Safran in talks to acquire flight control unit from Raytheon

French aerospace and defense group Safran is in talks to buy the flight control unit of US-based Raytheon Technologies, which would be the engine maker’s first significant acquisition since seat maker Zodiac in 2018.

Raytheon is one of America’s top five “prime” contractors with the Pentagon, including its defense and missile businesses, engine makers Pratt & Whitney and Collins Aerospace.

Safran confirmed on Monday that it was in talks over the division that makes mechanical actuators for flight controls for most commercial aircraft models as well as many military ones. It declined to say what valuation it was discussing as part of a bidding process open to other parties.

Bloomberg, which first reported the discussions with Safran, said a deal could value the unit at around $1bn. The deal would be the first major deal by Safran since the Zodiac acquisition for around 9 billion euros.

“At this stage, it is not possible to evaluate the prospects of reaching any agreement,” Safran said. in its statement,

Analysts at Jefferies said the potential “low margin, low aftermarket nature” of the business was a “potential negative” as any M&A for Safran competes with share buyback potential. The unit projects sales of $1.3 billion and earnings of $106 million in 2024.

“Less aftermarket content will go against one of the key parameters of Safran’s M&A which are: strong aftermarket; high barriers to entry; profitable growth,” Jefferies analyst Chloe Lemery said in a note after the French company confirmed its interest.

Safran “could still be interested, because it could generate some synergies with its instrument business” by integrating these mechanical actuators capabilities into its flight control systems, Lemery said.

Raytheon declined to comment.

Safran’s Zodiac deal ended in a tortuous process involving a fight with the activist hedge fund The Children’s Investment Fund, which launched a campaign in 2017 calling it too generous to abandon the bid.

Safran cut its initial offer price by €1bn following a series of profit warnings at Zodiac. The deal was a transformative one for Safran, uniting two major aerospace suppliers and making it one of the largest equipment makers in the industry worldwide.

The aerospace industry has been shaken by the COVID-19 pandemic since 2018 and is still grappling with supply chain and raw material problems as demand from aerospace customers picks up again.