Title: Héroux-Devtek: beyond IRBs
Sub-title: Canadian military aircraft purchases are opening up new skies for this components manufacturer.
When the average guy thinks of military aircraft, the first things that come to mind are firepower, engines and other performance metrics. Landing gear, aero-structures and industrial parts, the three crucial areas that Héroux-Devtek makes and markets to end users, OEMs and Tier I suppliers, rarely merit a second look.
The shear un-sexiness of its main products may help explain how Héroux-Devtek has managed to remain under the radar for so long. But make no mistake about, this Montreal-based company, which, despite its success has remained largely unknown to non-experts, is a major defence sector player. And chances are you will be hearing a lot more about them.
Much of this has to do with the Héroux-Devtek’s increasingly visible role as a supplier for Lockheed Martin’s new F-35 Joint Strike Fighter program. The Canadian government had signed the initial JSF initial nine-partner agreement as along ago as 1997. However it recently reiterated its support by announcing that it would buy 65 of the highly touted “next generation” aircraft, at a cost that could run up to $14 billion or even more. That would make it the largest such purchase in Canadian history. That’s great new for Héroux-Devtek, which could emerge as a big winner in the deal.
A big winner in the Joint Strike Fighter deal
According to company officials, Héroux-Devtek is expected to supply about $750,000 of contract work for each F-35 produced. Its involvement includes supplying landing gear components and aero-structure parts that are part of the plane’s wings and center fuselage. Furthermore, production will span 25 years and in-service support will extend out to 2051.
“Involvement in the concept development and demonstration phase of the F-35, makes this an outstanding opportunity for the Canadian aerospace industry,” Gilles Labbé, Héroux-Devtek’s president, told the House of Commons Standing Committee on National Defence recently. “(It) places our industry in a prime position to win substantial manufacturing contracts for the partner nations’ fleet of 3,173 aircraft and for the aircraft sold to non-nation partners.”
A construction pace of 100 aircraft per year could boost Héroux-Devtek’s sales by as much a $75 million per year. If 3,000 JSFs are eventually produced, this would add more than $2 billion in sales to the company over the life of the program.
A compelling growth story
Héroux-Devtek, which was founded in 1942, has a long history in the Canadian aerospace and defence sector. When Labbé took over the company in 1985 (he presently owns just over 10 percent of the outstanding shares) it was doing a lot of maintenance, repair and overhaul (MRO) work, but since then, he has slowly moved it up the value chain. Much of this came from a string of acquisitions which took Héroux-Devtek into the industrial gas turbine, landing gear and aero-structure businesses.
The 2004 acquisition of Arlington Texas-based Progressive Inc. gave Héroux-Devtek stronger relationships with many leading US defence integrators, and positioned it as a leading candidate to supply the JSF program. As if that wasn’t enough, last year, the company announced the acquisition of Eagle Tool & Machine Co. and its E2 Precision Products subsidiary. The deal, which included facilities in Springfield and Cleveland and 180 new employees, added additional landing gear manufacturing capacity south of the border.
A key military player
Today Héroux-Devtek, which last year derived about 60 percent of its $320 million in revenues (up from just $12 million in 1985, when Labbé took over) from military and military-MRO contracts, is a key sector player. (The balance of its revenues stem from the civil aerospace side). Most of Héroux-Devtek’s production is from its landing gear division (61 percent) with the balance consisting or aero-structure (32 percent) and gas turbine (7%) work. Fully two-thirds of those revenues come from exports.
On the aero-structure side, Héroux-Devtek provides its customers such as Bombardier, Bell Helicopter and of course Lockheed Martin (for the F-35) with a range of aero-structure capabilities at plants in Dorval and Arlington Texas. These include complex machining, kitting, assembly and other value added services. Final production ranges from bulkhead frames, to precision assemblies and wing fittings and tips.
Héroux-Devtek’s landing gear division, which is spread out among a slew of centers of excellence in places such as Longueuil, Laval, Kitchener and Springfield, is equally impressive. Its capabilities range from precision manufacturing, to assembly and of course repair and overall. Another more recent development during the past few years, has been the beefing up of the company’s design team which now includes 75 engineers.
With that kind of clout, Héroux-Devtek has locked up a series of recent contract wins from companies such as Sikorsky, Lear, Embraer and Dassault. And late last year the company inked a $16.4 million deal to supply landing gear parts for the B1-B, C-130, C-5 and F-15 aircraft.
According to Patrice Gauvin, the company’s vice-president (business development) Héroux-Devtek is also a force to be reckoned with in the helicopter landing gear market, notably through a multi-year deal signed with the Boeing Company, to manufacture landing gear for the H-47F Chinook heavy lift helicopter and the 15-unit CH-147 Canadian versions. “Because of the heavy presence of IEDs in the Afghanistan theatre, rotary wind aircraft use is likely to increase,” said Gauvin. “So we are glad to be a part of that.”
Under the memorandum of understanding signed with Boeing, Héroux-Devtek will have the opportunity to manufacture, assemble, text and deliver landing gear for H-47s scheduled for delivery outside of the United States for a four year period, expected to start in early 2012. Héroux-Devtek will also try to get a license to do service work for the 1,000 existing helicopters.
IRBs: whom needs them?
Yet the big defence feather in Héroux-Devtek’s cap remains the JSF opportunities. Labbé vigorously defends the program against charges from critics who say that the Canadian government’s “no-bid” purchase of the aircraft should have been held up to closer scrutiny.
“Canada’s involvement will bring value added work to our country, and generate thousands of high quality jobs,” said Labbé. “We must act though,” he concludes. “Now is the time to enter the supply chain and to take advantage of this most extraordinary opportunity.”
Labbé is also sceptical about claims that Canada will reap less from the JSF deal, that it would from typical defence industry offset deals. “On a typical IRB program only costs related to the aircraft itself would generate IRBs,” said Labbé. “Those costs represent approximately $4.8 billion. Right now we are on a position to bid on opportunities worth $12 billion on the partner’s fleet of 3,173 aircraft. But as I said, we have to act now. Once the full production begins in 2013, all suppliers will have been selected and it will be too late for Canada to jump in.”
Name: Heroux-Devtek Inc.
Key contacts: Patrice Gauvin
Locations: Quebec, Longueuil, Laval, Kitchener, Springfield, Cleveland, Dorval, Dallas, Toronto, Cincinatti
Services: Landing gear, aero-structures, industrial products
Number of employees: 1,500 (including 1,000 in Canada
Sales: $320 million (year ended March 31, 2010). Projected $360 million for 2011.
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Peter Diekmeyer Communications Inc.