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Avio Space Could Be Sold This Summer

Jun. 3, 2014 - 12:44PM   |  
By TOM KINGTON   |   Comments
Sale Takes Off: Avio Space builds the Vega launcher. UK fund Cinven owns 86 percent of the firm, and Italy's Finmeccanica owns the balance.
Sale Takes Off: Avio Space builds the Vega launcher. UK fund Cinven owns 86 percent of the firm, and Italy's Finmeccanica owns the balance. (Avio Space)
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ROME — After being held up for months, the sale of Italian satellite launcher builder Avio Space could get underway in July and form a key element in a predicted consolidation of the European launcher market, officials have said.

The firm, which is 86 percent owned by UK fund Cinven and 14 percent owned by Italy’s Finmeccanica, could yet be bought by Safran, Airbus, Finmeccanica or a combination of partners. But if the “who” is still uncertain, the “when” is looking more certain, thanks to a series of political and corporate changes in Italy.

“All the changes seem to suggest July is when the decision will be made,” said a source knowledgeable of talks about the firm.

Avio’s space activity, which includes the small Vega launcher, has been up for sale since Cinven and minority partner Finmeccanica split off and sold Avio’s main activity — aircraft engines — to General Electric in 2013. Cinven and Finmeccanica held onto Avio Space while state-controlled Finmeccanica mulled whether to use an option to buy out Cinven’s shares and keep the firm.

Finmeccanica reportedly had until October 2013 to decide, but the date came and went with no sale. Because Avio Space is a strategic Italian firm, the Italian government was expected to weigh in on its future, but with no decision forthcoming, Cinven was kept from concluding the sale.

In the meantime, Safran and Airbus made non-binding offers worth around €300 million (US $408 million), but said they would also be prepared to be minority partners with Finmeccanica.

In November, Alessandro Pansa, then-CEO of Finmeccanica, said the firm planned to hold onto its stake and possibly increase it, choosing an international partner.

In April, Safran Chief Executive Jean-Paul Herteman said the firm was still interested.

But only now are conditions ripe in Italy for a sale, the source said.

The relatively weak coalition government headed by Enrico Letta last year has since been replaced by a stronger center-left government run by Matteo Renzi, which won a landslide victory on May 24 in elections to the European Parliament. The vote could give Renzi’s government the confidence to make a series of decisions, including the Avio sale.

Secondly, Finmeccanica has a new CEO in place, Mauro Moretti, who was named in April to replace Pansa. Although he is meeting with the heads of Finmeccanica units and getting to know the company, Moretti will need to make key decisions soon.

In a letter to staffers, which was published on May 28, Moretti said his focus would be on “creating value,” pointing out that the firm would have lost €558 million last year if not for the sell off of its stake in energy unit Ansaldo Energia.

A third reason for an Avio deal in July, said the source, is that the Italian Space Agency, which is a major customer for Avio Space, has also just appointed a new president.

Former chief Enrico Saggesse stepped down in February following a probe into alleged corruption at the agency. Saggesse said he would step down to clear his name. He was temporarily replaced by a special commissioner, Aldo Sandulli, while senior Italian physicist Roberto Battiston was named as a permanent replacement on May 16.

Finally, a preparatory session will be held in July ahead of a scheduled December meeting of European Space Agency ministers about Europe’s space launch capacity.

“Italy must decide what to do with Avio by the July meeting,” the source said.

The meeting will focus on Europe’s next generation Ariane 6 launcher, envisioned as using solid propellant. Since Avio has already developed solid propellant technology for its Vega launcher, the firm could be handed a key role in the development of Ariane 6, the source said.

Additionally, the launch sector is due for major “reshuffling,” Airbus CEO Tom Enders said on May 24.

“And not just the industry part but what the government agencies do, in order to make that a profitable healthy business going forward,” he told Reuters.

Enders said Europe needs to bring prices down to compete with the likes of US entrepreneur Elon Musk, who is offering low-cost launches.

“We either much improve and integrate our industrial structures or we’ll become irrelevant,” he said.

“If there is a big bang coming in the sector then Italy may take full control of Avio Space in order to have greater role in consolidation in the business,” the source said. “If that consolidation is not going to happen soon, then Italy might bring in a partner to provide the skills it needs to compete in the launcher market.”

Another determining factor in whether Italy buys control of Avio is whether the Italian government wants to continue funding space launches, the source said.

“Right now, the Italian government is not providing funding to cover launchers, and military observation satellites and communications satellites. It will need to choose, and Finmeccanica needs to know what that choice is,” he said. ■


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