Eaton agrees to purchase AT Holdings for $695 Million

Dec. 28 (Bloomberg) -- Eaton Corp., the world's second- largest maker of hydraulic equipment, agreed to buy closely held AT Holdings Corp. for $695 million to bolster its aerospace unit.
AT owns Argo-Tech Corp., a maker of airplane parts such as engine fuel pumps and ground fueling systems with $206 million in sales last year and 640 employees, Cleveland-based Eaton said today in a statement.
The purchase will bring Eaton's annual aerospace sales to $1.5 billion as Chief Executive Officer Alexander Cutler seeks to blunt the impact of a slowdown in truck-part sales by expanding offerings for commercial jets. Argo-Tech supplies the main engine fuel pump for some of Boeing Co.'s new 787 Dreamliners.
``By acquiring a company with a presence in the commercial aerospace market, it helps Eaton mitigate weakness in the truck market,'' said Ned Armstrong, a Friedman, Billings, Ramsey & Co. analyst in Arlington, Virginia. He rates the stock ``outperform'' and doesn't own any. ``It fills in holes in their product line.''
Cutler has made acquisitions in the aerospace and electric industries amid an estimated 40 percent drop in demand for truck parts next year. He expects sales and profit to increase in 2007, the first time in the company's history that earnings will improve when truck demand has fallen.
Shares of Eaton rose 16 cents to $75.59 at 12:48 p.m. in New York Stock Exchange composite trading and had gained 12 percent this year before today.
Aerospace Deals
``We see the aerospace market as being very strong, not only in the short term, but for several years looking forward,'' Brad Morton, president of Eaton's Irvine, California-based aerospace unit, said in an interview. ``We don't see anything that will impact our ability to grow.''
Cutler, 55, made his first foray into fuel systems with the acquisition of Cobham Plc's fluid and air division in 2005 and then bought PerkinElmer Inc.'s aerospace unit to add pneumatic systems for commercial aircraft. Argo-Tech moves Eaton into high- pressure engine fuel products, which supply gas to the engine.
The company also provides a stream of repair services revenue. Argo-Tech has more than 100,000 fuel pumps in more than 60 percent of large commercial aircraft in service today, and those aircraft typically get five or six main engine fuel pump overhauls in a 30-year life span, Eaton said.
``This is an aftermarket business, so it's more stable,'' said Eli Lustgarten, a Washington-based analyst at Longbow Research who rates the shares ``buy'' and doesn't own any.
Eaton's aerospace unit currently gets 40 percent of its sales from repair services and spare parts, Morton said.
Complete Set
Argo-Tech, with operations in Cleveland; Costa Mesa and Inglewood, California and Tucson, Arizona, makes systems used in General Electric Co. engines on Boeing's 787 and 747-8 jets, as well as Airbus SAS's A350.
The deal will give Eaton a complete set of products from tank to exhaust systems and allow the company to win more orders from customers including engine manufacturers such as Rolls-Royce Group Plc and airport authorities looking to buy ground-based fuel tanks that connect to jetliners, Morton said.
``We're able to go into an Airbus or Gulfstream type of customer and say, `We'll help you design and develop a whole fuel system from the ground refueling truck and connections to the aircraft to the engine','' Morton said.
The transaction will close in the first quarter. Before then, AT Holdings will be reorganized to exclude its cryogenics and non-aerospace units, which had sales of $22 million in 2006.
Eaton's Business
Eaton's hydraulics are used to control the motion of equipment such as airplane flaps and landing gear, and tractor attachments. Parker Hannifin Corp., also based in Cleveland, is the world's biggest maker of hydraulic equipment.
Cutler in the first quarter began selling units, closing plants and firing workers to hedge against the drop in demand for truck parts. Eaton in November announced plans to scrap factories in Michigan, the U.K. and Spain to reduce excess capacity.
Eaton, which had $11.1 billion in sales last year, also bought companies including Changzhou, China-based Senyuan, which makes electrical components such as vacuum circuit breakers, and a filtration business from New York-based Dover Corp.