GKN deals difficult under Melrose ownership warns Airbus

GKN appears to have won a key ally in its fight to retain ownership of its group in the face of a hostile takeover bid by turnaround specialist, Melrose.

One of its key aerospace customers, Airbus has said it would find it difficult to award GKN new work if it was part of the Melrose group of companies.

GKN makes components for the wings of several Airbus planes and the OEM is the Redditch group’s biggest aerospace customer, representing 20% of its sales in 2017.

Tom Williams, chief operating officer at Airbus’s commercial aircraft division, said the nature of the aerospace industry and the long life cycle of many aircraft, meant OEMs needed to have long-term supply deals with the companies in their supply chains.

The issue has been raised before in relation to the ongoing takeover battle due to concerns about the short-termism of Melrose’s business strategy, which is to acquire a business, improve it and then sell it on, albeit at a major profit – a process that usually takes between three to five years.

However, it is not uncommon for aerospace supply deals to last in excess of 20 years, therefore there will be a reluctance by OEMs to deal with a business if they are not certain it supplies can be maintained over a long period.

Quoted by the BBC, Mr Williams said the aerospace industry did not lend itself to “shorter term financial investment” which he said could hamper research and development and stifle innovation.

“It would be practically impossible for us to give any new work to GKN under such ownership model when we don’t know who will be the long-term investor,” Mr Williams was quoted as saying.

GKN chairman, Mike Turner, said: “The comments from Airbus that stress the need for long-term investment and strategic vision in our industry emphasise our firmly held belief that Melrose is not an appropriate owner of GKN.

“Its management lacks the relevant experience and its short-term business model is inappropriate for GKN’s customers and investors.

“As we have previously stated, and as these comments from Airbus reinforce, winning new business in our markets would be more difficult if customers were uncertain as to the identity of their future long-term partners.”

Responding, Melrose chairman Christopher Miller said the company was happy to explain to customers and stakeholders why its plan to invest in GKN was the right way forward for the business.

GKN revealed this week that it had received expressions of interest from companies for the possible acquisition of the aerospace division.

However, Mr Miller said any rushed deal was likely to see the aerospace division burdened by pension liabilities which hamper potential R&D investment.

Melrose has increased its offer for GKN to £8.1bn and has given shareholders until March 29 to say if they are willing to accept the offer.

GKN says the offer still undervalues the business and has urged shareholders to take no action.

Melrose has said it will not increase the offer under any circumstances.