Spirit, Bombardier Agree To 45% Cash Discount To Close Acquisition
Wichita aerostructures giant Spirit AeroSystems has struck a 45% cash discount with Bombardier for the latter’s Short Brothers capacity in Northern Ireland, as well as Bombardier Aerospace North Africa and most of a Dallas MRO site.
Spirit announced the new terms Oct. 26, just five days ahead of the deadline for closing the nearly year-old acquisition agreement with Canada’s Bombardier. The amendment cut the net proceeds purchase price payable to Bombardier to $275 million from $500 million. At signing on Oct. 31, 2019, Spirit said the deal had a then-total enterprise valuation of $1.09 billion. The new terms cut that to $865 million, down about 20%.
The companies expect to close the deal on Oct. 30. The move makes Spirit one of Bombardier’s largest suppliers, increases work content for Airbus, and also diversifies Spirit’s revenue streams with more aftermarket sales. Spirit has been working for years to diversify away from Boeing commercial aerostructures work, which accounts for most of its annual revenue.
The acquired businesses are based in Belfast, Casablanca and Dallas. The facilities add up to 3.4 million ft², with the 3 million ft² Belfast facility the majority. Jefferies analysts estimated the acquired assets have content on five aircraft and three engine programs, with the largest current programs being the Airbus A220 and the Bombardier Global series, with 2019 normalized total revenue around $1 billion.
“The transaction secures Spirit’s position as the world’s leader in composite structures for aircraft and as one of the leaders in integrated wing technologies,” Spirit AeroSystems CEO and president Tom Gentile said.
Still, no new information was provided regarding A320neo thrust-reverser work, and the issue remains a key question for investors, according to Jefferies analysts. In June, Airbus revealed its intent to forego insourcing the work on the nacelle from Raytheon Technologies, representing a relatively large lost opportunity for the Bombardier-turned-Spirit business.
The Spirit-Bombardier deal was one of many fragile, pre-pandemic acquisition agreements that were being watched by industry observers–especially following the recent failure of a separate deal by Spirit to buy Asco Industries of Belgium. Spirit was widely expected to seek a price reduction from Bombardier, particularly after the A320neo thrust reverser issue. Weeks ago, the companies revealed another change to their arrangement, with Spirit now not expected to make a $130 million pension contribution until sometime in 2021.
Still, both companies were motivated to close the deal. With the price reduction, Spirit saves roughly $355 million of near-term liquidity, according to Jefferies. Bombardier, meanwhile, receives badly needed funds to continue its own transformation as it focuses on being a business jet provider only. Both companies have seen their stock and credit ratings sink in 2020 as cash concerns skyrocketed in the wake of COVID-19’s devastating affects to the commercial aviation sector.
Bombardier on Sept. 16 said it finalized terms of the sale of its train business to Alstom for $8.4 billion, including a $350 million price cut from the MOU unveiled in February.