Germany Approves Chinese Takeover of Aerospace Supplier

On April 26, German regulatory authorities approved the takeover of German aerospace supplier COTESA GmbH by newly-created Chinese materials industry fund, Changzhou QFAT Composite Material.  The fund’s anchor investor is Advanced Technology and Materials (AT&M), which aims to support COTESA’s expansion in China.  This is the first Chinese takeover approved since July 2017, when Germany tightened regulations on non-EU acquisitions of German companies in strategic sectors (including aerospace and defense). 

Saxony-based COTESA produces carbon and glass-fiber composite components for aircraft giants, including Boeing and Airbus.  Currently, COTESA holds a 5‑year contract – awarded in June 2017 – with Boeing to manufacture key components for the CH-47F Chinook heavy-lift helicopter, the U.S. Army’s primary multi-mission aircraft.  According to a Boeing press release at the time,

With this agreement, COTESA is joining Boeing’s already established supply chain in Germany, in addition to its global supply chain of more than 20,000 suppliers and partners around the globe. ‘The contract award to COTESA is a testament to the technology potential we see in Germany and another important milestone in our partnership with German industry,’ said Sir Michael Arthur, president, Boeing Europe.

We are excited to join the Boeing supplier team. This contract award provides an opportunity for COTESA and our employees to demonstrate our expertise in high-performance composite parts,’ said Jörg Hüsken, chief executive officer of COTESA.

COTESA will manufacture portions of the Chinook tunnel cover section – a honeycomb-like core that makes up parts of the helicopter’s external skin – for the global Chinook fleet.” 

The approval calls into question what risk considerations were taken into account and why the defense applications of the company’s products failed to scuttle the deal.  Germany’s Federal Ministry for Economics and Energy stated that it cleared the COTESA acquisition on the grounds that it would not pose “public order or security” risks.  The clearance was confirmed by COTESA’s chief executive officer Jörg Hüsken to newspaper Frankfurter Allgemeinen Zeitung.

The Wall Street Journal has reviewed business records that indicate AT&M was contracted by Iranian company ABAN Commercial & Industrial Ltd. to supply 30,000 kg of tungsten copper in 2008.  Tungsten copper can be used in missile guidance systems.  ABAN is alleged to be a front company for Shahid Bagheri Industrial Group (SBIG), which was sanctioned by the U.S. for its involvement in Iran’s ballistic missile programs.  One of SBIG’s main weapons is the Fateh-110 missile, which Iran has transferred to Syria and Hezbollah.  AT&M denies that it ever had business dealings with Iran.

Changzhou QFAT initially signed the contract to acquire a majority stake in COTESA in September 2017 for an unspecified amount (estimated at between €100–200 million).  Germany’s Ministry for Economic Affairs and Energy called for an investigation in December 2017 due to the sensitive core technologies involved and doubled the investigation time from two to four months.

AT&M is a subsidiary of state-run China Iron & Steel Research Institute Group (CISRI), headquartered in Beijing’s Zhongguancun Science & Technology Park (Z‑Park) and supported by the Beijing Municipal Commission of Science and Technology, the Chinese Academy of Sciences, and China’s Ministry of Science and Technology.  Changzhou QFAT Composite Material was advised by a legal team led by Orrick, Herrington & Sutcliffe’s Düsseldorf office.