Chrysler Targets Aircraft Maker

Chrysler, the nation’s No. 3 auto maker, said Friday that it is negotiating to buy Gulfstream Aerospace, a manufacturer of corporate aircraft, for $646 million.

Chrysler said it intends to buy all of Gulfstream’s 34 million shares at $19 each. The auto maker has $2.9 billion in cash and marketable securities on hand.

Gulfstream would become a tiny part of Chrysler. Gulfstream’s 1984 sales were $600 million, equal to about 3% of Chrysler’s $19.5 billion. It lists 3,500 employees, most of them at its headquarters city, Savannah, Ga. It has a smaller operation in Bethany, Okla. Last year, it reported a $34 million profit, including a one-time write-down of $26 million, leaving earnings per share of $1.40. Chrysler’s net earnings per share last year were $18.88.

Neither company would say when a possible deal might be concluded.

Allen Paulson, Gulfstream’s chairman and holder of 71% of its stock, said he had granted Chrysler a six-month option to buy 6.7 million of his shares while talks continue on a buy-out of the public shares. He bought Gulfstream from the giant defense contractor Grumman Corp. in 1978.

Like its bigger competitors, General Motors and Ford, Chrysler lately has been looking for ways to diversify as a hedge against the dangerously cyclical car industry. GM and Ford are considered the prime contestants in the bidding for Hughes Aircraft.

Gulfstream has an attractive backlog of orders for its executive jets, including the popular, 19-passenger Gulfstream 3, automotive industry analysts said. However, the U.S. market for small aircraft has tumbled by some 88% in the last several years, hitting a 30-year low point.

The industry hit a sales high point of about 18,000 units in 1978 but slid to an estimated 2,000 units last year.

The hardest hit segment of the market was small recreational aircraft, because of the high cost of aviation fuel and steep price increases. The business jet segment also was hurt, but has recovered more quickly, industry sources say.

The analysts had differing views on the Chrysler move.

Joseph Phillippi of E. F. Hutton said the purchase was untimely because the Reagan Administration is “trying to dump” the investment tax credit and “companies buy those jets because they can write them off.”

Analyst David Healy said his firm, Drexel Burnham Lambert, estimates Gulfstream’s profits this year will be $35 million to $40 million, making Chrysler’s potential buy-out 17 times earnings. “I guess you could call that a premium price,” he said.

At Merrill Lynch, analyst Harvey Heinbach said the acquisition wouldn’t have much impact on Chrysler. “It’s small, relative to Chrysler’s size.”