TransDigm Group Inc (TDG) announced that it has completed the divestiture of its fastener business to Alcoa Inc. (AA) for approximately $240 million.
The TransDigm fastener business, which was acquired in December 2010 as part of the McKechnie Aerospace acquisition, is made up of Valley-Todeco Inc. located in Sylmar, CA, and Linread Ltd. located in the United Kingdom. The business designs and manufactures fasteners, fastening systems and bearings for commercial, military and general aviation aircraft.
After tax cash proceeds from this transaction are estimated to be approximately $170 million.
TransDigm has large and renowned customers in the aerospace/defense sector. These include:
(1) distributors of aerospace components; (2) worldwide commercial airlines, including national and regional airlines; (3) large commercial transport and regional and business aircraft OEMs; (4) the armed forces of the United States and friendly foreign governments; (5) defense OEMs; (6) system suppliers; and (7) various other industrial customers.
The industry’s stringent regulatory, certification and technical requirements, and large investments necessary for the development and certification of products, create barriers to entry for potential new competitors.
As long as customers receive products that meet or exceed expectations and performance standards, they will have little or no incentive to change suppliers because of the cost and time involved for technical design and testing certification process. In addition, concerns about safety and flight delays if products are unavailable or unreliable are reasons for customers to continue long-term supplier relationships.
TransDigm’s business is sensitive to the number of flight hours of its customers’ planes, the size and age of the worldwide aircraft fleet and customers’ profitability. These are, in turn, affected by general economic conditions. Its business is directly affected by changes in revenue passenger miles (RPMs), the size and age of the worldwide aircraft fleet and, to a lesser extent by the changes in profitability of the commercial airline industry, among other factors.
RPMs and airline profitability have historically correlated with the general economic environment. National and international events also play a key role. As a result of the substantial reduction in airline traffic resulting from these events, the airline industry incurred, and some in the industry continue to incur, large losses and face financial difficulties.
Some carriers have also parked or mothballed a portion of their fleets and have reduced workforces and flights. During periods of reduced airline profitability, some airlines may delay purchases of spare parts, preferring instead to deplete existing inventories.
TransDigm Group Inc is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Its business is well diversified due to the broad range of products it offers to its customers.
We currently have a Neutral recommendation on TransDigm Group Inc.
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