Héroux-devtek announces a new deal with Boeing

Any day other than Monday, the news from Héroux-Devtek Inc. would — and should — have been big news.

But Gilles Labbé, president of the Longueuil landing-gear firm said in an interview that for legal and regulatory reasons, he was obliged to disclose a contract he called “transformational for our company” on Monday — the same day that Bombardier Inc. finally performed the much-anticipated first flight of its CSeries. That day-long coverage in great depth left scant room for other aviation-related announcements.

Consequently, the landmark deal Héroux-Devtek agreed to — due to be formally signed by year’s end — with Boeing Co. to supply the aircraft-maker with full landinggear assemblies for its current and future long-haul B777s flew under the radar, buried by the splashy inaugural flight.

Héroux-Devtek already makes large sub-assemblies for the 777 jumbo jet and many other large aircraft programs, including Lockheed Martin Corp.’s controversial F-35 and Boeing’s KC-135 refuelling tanker. But the complete assembly is a quantum leap forward for the firm, Labbé said.

“It propels us to the front ranks in landing-gear for commercial aircraft,” said Labbé from Hannover, Germany, where he is looking to buy equipment that will be needed for the prospective accord.

“We’re going to ship to Boeing the full assembly — the wheels, the brakes, the whole kit.”

The memorandum of understanding signed by Héroux-Devtek’s wholly owned subsidiary, Ohiobased HDI Landing Gear USA Inc., covers the 777 and the 777X, a derivative that Boeing is considering.

“They’re now building 8.3 777s a month, about 100 a year, a very significant number,” Labbé said. “And they’re evaluating a derivative, an improved version, the 777X, and we’ve been chosen for that one as well.”

Deliveries are expected to start in 2017 and run through 2028.

But Labbé said it was too early to talk about investments in Longueuil or job creation as a result.

In a note to clients, Cameron Doerksen, an analyst with Montreal’s National Bank Financial, also called the contract “transformational” for Héroux-Devtek.

“We don’t believe that (Monday’s) announcement … has been fully appreciated by the market. The 777 landing-gear is one of the largest on any aircraft type so the win is a huge testament to (Héroux’s) technological capabilities and is affirmation from customers that the company can compete with the two big landing gear players.”

Doerksen raised his target for Héroux shares to $11 from $10. Shares jumped to $9 on the news.

Analyst Benoit Poirier of Desjardins Securities said in his note to clients that at an estimated $600,000 per B777 assembly, the increase in revenues could be about $60 million a year.

Héroux-Devtek does full assembly landing-gear systems, but for smaller aircraft, including Bombardier’s Learjet 85 corporate jet, which is still in development.

Labbé said the 777 deal is a turning point for the firm in that it vaults Héroux into the same court as its two main competitors, Goodrich Co. and Messier-Bugatti-Dowty. Both are much larger and are owned by globally recognized aerospace empires — Goodrich was recently acquired by United Technologies Corp., which also owns Pratt & Whitney, among other brands, and Messier-Bugatti-Dowty is a division of France’s multinational Groupe Safran.

Previously, the large components for the B777 that Héroux manufactured in Longueuil and at its U.S. subsidiary were shipped to one of these two firms, which integrated them into their systems.

Héroux sold its aerostructure business recently for a hefty sum, and Labbé suggested that it may have been part of corporate strategy with the 777 deal in mind.

“We had a great price, so it allowed us to deploy capital to shareholders, but we kept a lot of it also to allow us to do what we’re going to do for Boeing and other clients in future.

“Now we have decisions to make in the next few months in terms of investments.”