Volvo says in talks to sell aero engine parts business

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Swedish group Volvo , the world’s second-biggest maker of trucks, is in talks to sell its aerospace engine component business, it said.

The decision to sell Volvo Aero, which in the third quarter accounted for just over 1 percent of sales, came after new chief executive Olof Persson took over in September. He has already set new financial targets and undertaken an organisational overhaul.

Volvo’s move was to be expected, said Hampus Engellau, a Handelsbanken analyst, Reuters reports.
“They made rather clear that Volvo Aero is not part of the financial targets regarding growth and profitability for the group,” he said, adding that even if the price were good, Volvo Aero was still a small part of the group.
“I think MTU is the most likely buyer”, he added, referring to the German aircraft engine maker.

Volvo said in a statement it was in talks with a number of potential buyers for the aero business, but that they were still at an early stage.
“One of the prerequisites for a transaction being implemented is that a divestment could enable Volvo Aero to enter into a structure that would enhance the company’s opportunities for further development in its sector,” Persson said in the statement.
“Another requirement is of course that we are paid a reasonable price”, he added.

Volvo said that if discussions led to a deal it expected a finalisation in mid-2012.

An MTU spokesman declined to say whether the group was interested in buying Volvo Aero.
“Generally, MTU’s growth targets do not depend on acquisitions. However, as we have stated in the past, we are constantly reviewing possible acquisition opportunities in order to further strengthen or to expand our businesses,” the MTU spokesman said. “Such moves would be required to meet appropriate margin targets.”

Volvo Aero develops and produces components for aircraft, rocket and gas turbine engines, and has a related service and maintenance business.

Volvo Aero’s sales fell by 22 percent to 1.4 billion crowns in the third quarter, while its operating income dropped to 102 million crowns from 224 million the same quarter last year, with the operating margin narrowing to 7.2 percent from 12.3 percent.



Volvo’s shares were down 5.8 percent at 1621 GMT when the broader Swedish market index was down 3.5 percent.