By Augustin Turpin and Tim Hepher
(Reuters) -France's Safran (EPA:SAF) said on Friday it had agreed to buy a supplier of critical cockpit functions from Collins Aerospace in a cash deal valuing it at $1.8 billion, as it prepares for the next generation of increasingly computerised aircraft.
The deal to buy Collins' actuation and flights controls business marks the French engine and aircraft equipment maker's biggest acquisition since the 2018 purchase of seat maker Zodiac.
It targets a growing market for actuators, which convert electronic instructions from the cockpit to the physical movement of parts to help control aircraft, for example by providing extra lift during landing.
"We are going to move towards more electrical actuation and flight controls," Safran's Chief Executive Officer Olivier Andries said.
Collins Aerospace, part of U.S. aerospace and defence giant Raytheon (NYSE:RTN) Technologies, recently renamed RTX, said the sale would "optimize resources".
Safran said its all-cash offer gave the business it is acquiring an enterprise value of $1.8 billion.
Safran has an eye on potential successors to the most-sold jetliner models, the Airbus A320 and Boeing (NYSE:BA) 737, which are expected in the middle of the next decade, meaning key decisions on long-term parts relationships are expected around 2030.
The deal will "position us more strongly for the next game in play," Andries told analysts, adding that the future designs would rely on a hybrid of electrical and hydraulic systems.
But some analysts questioned whether the business was generating fat enough margins in a sector heavily reliant on the lucrative market for after-sales repairs and maintenance.
Safran acknowledged margins had been depressed during the pandemic but estimated the business would make a gross profit of $130 million on sales of $1.5 billion in 2024.
It also sought to allay concerns that the deal would limit the prospect for share buybacks, with Chief Financial Officer Pascal Bantegnie telling analysts that returning cash to shareholders remained high on the Safran board's agenda.
Shares in Safran were flat to slightly lower in early trading against a fractionally higher European market.
F-35 ROLE
Safran said the purchase would boost earnings per share from year one and that it expected the final closing to take up to 18 months, following negotiations with antitrust authorities.
"I would not exclude that we might have some very small- scale divestitures to do in some places, but that would not be meaningful in my view," Andries said.
Acquiring the business would make Paris-based Safran - which supplies engines for the French Rafale fighter - a supplier for the rival American F-35 fighter programme, as well as increase its exposure to most major commercial jet programmes.
Safran said Collins would remain a key customer for the business as a manufacturer of nacelles or engine housings for jetliners, making up 25% of the acquired activity's revenues.
Safran said it was targeting $50 million of annual cost savings, implemented progressively from 2025 to 2028.
Competitors include Moog, Eaton (NYSE:ETN), Parker Aerospace in the United States and Liebherr in Europe.