US plane maker Boeing Co. announced on Tuesday its acquisition of aerospace and defense group KLX Inc., as the world's largest plane maker intends to bolster its aircraft-services business.
Aiming to expand further its fast-growing new division, Boeing will be buying KLX for a total of $4.25 billion or $63 per share in an all-cash transaction, including a net debt of approximately $1 billion.
Boeing executive vice president Stan Deal said the acquisition is the next step in their services growth strategy, with a clear opportunity to profitably broaden their business and better serve their customers in the services market.
The agreement came after Boeing last week was reportedly close to achieving a deal to acquire KLX.
The deal, according to the Chicago-based firm, will include KLX's Aerospace Solutions Group and is conditional upon the successful divestment and separation of KLX Inc's Energy Services Group. The contract is expected to close by the third quarter of 2018.
KLX estimated revenue of $2 billion this year, compared with $1.75 billion in 2017. Margins of around 17 percent are along the lines of those of Boeing’s services unit, while KLX’s energy-services business posted sales of $321 million last year.
Shares of Boeing gained 0.1 percent to $334.00 in after-hour trading on Tuesday.
Boeing Expanding Services Unit and Seeking Out Deals
The KLX deal is the biggest so far by Boeing chief executive Dennis Muilenburg, who has been seeking out agreements that could help triple sales at the company’s services business to as much as $50 billion within 10 years. Muilenburg stated last week that Boeing Global Services was looking for potential deals.
Media reports in February stated that Boeing has held preliminary discussions with aerospace systems maker Woodward Inc., and is also negotiating a joint venture deal with Brazilian aircraft manufacturer Embraer SA, as Boeing tries to get a hold of its commercial jets.
Embraer stated last week that any transaction would carve out its defense operation and probably its business jet division.
Boeing has a market share of just 7 percent in the fragmented aircraft-services industry, which it expects to be worth $2.6 trillion over the next 10 years. Offering maintenance, spare parts, and training services usually create better margins than constructing planes or weapons systems.
The aircraft maker established its services unit last year by putting together a variety of very profitable divisions that support customers and overall represent about 15 percent of total sales.
The move had put aerospace suppliers and engine makers on edge, who are typically responsible for driving a huge part of the firm’s profit by tending to aircraft for over 30-year commercial lives.
Boeing sees its acquisition of the Wellington-based company to have a neutral impact on earnings through 2019 and would gradually increase afterwards, while annual cost savings is expected to rise by about $70 million in 2021.
In addition, analyst Ken Herbert stated earlier this year that the aircraft manufacturer could add between $1 billion and $1.5 billion to its annual services sales provided it achieves a separate agreement with Embraer.
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