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Héroux-Devtek puts focus back on landing gear

A worker works at on Landing gear without wheels at the Heroux Devtek plant in Quebec.

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Aerospace manufacturer Héroux-Devtek Inc. is preparing for landing.

In selling two of its divisions to a bigger rival based in the United States for about $300-million, the Longeuil, Que.-based firm says it is moving to focus squarely on the engineering, innovation and design of its key landing-gear business.

Portland, Ore.-based Precision Castparts Corp. will acquire the Canadian company's structural components and industrial products units, which represent about $130-million in annual sales – roughly one-third of Héroux-Devtek's total annual revenue.

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The deal comes just a little over a year after the company was touting its expansion into Mexico as a supplier of structural components to Bombardier Inc. and others. But president and chief executive officer Gilles Labbé said in a conference call on Tuesday that the diversification strategy didn't strike a chord with shareholders.

The company has -- (and will maintain?) -- contracts with companies such as Airbus, Boeing, Bombarder and Embraer. But it is the work it does with the U.S. air force and navy that has dragged on the firm's stock amid concerns over a spending decline in the sector as the government cuts back – about 55 per cent of the Quebec company's business is military. And finding the right acquisitions to expand had become difficult for Héroux-Devtek, especially with fierce competition from bigger players like Precision, which has has annual revenue in the $7-billion (U.S.) range, about 20,000 employees and 126 plants.

"We did all the right things to develop the three businesses and the market didn't pay attention," Mr. Labbé said, claiming the stock price has been undervalued for the past two years.

"Our vision is to build Héroux-Devtek into a Quebec-based world-class organization in this core market."

Investors seemed on-board with this plan on Tuesday, sending Héroux-Devtek shares soaring almost 33 per cent on the Toronto Stock Exchange to $10.42 (Canadian), up $2.57.

"They got a very good offer for these businesses that significantly unlocks some value that the market was not giving the company," National Bank Financial analyst Cameron Doerksen said.

But Cormark Securities analyst David Newman said a sale of Héroux-Devtek's remaining assets might be in the cards.

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"Ultimately, we believe the remaining landing gear business could be sold," he said in a research note.

Mr. Labbé dismissed suggestions the remaining assets of Héroux-Devtek might be up for sale.

"The board has not decided to do that. We have different alternatives in front of us. We will study them carefully," he said.

In the transaction announced Tuesday, Héroux-Devtek is selling aerospace facilities in Dorval, Que., Querétaro, Mexico, and Arlington, Tex. It is also selling its Cincinnati industrial products manufacturing site.

Mr. Labbé said that there remain many opportunities in the landing-gear business, including possible acquisitions.

He also said the board is studying "different scenarios" for how to use the net proceeds of about $230-million from the transaction. One such scenario is a major distribution to shareholders.

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About 440 employees work at the four plants being sold, but Mr. Labbé said no layoffs are anticipated.

Among the customers of Héroux-Devtek's aerospace components division are Lockheed Martin Corp., Bombardier and General Dynamics Corp.'s Gulfstream unit.

About 1,000 employees work at Héroux-Devtek's landing-gear facilities in Canada and the U.S., including about 100 engineers.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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