Thales Bets Big on Avionics with AeroComms Acquisition
The aerospace and defense giant, Thales, is set to enhance its avionics portfolio as it enters negotiations to acquire Cobham Aerospace Communications (AeroComms). Thales plans to purchase AeroComms for USD 1.1 billion, extending its portfolio of Avionics significantly. AeroComms is known for its innovative safety cockpit communication systems, making it a prime choice for Thales as it strives to consolidate its industry leadership.
Yannick Assouad, Thales Executive Vice-President Avionics, said of the acquisition:
“With the acquisition of Cobham Aerospace Communications and its highly skilled team of aerospace communications experts, and combined with our own critical avionics experts, Thales will establish a game changer in the very attractive and fast-growing communications and connectivity market to the benefit of a more sustainable aerospace future. By guaranteeing a cyber-secured, live connection between the cockpit and air traffic control, aircraft will be able to fly optimized trajectories in real time, significantly reducing fuel consumption and, consequently, CO2 emissions in the next two to three years.”
AeroComms: A Key Player in Safety Cockpit Communications
AeroComms specializes in designing, producing, and supporting various avionics solutions focused on cockpit communications. Their product range includes complete L-Band Satcom systems, digital audio and radio management solutions, and passive antenna systems enabling connectivity, communications, and navigation.
AeroComms is known for its innovative safety cockpit communication systems. Its extensive global presence and robust financial performance make it an ideal addition to Thales Avionics’ offerings.
The company employs 690 people, including 190 engineers, across France, South Africa, the United States, and Canada. In 2023, revenues are expected to reach US$200m.
“This acquisition reflects the successful transformation of Cobham Aerospace Communications in recent years under Advent’s ownership,” says Nicolas Bonleux, Cobham Aerospace Communications Chief Executive Officer. “Our sizeable investment in R&D over the last years has further consolidated our position as a leading player in our markets, with a series of new contracts won already this year. We are proud to join Thales, which will provide Cobham Aerospace Communications with a platform to build on recent success, continue the development of several cutting-edge avionics products, and ensure the business’ future growth. The aircraft connectivity and communication markets will undergo a true revolution in the coming years, which will unlock potential for unique avionics products like ours. Our combined offering with Thales Avionics will enable us to further accelerate our contribution to safer, greener, more comfortable and more efficient air travel.”
The Future of Avionics: Connected Cockpits
The acquisition will pave the way for Thales to be at the forefront of the transition to connected cockpits. By the end of this decade, Thales, with its reinforced portfolio, will be ready to meet the secured connectivity needs of the aeronautical market.
How AeroComms Strengthens Thales’ Position
AeroComms’ expertise and products complement Thales’ avionics goals perfectly. The integration of AeroComm’s advanced technology into Thales’ portfolio will position the company as a leader in communications and connectivity markets that are rapidly growing.
By the end of the decade, Thales will be able to fully address the aeronautical market’s permanent and secured connectivity needs.
Adding these products to Thales’ offering will allow it to provide its customers with more safe, affordable, and sustainable solutions, including:
- Real-time and cyber-secured air-to-ground services
- Enhanced operations’ efficiency (enabling eco-friendly/green flights, full spectrum cockpit connectivity)
- A better pilot assistance system paving the way for autonomous flight in the future
- A reduction in OEM installation burden through integrated offers and a reduction in aircraft weight and drag (smart antennas).
A Win-Win for Thales and AeroComms
The anticipated sales growth and improved EBIT margins brought by AeroComms’ addition represent an economic win for Thales. Also, the expected synergies will drive further value, making the acquisition a strategic move toward sustainable growth.
The Strategic Move that Benefits Shareholders
Thales can take full advantage of the shift towards connected cockpits through the acquisition. By the end of the decade, Thales will be able to meet the secured connectivity needs of the aeronautical market. Thales can provide safer, affordable, and sustainable solutions through real-time and cyber-secured air-to-ground services.
Adding AeroComms is expected to improve EBIT margins and drive sales growth. Several synergies have been identified, including run-rate net cost savings and revenue gains.
Thales is preparing for steady growth and improved margins, with the transaction, predicted to enhance earnings per share (EPS) from year one.
Thales’ available cash resources will finance the acquisition, and the transaction is expected to be EPS accretive, pre-synergies, in the first year following the closing. Closing is expected during the first half of 2024, subject to customary merger control and regulatory approvals.
Value accretive transaction for the Group:
- Expected medium-term double-digit growth per annum and accretive impact on margins
- 17x FY23E EBIT pre-synergies / 15x FY23E EBIT post-run rate cost synergies
- EPS accretive from year one
Value creative transaction for shareholders
Thales Avionics’ sales growth and EBIT margin profile will be improved by adding AeroComms. Synergies that have already been identified are expected to further drive this top-line growth and EBIT margin level in the future:
- Pre-tax net cost synergies of approximately US$10m per year are driven by combining Thales Avionics Satcom and digital audio & radio control activities with AeroComms, aligned technology roadmaps, vertical integration, purchasing optimization, and convergence of support and spares & repairs activities.
- Run-rate revenue synergies of ~US$40m per year, driven by faster time-to-market for Satcom, the combined Thales Avionics/ AeroComms Satcom offering, as well as increased aftermarket upselling for AeroComms’ digital audio/radio control tools.
Next Steps in the Acquisition Process
Employee representative bodies of both Thales and Cobham Aerospace Communications will be consulted as part of the project. The transaction’s closing is expected during the first half of 2024 upon completion of customary merger control and regulatory approvals.
Until then, both Thales and AeroComms will continue to provide their customers with state-of-the-art avionics solutions.
Thales: Committed to Safer, Greener Flight
As a global technology leader, Thales invests in growth and value creation within the avionics market. The impending acquisition of AeroComms signals Thales’ ongoing commitment to offering technology solutions that improve aviation’s sustainability as the airline industry advances to Net Zero 2050.
Thales is a global leader in advanced defense, security, aeronautics, space, and digital identity and security technologies. With nearly €4 billion invested annually in research and development, Thales focuses on areas like quantum technologies, edge computing, 6G, and cybersecurity. The company has 77,000 employees in 68 countries and generated sales of €17.6 billion in 2022.
About Cobham Aerospace Communications
Cobham Aerospace Communications is a leading supplier of airborne avionics systems, specializing in satellite communications, audio/radio management, antennas, lights, clocks, and man-machine interfaces. With headquarters in Rungis (Paris), France, the company operates in multiple countries, including the United States, Canada, South Africa, and Denmark. They also have sales offices in Singapore, China, and India. Through its advanced technologies, Cobham Aerospace Communications has formed strong partnerships with renowned manufacturers in various sectors, including commercial and regional aircraft, business jets, general aviation aircraft, military trainer and transport planes, fighter aircraft, helicopters, and UAVs.