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General Dynamics to buy Jet Aviation

01:00 AM EDT on Wednesday, August 20, 2008

By STEPHEN MANNING

Associated Press

WASHINGTON — General Dynamics Corp., the parent company of the Electric Boat shipyard in North Kingstown and Groton, Conn., said yesterday that it will buy Jet Aviation Management AG 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.

Zurich, Switzerland-based Jet Aviation maintains and refurbishes planes and ground facilities for passengers and flight crew at business terminals. With the purchase, General Dynamics pairs its existing private aircraft maker, Gulfstream, with Jet Aviation’s global network that can fix planes and outfit them with custom features for wealthy customers or cash-rich governments.

While General Dynamics is perhaps best known for its submarines, tanks, ships and other military equipment, it has significantly expanded its aerospace unit in recent years and now predicts its fleet of business jets will 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.

Falls Church, Va.-based General Dynamics has seen orders for its Gulfstream jets grow in the past several years, as wealthy buyers from burgeoning areas such as 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, which 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 1 located in the United States.

The deal allows General Dynamics to take advantage of Jet Aviation’s strong presence in the rapidly growing Persian Gulf region, which is in 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.

Many of the world’s most ambitious aircraft interior retrofits in recent years have emerged from the Middle East — Saudi Arabia’s Prince Alwaleed bin Talal is spending well over $300 million to outfit an Airbus A380, the world’s biggest passenger plane, as a private flying palace.

Nicholas Chabraja, General Dynamics’ chief executive officer, 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 predicts that Jet Aviation will contribute sales of $1.5 billion in 2009 and post revenue growth of between 10 to 12 percent, Chabraja said. The company employs 5,600 employees worldwide and has its U.S. headquarters in Teterboro, N.J.

General Dynamics will acquire all of 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.

Chabraja said General Dynamics first tried to buy Jet Aviation three years ago but lost out to Permira, which bought the company for an undisclosed sum. General Dynamics “couldn’t get in the door” on the first sale, Chabraja said.

Shares of General Dynamics fell 25 cents to close at $91.99 yesterday. The stock’s price has ranged between $74.01 and $95.13 in the past year.

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