[wikichart align=”right” ticker=”TDY” showannotations=”true” livequote=”true” rollingdate=”6 months” width=”300″ height=”245″]Thousand Oaks-based Teledyne Technologies is selling its small-aircraft engine business for $186 million in cash to a Chinese company.
Mobile, Ala.-based Continental Motors is a division of Teledyne that makes piston-based engines for general aviation aircraft and employs about 400 people on the Gulf Coast. The buyer is AVIC International, a Beijing company that says it wants to take advantage of China’s nascent market for small planes.
China has 900 small aircraft today, compared with the 230,000 in the United States, where Teledyne primarily sells. On one hand, that means room for massive growth. On the other, it could mean the commoditization of Continental’s engines, with reduced profits even as revenues climb.
The business is also not as profitable for Teledyne as some of its other divisions.
In its most recent quarterly report, Teledyne said its aerospace engines and components segment’s sales were up 19.4 percent to $102.9 million in the first nine months of 2010 and profits swung to $2.6 million, compared with a loss of $2.4 million the year before.
That’s an operating profit margin of about 2.3 percent. Teledyne’s electronics and communications segment, by contrast, has an operating profit margin in the 13 percent range, with first-nine-months revenue of $959.4 million for 2010 and operating profits of $125 million.
Earlier this year, CEO Robert Mehrabian highlighted that Teledyne, a conglomerate, tends to leave niches when they start becoming commoditized. In a conference call with investors in April, Mehrabian pointed to the example of cellular backhaul transceivers, equipment that helps the back-end of telecommunications.
“We’re getting out of that business, primarily because … the customers are pushing for cost reductions of 15 to 20 percent per quarter. That’s not the kind of business we want to be in,” Mehrabian told investors on the April call. “If you look at our history over the past five or six years, we’ve probably exited $60 million to $70 million worth of markets in which the margins have declined, the markets have commoditized or the customers have pushed us to manufacture overseas.”