe, the Middle East and North and South America. By comparison, General Dynamic's aerospace unit, which includes Gulfstream, has 12 service centers, with all but one located in the United States.
Last month, the Utah Governor's Office of Economic Development Board approved an $8.3 million incentive for Jet Aviation in an attempt to get operations that could result in more than 650 new jobs over 15 years in Ogden.
The company has not announced if it will act on the incentive. Phone calls Tuesday from the Deseret New to Jet Aviation to determine the potential impact of the General Dynamics deal on the possible future Ogden operations were not returned.
The incentive is for a facility at the Ogden-Hinckley Airport that would maintain, repair and overhaul business aircraft. The incentive is in the form of an $8 million tax credit and a $294,000 Industrial Assistance Fund grant. Board documents indicate the project would be a $6.9 million capital investment at leased space formerly occupied by now-bankrupt Adam Aircraft.
The acquisition announced Tuesday allows General Dynamics to take advantage of Jet Aviation's strong presence in the rapidly growing Persian Gulf region, which is in the midst of an aviation and infrastructure boom fueled by soaring oil prices.
Three years ago, Jet Aviation opened a 24-hour executive-jet service center at Dubai International Airport. The airport has grown into a key transit hub in recent years, thanks to the Gulf city's growing prominence as a business center and strategic location for flights traveling between Europe, Australia and the Far East. In April, Jet Aviation announced an aircraft management and charter partnership deal with Dubai-based private jet operator Elite Jets.
Nicholas Chabraja, General Dynamics' chief executive, said Jet Aviation's network is what drove the company's interest in the sale. "This is a business for us that is blessed with opportunity," he said.
General Dynamics expects Jet Aviation to contribute sales of $1.5 billion in 2009 and post revenue growth of between 10 percent to 12 percent, Chabraja said. The company employs 5,600 employees worldwide and has its U.S. headquarters are in Teterboro, N.J.General Dynamics will acquire all of Zurich-based Jet Aviation's shares from current owner Dreamliner Lux S.a.r.l., which is controlled by the British investment fund Permira Funds. The deal is expected to close by the end of the year if it clears regulatory scrutiny.
Contributing: Brice Wallace, Deseret News.