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Héroux-Devtek Inc.

Suite 658, East Tower
Complexe Saint-Charles
1111 Saint-Charles Street Ouest
Longueuil, Québec J4K 5G4
Canada
Telephone: (450) 679-3330
Fax: (450) 679-3666
Web site: http://www.herouxdevtek.com

Public Company
Incorporated: 1942 as Héroux Machine Parts Limited
Employees: 1,100
Sales: CAD 213.21 million ($163.0 million) (2004)
Stock Exchanges: Toronto
Ticker Symbol: HRX
NAIC: 333611 Turbine and Turbine Generator Set Units Manufacturing; 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; 336412 Aircraft Engine and Engine Parts Manufacturing; 336413 Other Aircraft Parts and Auxiliary Equipment Manufacturing

Héroux-Devtek Inc. primarily produces landing gear, structural components, and other parts for a variety of commercial and military aircraft. It also makes industrial gas turbine parts and small arms. The company was formed by the 2000 merger of Héroux and Devtek. It has landing gear plants in Kitchener, Ontario, and Montreal, Québec, and an industrial turbine component plant in Cincinnati, Ohio.

Origins

Héroux Inc. was incorporated in Québec on March 17, 1942, as Héroux Machine Parts Ltd. Located in Longueuil, a suburb of Montreal, Héroux's small factory turned out machined components for military equipment. The workforce originally numbered fewer than 15 people.

The company began to specialize in aerospace in the mid-1950s. The company moved to a new site in Longueuil in 1954. Early projects included producing servos and landing gear for the Canadair CL-215 water bomber and de Havilland's DCH-6 Twin Otter. A high point in the company's history was providing landing gear for the Apollo space program's lunar module.

The United States was beginning to account for much of Héroux's business. Héroux won a contract to overhaul landing gear for the U.S. Air Force in 1970. This would be an enduring business. The company soon established a second maintenance base at Saint-Jean-sur-Richelieu Airport to the southeast of Montreal. This facility, however, would be closed in 1982. Bombardier Inc. acquired Héroux in 1973.

Sales were about CAD 14 million a year by 1985. In that year, corporate parent Bombardier Inc. sold Héroux to two of its managers, Gilles Labbe and Sarto Richer, who had joined the company three years earlier. Citibank Canada financed the CAD 10 million purchase. Labbe, then 29, had joined the company in 1982 as director of finance. According to the Globe and Mail, Labbe and Richer were able to pay off the bank loan in 18 months, while sales more than tripled to CAD 49 million in three years. One-fifth of shares were floated in a 1986 stock offering on the Montreal Stock Exchange.

Héroux acquired McSwain Manufacturing Corporation of Cincinnati, Ohio, in November 1987. McSwain produced precision machined parts for a variety of industries.

Héroux specialized in building and overhauling landing gear for heavy U.S. military transport aircraft, including the colossal C-5. In 1989, Héroux paid $18.5 million for 80 percent of ABA Industries Inc., a Florida company that produced engine parts. ABA had 270 employees. It had originally been founded in Connecticut in 1944 and went public in 1969 before being acquired by General Defense Corp. in 1983 for $20.4 million. It had undergone a management buyout in 1987. The ABA acquisition made Héroux a certified supplier for engine giants General Electric and Pratt & Whitney.

Civil Focus in the 1990s

Héroux started the 1990s with sales of $73.5 million a year, 70 percent of it from military business. The Soviet Union's Cold War threat to the West was waning, and Héroux steered its efforts toward the commercial, rather than military, side of the aviation industry. The company began producing after-market parts for Boeing in early 1990. It also overhauled planes for Canadian Airlines International Ltd. and U.S. Air.

Seeking to diversify into industrial products, Héroux acquired a 60 percent holding in FRE Composites Inc. in 1992. FRE was a Canadian manufacturer of composite products for the aerospace and mass transit industries.

Military downsizing continued throughout the 1990s, but it produced some additional business for Héroux. For example, in September 1996 the U.S. Navy opted to have Héroux overhaul landing gear for its S-3 Viking surveillance aircraft, work that had previously been done in-house. Still, defense accounted for just 30 percent of revenues in the mid-1990s.

In 1998, Héroux announced that it was partnering with Messier-Dowty Inc. to produce landing gear for a civilian derivative of the V-22 Osprey tiltrotor. Two other contractors for Bombardier regional jets were acquired in June 1999. Metro Machining Corp. and Les Industries C.A.T. Inc. together had sales of CAD 11.6 million in 1998, and specialized in structural aircraft components. Héroux sold off FRE Composites for CAD 5.3 million in January 2000 to concentrate on its aerospace and power generation businesses. FRE had accounted for less than 10 percent of Héroux's sales.

Acquisition of Devtek in 2000

Héroux Inc. acquired Devtek Corporation in 2000. Devtek's origins went back to 1981, when auto parts manufacturer Magna International Inc. spun off 80 percent of its aerospace and defense business to a group led by Helmut Hofmann. Hofmann had emigrated from West Germany in 1951, when he was a tool-and-die maker by trade.

The spinoff was named Devtek Corporation. It specialized in electronics. Its Diemaco Inc. division, based in Kitchener, Ontario, produced rifles for the Canadian Armed Forces. About 90 percent of Devtek's sales were to the military.

Devtek acquired two companies in early 1986. Hochelaga Workshops—renamed Hochelaga Aerospace Inc.—was a Montreal-based manufacturer of flight control and landing gear assemblies. General Manufacturing of Fort Lauderdale, Florida, produced precision machined components. Devtek also owned Magna Electronics and Verral Metal Fabricators, both based in Scarborough, Ontario. Unit Hermes Electronics Ltd. of Halifax, Nova Scotia, produced sonar buoys for detecting submarines.

Devtek Corporation, based in Markham, Ontario, went public on the Toronto Stock Exchange in November 1986 when sales were about CAD 75 million a year. Its initial public offering raised CAD 14 million.

Devtek bought a 50 percent share of Interfast Inc., a high-tech aerospace fastener company based in Toronto, in April 1988. A seven-year noncompete agreement with Magna International expired that year, and Devtek returned to its roots by investing CAD 6 million plus shares worth CAD 1 million in privately owned auto parts supplier Tridon Ltd. Tridon employed about 900 people and was best known for its windshield wiper blades. Annual sales were about CAD 100 million. In December 1989, Devtek raised its stake in Tridon from 27 percent to 51 percent. It acquired the remainder within a few years.

Devtek had about 2,000 employees in three units in the early 1990s. A falloff in defense business prompted Devtek to shift to commercial aircraft such as the Boeing 747 and de Havilland Dash-8. The civil air business, however, also was entering a slump. Devtek posted losses for the fiscal years 1991 to 1993. In late 1994 Devtek announced that it was focusing on the auto industry.

Devtek was profitable again by 1994, posting net income of $3.3 million. Operating revenues were $261.6 million in 1995, with net income of $4.6 million. By this time, noted the Financial Post, the automotive industry was accounting for 60 percent to 70 percent of Devtek's revenues. Britain's Automotive Components Dunstable Ltd. was acquired for CAD 22.4 million in February 1996. This purchase made Devtek a global leader in integrated wiper systems. Devtek's revenues were CAD 320 million in 1996.

In August 1997, a joint venture of Devtek won a CAD 100 million contract from Ford Motor Co. to provide bi-fuel systems for pickups and vans. These allowed vehicles to operate with either gasoline or natural gas or propane. Devtek's equal partner in the venture, Kitchener-based GFI Control Systems Inc., was Stewart & Stevenson Services Inc. of Houston.

Sales were about CAD 400 million a year in the late 1990s. Devtek had 13 plants in North America and Europe. ACD Tridon Inc. employed 1,550 people and had sales of $296 million in 1998. Nevertheless, Devtek moved to quickly unload Tridon when it began to show quarterly losses. In April 1999, Tomkins PLC bought the unit for $55 million, plus the assumption of $100 million in debt. GRI Controls Systems was not included in the deal.

New Challenges After 2000

Héroux Inc. changed its name to Héroux-Devtek Inc. in September 2000 after acquiring Devtek. The combined company was organized into four divisions: Landing Gear, Gas Turbine Components, Aerostructure, and Logistics and Defence.

Company Perspectives:

Corporate Mission: To optimize our precision manufacturing engineering capabilities in order to produce highly reliable products and related services for customers with growth potential in the aerospace and industrial sectors in North America and rapidly growing markets. Héroux-Devtek will grow as a leader in our industry by exceeding customers expectations through the participation, dedication and commitment of our people.

Héroux-Devtek had to deal with a shifting business climate again after the September 11, 2001 terrorist attacks on the United States, which plunged the commercial aviation industry into a crisis while increasing the demand for defense-related hardware. Héroux supplied components for the new generation of unmanned aerial vehicles (UAVs) being deployed in Afghanistan.

Noted Investors Digest, when such commercial aircraft manufacturers as Bombardier reduced their workforces, they tended to shift more work to contractors. Nevertheless, in 2002 the company laid off 100 people from two plants in the United States that made jet engine parts, as the demand for turbines fell. Other divisions pushed the company to record sales and income for the 2001–02 fiscal year. Net income was up 40 percent to CAD 17.4 million on revenues of CAD 316.3 million, up 22 percent from the previous year.

ABA Industries, a Héroux-Devtek subsidiary in Pinellas Park, Florida, was closed in 2003. The shutdown was attributed to a weak economy in the United States and a falloff in demand for industrial gas turbines.

Sales for the fiscal year ended March 2004 were up 8 percent to CAD 213.21 million ($163.0 million). After breaking even the previous year, the company posted a CAD 2.2 million ($1.7 million) loss.

A $34 million offer for bankrupt NMF Canada Inc., a producer of wing panels, failed to go through. Héroux-Devtek was able to acquire Texas-based Progressive Incorporated, however, which produced structural components for military aircraft, paying $57.6 million in April 2004. The buy brought the military-related share of Héroux-Devtek's revenues to 60 percent, noted the Financial Post. Progressive had sales of more than $37 million (CAD 50 million) a year and had been founded in 1971.

Principal Subsidiaries

Devtek Aerospace Inc.; Devtek Corporation; Héroux Corporation; Héroux-Devtek Aerostructure Inc.; Les Industries C.A.T. Inc.; McSwain Manufacturing Corporation (U.S.A.); Metro Machining Corporation; Progressive Incorporated (U.S.A.).

Principal Divisions

Landing Gear; Aerostructure; Gas Turbine Components; Logistics and Defence.

Principal Competitors

Goodrich Landing Gear Division; Hawker Pacific Aerospace; Honeywell Aerospace; Messier-Dowty International.

Key Dates:

1942:: Héroux is formed as a small machined components manufacturer.
1954:: The company moves to Longueuil, focuses on aeronautic industry.
1969:: Apollo Lunar Module features landing gear by Héroux.
1973:: Bombardier Inc. acquires Héroux.
1981:: Devtek Corporation is spun off from Magna International Inc.
1985:: Héroux is acquired by two managers.
2000:: Devtek Corporation is acquired; company is renamed Héroux-Devtek Inc.
2004:: Progressive Incorporated is acquired.