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GKN nears deal for Spirit AeroSystems assets

by Lou Whiteman  |  Published June 19, 2014 at 3:39 PM

The long and arduous auction of Spirit AeroSystems Holdings Inc.'s Oklahoma plants is nearing a close, with British manufacturer GKN plc emerging as the likely buyer for the wing assembly operations.

Wichita-based Spirit put the Tulsa and McAlester, Okla.-based plants on the block in August 2013, concluding after a review sparked by new CEO Larry Lawson that the plants would be better off under a new owner. The auction has since moved in fits and starts, raising some doubts as to whether the units would eventually be sold.

Sources said the delays have been caused both by valuation concerns and an uptick in the fortunes of some of the operations on the block. In recent months the review has become more complicated, these sources said, with Spirit now considering divesting only some of the weaker performing wing assembly assets, and perhaps carving out other operations to make the purchase more palatable to would-be buyers or to recoup losses if the Oklahoma businesses don't get the valuation Spirit desired.

Specifically, sources said that Spirit could split off the unprofitable business of making components for Gulfstream business jets from the more lucrative Boeing Co.-centered contracts, perhaps selling the money-losing units at a loss. The exact other assets that might be for sale are unconfirmed, but labor leaders and politicians in Wichita have said that Spirit's local fabrication operation, which makes components that go into larger assemblies made and sold by the company, could also be divested.

The company hopes to announce a sale prior to the July 4 holiday, according to sources.

Spirit officials have refused to comment on rumors, but labor sources say that Spirit mangers in recent weeks have told workers in Wichita and Tulsa to expect an announcement on new ownership in the coming weeks. The Society of Professional Engineering Employees in Aerospace, a labor group that represents some of the potentially impacted workers, last week sent a letter to Spirit management requesting more information about the transaction and potential layoffs.

Sterne, Agee & Leach Inc. analyst Peter Arment in a note upgrading Spirit shares to a buy said that he would be comfortable with any resolution to the long-running auction, be it a sale or just retaining the wing assemblies. But he said the potential split could be the best option.

"We believe paying someone to take the money losing Gulfstream programs in Tulsa, partially offsetting the payment with cash proceeds of selling the Wichita fabrication operations, provides the most upside to long-term investors," Arment wrote.

The analyst estimated that the Oklahoma operations generate upwards of $1 billion in revenue, or about 14% of Spirit's total, of which about $200 million is tied to the Gulfstream programs. The remaining operations, which make wing assemblies and related parts for Boeing commercial aircraft, are profitable.

Redditch-based GKN has long been mentioned as a potential bidder for either all of Spirit or the Oklahoma plants, and CEO Nigel Stein earlier this year told investors that "it would be entirely logical" to assume GKN has an interest in what Spirit was selling. The company, which traces its history back to the birth of the industrial revolution, is a diverse manufacturer with a substantial aerospace presence as a maker of aerostructures, engine products and propulsion systems.

It is unclear whether GKN would acquire both the Gulfstream business in Oklahoma and the Wichita fabrication assets or just some of what is being divested. There has also been talk of a group of former Spirit executives teaming up with private equity to make a bid for some or all of what the company has on the block.

Other rumors have Boeing, the one-time parent of Spirit, moving to buy back the operations that make components for its jets. But a source said Thursday that a deal between Boeing and Spirit seems unlikely in the near-term.

Tags: Boeing Co. | GKN plc | Nigel Stein | Spirit AeroSystems Holdings Inc. | The Society of Professional Engineering Employees in Aerospace

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Lou Whiteman

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