The Spanish government has warned Rolls-Royce Holdings Plc that any sale of its Basque airplane parts maker risks being blocked unless the buyer can offer assurances about the company’s future, according to a person familiar with the matter.

A visitor inspects the mechanics of a Rolls-Royce TP400-D6 aircraft engine at the air show.

The administration is concerned that Rolls-Royce may sell ITP Aero to a private equity fund that has no clear industrial plan or commitment to its Spanish operations, according to the person, who asked not to be named discussing private conversations. Rolls-Royce has a list of bidders including KKR & Co., Bain Capital and TowerBrook Capital, people familiar with the process said earlier this month. TowerBrook already owns another airplane parts supplier in Spain called Aernnova Aerospace SA.

Rolls-Royce is seeking to sell the aircraft equipment supplier, based in Zamudio near the northern Spanish city of Bilbao, in a deal that could reach about 1.5 billion euros ($1.8 billion).

The government has told Rolls-Royce that it needs to find either an industrial firm or a consortium that includes one if it wants to sell the company, the person said. The buyer must also commit to keeping ITP’s headquarters and operations in Spain and must present a clear industrial plan, the person added, saying the government will not allow any speculative operations. Spain has the power to block takeovers of companies that it considers strategic assets.

“The Spanish and Basque governments are important stakeholders and there is an ongoing and constructive dialogue with them,” Rolls-Royce spokesman Richard Wray said. “ITP Aero is going to be a key partner for Rolls-Royce for many decades. As a result, it is obviously very important to us that a new owner is able to continue to invest in ITP Aero’s technology, innovation and workforce.” A spokesman for the Spanish Industry Ministry declined to comment.

European Defenses

European governments have increased their scrutiny of acquisitions by foreign investors in the aftermath of the pandemic, with officials keen to prevent valuable assets being snapped up at depressed prices. A Chinese bid for Italian truck and bus maker Iveco SpA fell through earlier this month amid pressure from Italian and French governments and Italy also blocked a separate Chinese bid for a small semiconductor company.

Spain last year passed rules that allow it to block any takeovers or significant stake acquisitions of strategic companies. Prime Minister Pedro Sanchez’s administration has signaled it could make use of these powers to block a bid by asset manager IFM Global Infrastructure’s to buy a 22.7% stake in utility Naturgy Energy Group SA, which is currently under regulatory review.

Some of the buyout funds looking at ITP are considering teaming up with a local Spanish company to boost their chances of winning over the government, according to people familiar with their plans. Spanish manufacturer Aciturri Aerostructures, for example, could join one of the other bidders, the people said earlier this month.

The ITP sale has implications for Spain’s longer term industrial strategy. ITP and Aciturri are among four so called Tier 1 suppliers of airplane parts — alongside Aernnova and Alestis — and the government would welcome consolidation in the sector.