Triumph Group To Take Over Production Of Gulfstream Wing Programs From Spirit

(RTTNews) - Triumph Group, Inc. (TGI) said Tuesday that under a deal it reached with Spirit AeroSystems Holdings, Inc. (SPR), it will take over production of the Gulfstream G650 and G280 wing programs located in Tulsa, Oklahoma. The companies expect the transaction to close by calendar year end.

Berwyn, Pennsylvania-based Triumph Group makes aerostructures, aircraft components, subassemblies and systems. Wichita, Kansas-based Spirit AeroSystems, through its subsidiaries, operates as a non-original equipment manufacturer or OEM that designs and manufactures commercial aerostructures worldwide.

Under the terms of the deal that was signed on Tuesday, Triumph Group will receive $160 million in cash plus the assets required to run the business from Spirit AeroSystems to cover the anticipated future cash flow needs of the programs. Triumph Group is not expected to make any additional capital contributions.

Triumph Group noted that the addition of these programs will strengthen its position in fully integrated wing design, engineering and production. It will also enhance its standing as a strategic Tier One Capable aerostructures supplier.

Further, new agreements with Gulfstream and Israel Aerospace Industries or IAI will facilitate and support the transaction.

Following completion of the transaction, Triumph Group will be a major provider of wings to Gulfstream, supplying four of Gulfstream's five in-production programs - G280, G450, G550 and G650.

Jeffry Frisby, President and CEO of Triumph Group said, "We conducted a thorough evaluation of the G650 and G280 programs and, given our experience and success on other Gulfstream wing production programs, we believe we have an opportunity to deliver value to Gulfstream, IAI and to our shareholders. These programs are a logical extension of Triumph's core capability in complex aerostructures, including completed wing production and assembly."

Triumph Group expects the programs to be initially cash flow negative, with operating cash requirements anticipated to decrease over the first three years and becoming cash flow positive in year four.

Triumph Group will include the business in the Aerostructures Group segment. The business is expected to add about $250 million in annual revenue and be immediately accretive to Triumph's earnings per share upon closing.

Production will continue out of Spirit's Tulsa facility upon closing of the transaction, while Triumph Group will look to utilize its manufacturing experience, resources and wing design engineering capabilities as needed to supplement the Tulsa operations.

The company said it will focus on optimizing the build process and cost structure of the programs, and has identified opportunities for engineering, supply chain and labor enhancements.

In a separate statement, Spirit AeroSystems said it employees who are currently working on the Gulfstream programs will be offered positions with Triumph. The company expects the transaction to result in an estimated loss in the range of $205 million to $235 million, or $1.45 to $1.65 per share.

Further, Spirit AeroSystems estimates the transaction will generate a cash tax benefit of about $220 million to $230 million. If the closing occurs in 2014, the cash tax benefit will be fully realized in 2014 and 2015, with an overall favorable cash result of the transaction, including estimated closing costs, realized in the same period in the range of $55 million to $65 million.

Spirit Aerosystems noted that its 2014 full-year financial guidance, which was updated last quarter, excludes the financial impact of the work transfer and the impact of the deferred tax asset valuation release as a result of this transaction.

For fiscal 2014, the company forecasts earnings per share of $3.35 to $3.45 per share, revenues of $6.8 million to $6.9 billion and free cash flow of about $275 million.

TGI closed Monday's trading at $68.32, down $0.55 or 0.80 percent on a volume of 320,220 shares. SPR closed Monday's trading at $43.46, down $0.23 or 0.53 percent on a volume of 798,272 shares.