News Release

The Carlyle Group and Finmeccanica: Agreement for the Acquisition of FiatAvio's Aerospace Business

2003-21

Milan, 2nd July 2003 - The Carlyle Group and Finmeccanica have signed an agreement for the acquisition from Fiat Group of the aerospace businesses of FiatAvio SpA, the leading Italian manufacturer of aircraft and naval engines and a leader in space propulsion.


The acquisition will be carried out through a special purpose vehicle, Avio Holding SpA, which will be 70% owned by The Carlyle Group and 30% by Finmeccanica. Avio Holding will purchase the entire share capital of Avio SpA, to which all aerospace businesses of FiatAvio have been transferred with effect from July 1, 2003.


The total value of the acquired businesses is approximately 1.5 billion euros, which will be funded through a combination of debt financing and equity of circa 500 million euros. The acquisition should be completed by the end of 2003 and is subject to the approval of competition authorities.


Finmeccanica, as an industrial partner in the deal, will assume a board seat and voting rights in accordance with corporate governance, and will be involved in defining Avio’s corporate strategy and managerial decisions.


“We are delighted to add Avio to our portfolio. This deal confirms our ability to make large acquisitions in Europe and underlines our deep aerospace expertise. The company has great potential; we will support the management to develop further Avio’s activities and to find new opportunities for growth,” said Edoardo Lanzavecchia, managing director of The Carlyle Group”.


The FiatAvio businesses acquired include the design, development and production of components of aeronautical engines, accessory gearboxes, low-pressure turbines, naval and space propulsion systems as well as the maintenance, repair and overhaul activities for military and commercial aircraft engines.


FiatAvio has 14 manufacturing plants, 9 research centres and over 5,000 employees. In 2002, the company reported sales of 1,534 million euros and an operating profit of 210 million euros.


The acquisition will be financed with equity from The Carlyle Group and Finmeccanica and debt provided by Banca Intesa, Citigroup, Goldman Sachs, Lehman Brothers and Mediobanca.


Banca Intesa, Citigroup (bookrunner), Lehman Brothers (bookrunner) and Mediobanca are acting as mandated lead arrangers of the senior debt; Citigroup, Lehman Brothers and Goldman Sachs are lead underwriting the subordinated debt, while Banca Intesa is acting as underwriter.


Goldman Sachs acted as advisor to The Carlyle Group and Lehman Brothers as co-advisor; Mediobanca was advisor to Finmeccanica.


About Finmeccanica SpA


Finmeccanica is Italy's second-largest manufacturing company and its leading high-tech company. The group operates primarily in the aerospace and defence sectors, but also has significant know-how and manufacturing assets in sectors such as rail transport, energy and IT. Finmeccanica's aerospace and defence activities account for around 70% of consolidated sales, and employ more than 32,000 staff. Finmeccanica also ranks as Italian number one in research and development: the group invests around EUR 1 billion a year (or 13% of its value of production) in advanced technology, notably dual technologies.


About Avio SpA


Avio is one of the leading companies in the commercial aircraft engines business. Its most recent partnership programs include the collaboration with General Electric for the 115,000-pound thrust version of the GE90 engine; work on the Trent 900 project with Rolls Royce to produce a turbofan engine for Airbus Industrie’s A380 Superjumbo; and a partnership with Pratt & Whitney Canada regarding the engines for the Falcon 2000EX and Raytheon Hawker Horizon business jets.


In military engines, Avio has a 21% stake in Eurojet Turbo Gmbh, which produces the EJ200 engine for the Eurofighter Typhoon. It is a partner in the RB199 programme for the Tornado, and the new F124 engine for the future Aermacchi M346 training aircraft, for which it is supplying the gearbox and the low-pressure turbine. In helicopters, Avio’s partners include General Electric for the production of the T6A and T6E versions of the T700 engine, which will equip the NH90 and AgustaWestland EH101 helicopters, respectively.


In the naval sector, Avio and General Electric jointly produce aero engine derivative propulsion systems, including LM2500 turbines, which will also be used by the Italian navy’s Nuova Unità Maggiore. It also produces electronic automation systems for propulsion control, automatic pilot and steering gear management systems for ships and submarines.


In the sector of maintenance, repair and overhaul services for aircraft and naval engines, Avio provides services to the Italian Army in Brindisi and to commercial airline companies in Pomigliano d'Arco, near Naples.


In the space sector, Avio is a leader in solid and liquid propellant boosters, used by the Ariane 4 and Ariane 5 rockets. In 2001, Avio founded ELV, a joint venture with the Italian Space Agency in which Fiat Avio has a 70% share. ELV was awarded a contract by ESA (European Space Agency) to oversee the design, development and production of the new Vega launcher. Avio also supplies tactical propulsion systems for Iris-T air-to-air missiles—adopted by the armies of Germany, Canada, Greece, Italy, Norway and Sweden—and the Aster surface-to-air missile.


Avio’s headquarters are in Turin, a centre of excellence for machining processes, while the other plants are in: Colleferro, Rome (space propulsion); Pomigliano D’Arco, Naples (maintenance of civil engines); Acerra, Naples (aircraft engines blades); Brindisi; Bielsko Biala, Poland (research and development, design of power transmission gearboxes for planes and helicopters, and development of low-pressure turbine components); and Kourou, French Guyana (assembly and charging of Ariane 5 boosters with solid propellant).


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