UK-based component manufacturer for Airbus jets, GKN, has signed a £633m agreement to acquire Volvo Aero, the aero engine division of Swedish firm AB Volvo.

The merger will lead to the formation of an aerospace facility with more than £2bn in revenue, which manufactures aero structures and aero engine components.

The acquisition is expected to be completed during the third quarter of 2012 and the UK-based firm is planning to raise £140m in a share sale to help pay for the acquisition.

"Volvo Aero has invested heavily to secure positions on new engine programmes, offering a long-term platform for growth."

GKN chief executive Nigel Stein said that this was an interesting acquisition for GKN creating a market leader in aero engine components.

"With excellent technology and strong life-of-programme positions on most civil aero engines, Volvo Aero will significantly enhance GKN Aerospace’s engine components business," he said.

The Swedish firm’s aerospace division designs, engineers and produces components and sub-assemblies for aircraft engine turbines and delivers it to all major aero engine manufacturers.

During the initial year of proprietorship in 2013, the transaction is anticipated to improve GKN’s earnings per share on a management basis and also offer improved returns on invested capital.

The operating margin of Volvo Aero in 2013 is expected to meet GKN’s target range of 11-13% due to operational process enhancements and cost savings, which are expected to account for 3%-4% of sales of Volvo Aero by 2014.

"Volvo Aero has invested heavily to secure positions on new engine programmes, offering a long-term platform for growth," Stein added.

The acquisition is also expected to provide GKN a similar status as of engine makers General Electric, Rolls-Royce and Pratt & Whitney and allow it to compete with Safran and MTU.