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The technology remains years away from commercialisation but it has industry backing

Tufan Erginbilgiç threw his weight behind the decarbonisation of aviation last month. The Rolls-Royce boss will, however, end the company’s electric and hydrogen propulsion efforts. Erginbilgiç thinks the sector’s more immediate lower carbon future will come from sustainable aviation fuel.

The high cost of producing enough SAF is just one of the barriers that still needs to be overcome. 

SAF makes sense for a new chief executive who is more concerned with cash flows than carbon dioxide. It is largely compatible with current engine technology, which reduces investment costs for manufacturers. Electric and hydrogen propulsion need hefty development to have any chance of overcoming low energy densities.

SAF currently accounts for a tiny proportion of global aviation fuel, about 0.1 per cent last year according to the International Air Transport Association. Production mostly involves converting waste fats and oils. This reduces net carbon emissions about 70 per cent compared to fossil jet fuels. 

SAF is more than twice as expensive. Availability of feed stocks places limits on commercialisation. Power-to-liquid synthetics are a likelier solution. These “efuels” are made by combining hydrogen and carbon dioxide. 

There is a catch. To achieve a 90 per cent lower carbon footprint for efuel compared to kerosene, hydrogen must be made from renewable sources as well. Carbon dioxide can be captured from existing industrial processes or directly from the atmosphere.

The technology remains years away from commercialisation. But it has industry backing. Rolls-Royce, Boeing and United Airlines are some of the companies putting money into start-ups. One of these, OXCCU, has also won UK government funding. Large renewable energy resources could make the UK an important producer in years to come. 

But large investments are needed to get costs down. Currently, SAF is more than twice the price of conventional fossil jet fuel at as much as $1,500 a tonne. Power-to-liquid synthetics today cost as much as $5,500 per tonne, estimates Professor Mohamed Pourkashanian, head of the Energy Institute at the University of Sheffield.

He thinks that by 2030 they may account for up to 40 per cent of total SAF available, which the UK hopes will make up about a tenth of total fuel. That seems optimistic, given low current availability of green hydrogen. The positive is that the industry appears committed to the long haul.

Two new shareholders, PIF and Ardian could increase their investment further as part of airport’s ownership structure

As Heathrow prepares for its rush of Christmas travellers, Europe’s busiest airport is embarking on a big shake-up of its ownership as Saudi Arabia’s Public Investment Fund and private equity firm Ardian take control of a chunk of the business.

At the end of last month, Spanish infrastructure group Ferrovial announced it would sell its remaining 25 per cent stake in Heathrow to Saudi Arabia’s PIF and French buyout group Ardian for £2.4bn.

But the deal has also raised the prospect that the two new shareholders could increase their stakes further. As part of the terms of Heathrow’s ownership structure, the other shareholders, including Canadian and Australian pension funds, the Qatar Investment Authority and the China Investment Corporation, have the right to sell their stakes to the PIF and Ardian at the same price.

The price Ferrovial achieved — which valued the airport’s equity at £9.5bn, with an enterprise value of just under £26bn — was seen as “very attractive” by some of the other shareholders and at least one of them would consider selling, according to a person familiar with their thinking.

But the person added there was no guarantee that the PIF or Ardian would agree to up their stakes. The two new investors are focused on the current deal — which will require approval from UK competition authorities — and there have been no talks with other shareholders yet, according to another person familiar with the deal.

The PIF, which has more than $700bn of assets, is focused on generating a return from the 10 per cent stake it is buying, according to a person familiar with the fund’s decision.

But at the same time, Saudi Arabia is making a concerted push into aviation and tourism to try to reduce its reliance on oil revenues. 

The PIF is planning, for example, to launch a new airline Riyadh Air, with a goal to fly to 100 destinations by 2030. A new six runway airport is also in the works and Saudi Arabia wants to attract 100mn visitors a year by the end of the decade.

Its Heathrow stake would give it a measure of influence over one of the world’s biggest airports.

“[Heathrow] is high profile . . . and the sovereign wealth funds like trophy assets,” said Robert Boyle, former director of strategy at IAG, the owner of Heathrow’s biggest airline British Airways. But he added that any long-term investor would also need to have “a reasonable assurance of a guaranteed return”.

The PIF and Ardian are investing in Heathrow just as it confronts challenges that did not exist when Ferrovial bought the British Airports Authority (BAA) — the then owner of Heathrow, Gatwick and several other UK airports — for £10.3bn in 2006.

Before the pandemic, Heathrow delivered steady returns to its shareholders, paying a total of £3.2bn in dividends between 2006 and 2020.

Since then, while other parts of the industry — notably airlines — have put the pandemic behind them and are now making record profits, Heathrow has been lossmaking since 2020, while the cost of servicing its £15.8bn of debt has risen with interest rates and regulators have prevented it from significantly increasing landing charges.

The airport had hoped that building a third runway — a plan that has been under discussion for 20 years — would be a significant source of growth. But with doubtful political backing, high inflation and growing scrutiny of the environmental consequences, this is no longer regarded as a viable option by many aviation industry executives.

Although nothing has been ruled out, Heathrow’s management is exploring less radical options, such as upgrading its terminals, to increase passenger numbers, according to people close to its thinking. About 80mn people used the airport over the past 12 months, close to pre-pandemic levels.

“The question is how you can [increase] passenger volumes where the limits on movements are unlikely to change,” said aviation analyst Chris Tarry.

“Buyers no doubt see a strategic value but that has to translate into a financial value, where past dividends are unlikely to be a guide to the future . . . Was the reason for Ferrovial’s sale the view that it had maxed out on its returns?”

Ferrovial’s exit ends a more than 10-year process in which it has gradually sold off its stake in Heathrow and some of its other airports, and focused on the toll roads it owns in North America, where it has more latitude to increase charges.

Ferrovial’s retreat from Heathrow over the past decade has ushered in a range of international investors. One board member of a large infrastructure investment group said the level of foreign ownership of UK assets reflects the fact that the UK “was an early privatiser” where overseas investors “cut their teeth”.

When Ferrovial took over BAA, airports were highly prized assets with plenty of potential growth. This perception that they were a “pot of gold” took a hit during the pandemic.

But they still offer attractive income streams and are benefiting from the travel industry’s resurgence over the past 18 months.

Javier Echave, Heathrow’s chief financial officer, said at the group’s most recent results that he hoped the business would return to profit this winter, following an “extraordinary” bounceback over the summer.

Industry executives said that even without a third runway, Heathrow remained an attractive asset. Its status as the UK’s only hub airport allows it to charge higher landing fees than many of its international competitors, giving its owners a reliable income stream.

“European aviation is a fundamentally lower growth environment these days,” said Boyle. “In that sense being the incumbent helps.”

The PIF, Ardian and Ferrovial declined to comment. 

Vivendi is hoping to fetch up to €300mn for one of the UK’s biggest ticketing merchants

The owners of London’s O2 Arena and Hammersmith Apollo have each entered the race to buy See Tickets, after French media group Vivendi kicked off a sales process for one of the UK’s biggest ticketing merchants.

Vivendi is hoping to fetch up to €300mn for See Tickets, according to two people familiar with the matter, and a first round of indicative bids has been submitted in recent weeks.

Anschutz Entertainment Group, which owns London’s O2 Arena, and German ticketing group CTS Eventim, with which AEG co-owns London’s Hammersmith Apollo, were among them, they added.

For potential bidders, See Tickets offers a large primary ticketing merchant, which is projected to sell 43mn tickets across 10 countries this year, as well as an events arm which was behind eight big European festivals this year including the UK’s Love Supreme festival.

AEG, through its ticketing arm AXS, and Eventim already have primary ticketing businesses in the UK, but acquiring See Tickets will give the successful bidder a stronger foothold to compete with industry leader Live Nation-owned Ticketmaster. See Tickets also derives slightly less than a third of its ticketing revenues from the US.

The bidding war comes as the live events industry is experiencing a boom in demand despite the cost of living crisis.

Other suitors are also expected to get involved in the auction for See Tickets, according to people close to the process, which is projected to experience high single-digit growth over the next few years from a base of €147mn in revenues across its ticketing and festivals business this year.

See Tickets, which was part of Vivendi’s live entertainment arm Vivendi Village, would be the latest in a series of asset disposals by the French media giant. Two years ago Vivendi split its most valuable business, Universal Music Group, via a listing.

Earlier this year, the group, which is controlled by the billionaire family of its founder and noted corporate raider Vincent Bolloré, also completed a deal to buy Lagardère, a publishing and retail business.

Vivendi said the media conglomerate had “received at this stage several very encouraging offers regarding the possible sale of its ticketing and festival activities”. It also noted that the offers were non-binding, adding: “The process continues.”

CTS Eventim, which owns the 22,290-capacity Waldbühne concert theatre in Berlin and is also behind Italy’s largest multipurpose arena set to open in 2025, has been rapidly expanding its ticketing arm, which grew by 36 per cent year on year in the nine months to September to €459mn. Group revenues stood at €1.75bn during the same period.

AEG is second in market share to Ticketmaster in the US, but has struggled to take sales from the dominant participant.

Vivendi bought See Tickets for €96mn including debt in 2011. The business grew from a record shop in the English city of Nottingham into a big ticketing platform for theatre and live music. See Tickets was previously owned by theatre impresario Andrew Lloyd Webber’s Really Useful Group.

Live Nation, which owns Ticketmaster, is unlikely to submit a bid for See Tickets, as it could attract unwanted attention from UK regulators over antitrust concerns just as the US Department of Justice is probing the company for the same reasons, according to a person close to the auction.

AEG and Eventim declined to comment.

Persuading investors about its funding and convincing politicians are two different things

One test in journalism is whether you can successfully explain the story you are writing to your mother. In business leadership, it is whether you stand a chance of explaining yourself to a parliamentary committee who are out for blood. 

Good luck to Thames Water, then. The debt-laden utility will this week face MPs to explain why a £500mn equity investment from shareholders came into the group in the form of a convertible loan, paying 8 per cent interest. 

The answer — which judging by Thames Water’s recent letter to the select committee seems to be: our private equity owners prefer to put in equity in the form of loans and, actually, it doesn’t matter anyway — may meet with some scepticism. The hearing will also look at the recent payment of £37.5mn in dividends from the water company’s regulated operating company up into the upper reaches of its convoluted financing structure. This is particularly important to the future of a company that increasingly looks to be in a downward spiral.

The company has a point on the funding. Despite the fact that the shareholder loan is clearly a liability in the top holding company accounts, and enters the Thames Water operating company as a repayment of an “intra ringfenced group loan”, it is equity where it matters — at the operating level. It is treated as such by credit rating agencies. Private equity likes to make everything as complicated as possible, often for tax reasons. In this case, some tiny sliver of seniority may have appealed given Thames’s dire straits. 

Investors in Thames’s long-term debt at the operating level, like pension funds, are unlikely to have concerns: investors in the ringfenced entities that make up the operating group are protected from whatever shenanigans go on above in the holding companies. None of this really makes it easier to explain to politicians or the public, however — which is an issue when you’re a huge utility supplying a basic human resource. 

More importantly, you can’t detach Thames’s unwieldy corporate structure from the company’s predicament and the regulatory failures that got it here. The convoluted set-up is a legacy of former owner Macquarie and other ex shareholders’ extraction of value using debt raised from the holding companies. That debt, mostly at what is called Kemble Water Finance, is serviced using dividends sent up from the regulated operating company, hence the £37.5mn. 

Thames Water points out that its current owners haven’t received an external dividend for several years (or interest payments on their shareholder loans). The owners don’t plan to receive dividends or similar payments until at least 2030.

But just as equity into the operating group is arguably equity regardless of its origin, dividends are sucking cash out of the utility regardless of where it ends up. KWF does have a working capital facility but, essentially, the flow of dividends up from the operating company to pay its debts is what is keeping the show on the road. And that is getting harder.

This certainly demonstrates the nonsense of a regulatory approach that focused solely on the operating company and didn’t look further up the chain at financing, debt, and structure. As Ofwat belatedly gets tougher, these are in ever-greater conflict. 

New licence conditions require companies to consider customers and the environment before paying dividends. From April 2025, the start of the new five-year regulatory period, the credit-rating trigger that can lock up cash in the operating entities will be tightened, raising the risk that Thames’s holding companies won’t be able to service their debts.

Shareholders have made further equity injections conditional on that next regulatory framework. Thames has asked to increase customers’ bills by 40 per cent, is grappling with rising costs and mounting penalties (which it wants capped), as well as facing huge investment needs and being lumbered with an increasingly unsustainable financial structure. 

Consider this: in its business plan, Thames expects “cash inflow from equity financing” of £3.22bn over five years. Given that only £2.5bn is assumed to come from its shareholders, points out Martin Young at Investec, the remainder (which the company says is “purely indicative”) comes from additional debt sold by Kemble Water Finance. 

That Kemble debt will incur interest, which means extracting more in dividends from the operating company. Indeed, in the business plan, dividends rise from £45mn in the 2022/23 year to £230mn annually by 2029/30. Over the course of the five years, dividends total £936mn in a period where the company has scaled back its plans to invest in ageing assets and stem pollution thanks to “financeability constraints”.

Call it what you want. That would seem to be a problem.

Golden Goose’s Silvio Campara: ‘Luxury is not about being expensive’

The executive is betting on the brand’s signature Super-Star sneakers to sustain growth, but can Golden Goose go beyond its hit shoe?

Silvio Campara likes to wax lyrical about Golden Goose, the Italian label known for its £440 distressed and star-encrusted trainers. Campara has held senior roles at the company since 2013, first as commercial director and then, from 2018, as chief executive. “Golden Goose is not fashion. It’s an icon,” he tells me on Zoom from the company’s head office in Milan, speaking from a conference room with white walls and what looks like a line of washing machines. “We walk together with a Chanel bag, a Hermès bag, a Gucci bag.”

The 44-year-old executive, who joined the brand when Italian private equity fund DGPA took a 75 per cent stake in the label a decade ago, is credited with having transformed Golden Goose from a niche €29mn-revenue Italian label known for West Coast-inspired apparel and footwear into a global fashion brand grossing more than €500mn annually. Sales in the first nine months of the year increased 19 per cent to €421mn compared with the same period last year.

It is on the back of this fast-paced growth that Campara and Golden Goose private equity owner Permira (which bought the brand in 2020) are laying the groundwork for an initial public offering in Milan that could happen as early as the first half of next year, valuing the company at around €3bn, according to FT sources. Campara declined to comment on the company’s IPO plans.

Golden Goose was founded in 2000 by designer couple Francesca Rinaldo and Alessandro Gallo in Marghera, an industrial town facing Venice, as a mid- to premium-level ready-to-wear and accessories label. The couple designed their first products with a distressed effect, a look that helped the label stand out in the crowded aspirational luxury space.

They launched sneakers in 2007 with the Super-Star model, which features a signature five-point star on the side and has been worn by celebrities such as Selena Gomez and Reese Witherspoon. The style, which is priced from £390 a pair, continues to be the brand’s best seller and is now offered in myriad colour combinations and materials.

It was a timely launch, pre-empting the sneaker and streetwear boom of the 2010s, when sportswear and casual clothing became everyday wear. Soon luxury brands moved into the space: Alexander McQueen launched its Oversized sneaker for spring/summer 2015, Balenciaga debuted its chunky Triple S style in 2017 and Louis Vuitton unveiled the ultra arched-soled Archlight in 2018. Today these models have largely fallen out of fashion, lacking the lasting appeal of classic sneakers such as Nike’s Air Jordan and Converse’s Chuck Taylor.

But Golden Goose’s sneakers appear to have more staying power. Karmen Berentsen, owner of multi-brand boutique A Line in Denver, Colorado, which has been stocking Golden Goose for 11 years, had thought sales of the brand’s sneakers would eventually slow down, but she is still struggling to keep up with demand.

“A couple of years ago, before the pandemic, I was like, OK we have sold so many pairs, everyone has so many pairs, we need to find the next best thing. And yet, they are still going strong,” she says. “We don’t have one pair of 37 or 38 in stock — and we buy deep.” She points out that each pair has an insole higher at the heel that “makes your calf look great”.

In the UK, Heather Gramston, senior head of buying at London boutique Browns, says the brand has had an overall “long positive trend” in terms of sales and commends its products for staying outside trend cycles. “The primary Golden Goose customers are women who are looking for a more subtle status symbol, that’s luxury yet comfortable for everyday leisure,” she says. 

But can Golden Goose do more than a single distressed white sneaker? Trainers account for 90 per cent of its sales, with ready-to-wear, handbags, other footwear styles and accessories making up the remaining 10 per cent. Should its Super-Star model become outmoded, the company can bet on other ranges, such as running shoes, “dad” sneakers and high-top styles, but these are less recognisable than its hero product. (In August the label was sued by New Balance, which alleges the Dad-Star sneaker launched in 2020 uses “a design that is confusingly similar” to its 990 shoe and that Golden Goose is “a serial copyist . . . free riding on the creative work and goodwill of others”. Golden Goose filed a motion to dismiss the case in November, but declined to comment further.)

Golden Goose has cast a wide net with its ready-to-wear offering, which includes a mix of sportswear, such as leggings and hoodies, alongside more formal options, such as blazers, wool coats and shirt dresses. Prices range from £110 to more than £2,600. Non-sneaker footwear includes cowboy boots, loafers and flat sandals. Styles and pricing fall in line with contemporary labels such as Sandro and The Kooples, and lack the design distinctiveness that have made the Super-Star a bestseller.

According to Gramston, ready-to-wear has been “well received” at Browns, but at A Line it didn’t perform as well as other brands the boutique stocks, such as Ami and Ba&sh. “It wasn’t as approachable,” says Berentsen. “The thing that works so well with Golden Goose is that it’s casually chic, while the ready-to-wear is fussy.”

Golden Goose’s dependence on sneakers could become an issue as the fashion industry moves on from the streetwear trend. But Bernstein analyst Luca Solca believes sneakers are here to stay. “I don’t see a move away from casualisation and a return of formal wear and accessories on the horizon,” he says. 

Mario Ortelli, who advises luxury groups on strategy and mergers and acquisitions, points to Moncler as a possible blueprint for Golden Goose’s development: another specialist maker — in its case, of puffer jackets — that has been able to evolve into a broader lifestyle brand. “[Golden Goose] is a company that has an excellent growth track record and still has huge white spaces for development possibilities, both at a geographical level and at a category and product level, so I think it is a growth story that the market can appreciate,” he says. 

When asked about the trend cycle of high-end fashion sneakers, Campara assures me that Golden Goose, as an “iconic” brand, is not at the mercy of changing trends. “No matter how old you are, you are always wearing your Levi’s or your Ray-Bans. So this is where we are hoping to land,” he says.

Should Golden Goose IPO go through next year, it will follow a mixed bag of listings from footwear companies. Shares in London-based boot brand Dr Martens, which was also owned by Permira, have lost almost 80 per cent of their value since debuting on the London Stock Exchange in 2021. Merino-wool shoe company Allbirds, which also went to market in 2021, is trading 96 per cent below its opening price, with declining profits, margins and revenue. Shares in German sandal-maker Birkenstock, which debuted in New York in October, dropped just after its IPO, but are now 21 per cent above their opening price.

Retail is another priority for Campara. In 2015, when Belgian buyout fund Ergon Capital Partners III acquired a majority stake in the brand, Golden Goose had more than 600 wholesale accounts and seven flagship stores. Today it has 200 mono-brand stores in 62 countries and around 75 per cent of its turnover is from direct sales, of which 80 per cent are from bricks-and-mortar stores. 

All of them offer a “co-creation” service to shoppers, with at least one artisan available every day to customise sneakers, accessories and ready-to-wear. A repair service is also available at selected locations.

According to Giulio Lombardi, senior Emea director at credit rating provider Fitch Ratings, the retail strategy has worked particularly well in the US, where department stores have been suffering amid declining footfall and heavy debt. “They have a selected distribution, well controlled, which supports the concept of exclusivity and non-mass market,” he says. In 2022, the Americas were Golden Goose’s largest market, growing 55 per cent year on year.

The company recently acquired two of its factories, including its largest supplier in Puglia, southern Italy. The acquisitions were made to ensure “we are improving quality, to increase and improve margins, and especially to make sure to have the production allocation in order to sustain our growth”, says Campara, adding that he is not planning additional acquisitions.

For the company to continue on its growth trajectory, Campara is eyeing south-east Asia, as well as the Middle East and South America, for further expansion, with the majority of the 25 or so store openings it has planned for 2024 in those markets.

China is not a priority. “Today, the real future is not China [but] what we used to call the rest of Asia: Thailand, Vietnam, Philippines, Indonesia, Malaysia,” says Campara. “There is a lot to be done there, where the population is 22 years old on average, not 39.” He says Golden Goose’s customers are largely young people and that 80 per cent could be defined as Gen Z or millennial. 

One thing Campara won’t do to grow the top line, he says, is increase prices. “It’s not by being expensive that you are luxury, it’s by being meaningful and relevant,” he says. “Luxury positioning would be a point of weakness in terms of pricing. But when it comes to experience, luxury positioning is a point of strength. Thank god we are in the second position.”

Arkhouse Management, Brigade Capital recently submitted proposal to acquire famed retailer for $21 a share

An investor group has made a $5.8 billion offer to buy Macy’s M 2.35%increase; green up pointing triangle, in a bid to take the famed department-store chain private after stiff competition from online rivals took a big bite out of its value.

Arkhouse Management, a real-estate focused investing firm, and Brigade Capital Management, a global asset manager, on Dec. 1 submitted a proposal to acquire the Macy’s stock they don’t already own for $21 a share, people familiar with the matter said.

That represented a roughly 32% premium to where shares closed the day before. They have risen this month and closed Friday at $17.39. That is still a far cry from where Macy’s stock traded in 2015—as high as $70 a share—before competition from nimbler digital retailers took a toll on the business and that of other erstwhile industry stalwarts.

The group already has a big position in Macy’s through Arkhouse-managed funds. It has discussed the proposal with Macy’s, whose board subsequently met to discuss the offer. It isn’t clear how the retailer views the proposal.

The investor group, which believes Macy’s is undervalued in the public markets, has indicated that it would be willing to raise its offer subject to due diligence. An investment bank has provided a letter supporting the group’s ability to raise the necessary financing to get a deal across the finish line.

Macy’s operates nearly 500 department stores under its namesake banner. It also owns Bloomingdale’s, a higher-end department-store chain with more than 30 locations, and a number of discount and smaller-format shops under the two banners.

In 2015, Macy’s acquired beauty and skin-care chain Bluemercury, which has nearly 160 shops today.

Macy’s generated about $1.2 billion of profit on $24.4 billion in revenue in the last fiscal year. That was a slight decrease from the $1.4 billion of profit on $24.5 billion in revenue in 2021. In 2014, it booked more than $28 billion in sales.

Its cultural significance outweighs its diminished size, owing to the annual Macy’s Thanksgiving Day Parade and extravagant window displays at its stores in New York City around the holiday season.

Macy’s, the culmination of decades spent gobbling up smaller department-store chains across the U.S., has been a takeover target before. Canada’s Hudson’s Bay Co. approached the company about a deal in 2017, to no avail. More recently, in 2021, Macy’s studied splitting its e-commerce operations from its stores, but ultimately opted against such a move.

Macy’s has also been the target of shareholder activists, with a particular eye on the company’s real estate. Starboard Value built a stake in 2015 and pushed the company to spin off its real-estate assets, including its famous Herald Square location in New York City. Jana Partners was also in Macy’s stock in 2021, when it pushed for the e-commerce separation.

The company has been undergoing a turnaround effort spearheaded by Chief Executive Jeff Gennette, who is set to retire next year and be succeeded by Tony Spring, head of Bloomingdale’s. The effort has entailed closing hundreds of underperforming locations, opening smaller-format shops, launching new in-house brands and modernizing the company’s supply chain.

The department-store sector has experienced waves of consolidation and bankruptcy in recent years. In 2020 alone, JCPenney, Neiman Marcus and Lord & Taylor all filed for bankruptcy, to later emerge as smaller or digital-only players. More recently, Saks—owned by Hudson’s Bay—has been trying to scoop up Neiman Marcus.

Arkhouse is an investment firm that typically focuses on the real-estate industry. In 2021, it was part of a consortium that made an unsolicited bid for Columbia Property Trust, which put the office real-estate investment trust in play. A different investor group ultimately agreed to buy Columbia Property Trust for $2.2 billion.

Arkhouse’s only other public position was in Preferred Apartment Communities, which was sold to Blackstone in a $5.8 billion deal last year.

Brigade Capital Management, which focuses on the consumer and retail industries, has about $25 billion of assets under management. Some of its investments have included JCPenney, Sears and Neiman Marcus.

Planned facility to include advanced chip-making equipment made by ASML

New York state is joining chip companies to invest $10 billion in a semiconductor research facility at the University at Albany that is set to include some of the most advanced chip-making equipment in the world.

NY Creates, a nonprofit that oversees the Albany NanoTech Complex where the facility is to be built, will coordinate its construction. It will also use state funds to acquire chip-making equipment from ASML Holding ASML -0.46%decrease; red down pointing triangle, a Dutch company whose machines can cost hundreds of millions of dollars and are key to making the most advanced chips possible.

Once the machinery is installed, the project and its partners will begin work on next-generation chip manufacturing there, according to New York Gov. Kathy Hochul’s office. The partners include tech giant IBM IBM 1.09%increase; green up pointing triangle, memory manufacturer Micron Technology MU 1.78%increase; green up pointing triangle and chip manufacturing equipment makers Applied Materials AMAT -0.45%decrease; red down pointing triangle and Tokyo Electron 8035 3.44%increase; green up pointing triangle.

The expansion could help New York’s bid to be designated a research hub under last year’s $53 billion Chips Act. That legislation included $11 billion for a National Semiconductor Technology Center to foster domestic chip research and development.

Expanding domestic chip manufacturing and research has become a federal and state-level priority in recent years as concern grows in the U.S. over China’s expanding grasp over the industry. Chips are increasingly seen as a crux of geopolitical power, underlying advanced weapons for militaries and sophisticated artificial-intelligence systems.

ASML’s advanced machines use lasers and droplets of tin in a complex process to imprint the outlines of transistors on silicon. Today, the company’s extreme ultraviolet light, or EUV, machines are the most capable available, allowing chip makers to make transistors only a couple nanometers long.

The machine to be installed in Albany is the next generation of these systems, called high-NA EUV, which aren’t expected to be used in commercial chip production until 2025.

The project at the Albany complex, which began in the 1990s and has been expanded in several stages since, would create 700 jobs and bring in at least $9 billion of private money, Hochul’s office said. New York is investing $1 billion to buy the ASML equipment and construct a building with 50,000 square feet of chip-manufacturing space. Construction is expected to take about two years.

The Albany complex has produced numerous successful chip research efforts over the years but has also had its stumbles. A contracting scandal in 2016 led to the resignation of its founding leader and prompted an Austrian company to abandon plans to partner with the state on a chip factory in Utica. A consortium that was researching whether chips could be made on larger wafers of silicon collapsed in 2017.

As the U.S. offers manufacturing incentives through legislation such as the Chips Act, the federal government has also sought to limit Beijing’s access to the most sophisticated AI chips and chip-making equipment through several rounds of tightened export controls.

New York is home to a number of large chip factories, including ones operated by GlobalFoundries, ON Semiconductor and Wolfspeed. Micron is planning to invest up to $100 billion in a large factory near Syracuse that it is hoping to get funding for through the Chips Act. State officials also have offered incentives for the manufacturing facilities.