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US Air Force rejects Heroux Devtek bid for new contract

Work under an existing contract to make parts and maintain landing gear will be phased out


March 28, 2017
The Canadian Press
The Canadian Press

LONGUEUIL, Que.—Heroux-Devtek Inc. shares hit a 52-week low after the landing gear maker said its bid for a new contract with the US military was rejected and work under an existing contract will be phased out within two years.

The Longueuil, Que.-based aerospace company said it wasn’t selected to manage all the landing gear requirements for the U.S. Air Force’s C-130 Hercules cargo plane, KC-135 Stratotanker refuelling plane and E-3 AWACS surveillance plane.

It also said that work under an existing US Air Force contract to make parts and maintain landing gear for the aircraft will be phased out gradually over the course of its fiscal year ending March 31, 2019.

Analyst Cameron Doerksen of National Bank Financial cut his forecast for Heroux-Devtek, saying the announcement signals that revenue growth challenges will continue. Heroux-Devtek had already warned that fiscal 2018 revenues would decrease largely due to a production rate cut for the Boeing 777.

“The loss of this contract is surprising to us given that Heroux was under contract to support the landing gear for these aircraft until 2021 and the company has been performing repair and overhaul work for the U.S. Air Force for about 45 years,” Doerksen wrote in a report.

Doerksen attributed the contract loss to the US Air Force’s decision to move to a larger logistics supply-chain management contract. He estimates the contract loss will lower revenues in fiscal 2019 to $409 million from $441 million.

Heroux-Devtek closed down 9.3 per cent to $11.52 on the Toronto Stock Exchange after reaching a low of $11.06.