Paris Air Show

Onex to breathe fresh life into Boeing subassembly plants

 - December 12, 2006, 9:07 AM

As Canadian conglomerate Onex prepared for its historic buy of Boeing’s commercial subassembly plants in the midwestern U.S., 9,300 employees at Boeing sites in Wichita, Kansas, and Tulsa and McAlester, Oklahoma, understandably felt a nagging unease over their futures. But unlike  so many other deals in which the buyers set out to consolidate and “rightsize” their acquisition targets, this one, at least on the surface, looks less threatening. In fact, many analysts think the new owner will breathe fresh life into the operation, the largest Tier 1 subassembly builder in the world but one that now runs at only 50-percent capacity.

All of the Boeing workers at the three sites received layoff notices this past spring, after Onex and the Seattle aerospace giant agreed in principle to the $1.2 billion deal. However, the company expects to re-hire “the vast majority” of both the 7,000 union workers and the balance of non-union employees and management, Onex managing directors Nigel Wright told Aviation International News. Once it gets the plants running at full capacity, it could eventually employ almost double the number of workers at the three sites.

“There have been terrible job losses at these plants over the last several years,” added Seth Mersky, another Onex director. “We believe that can be reversed.”

Military Pursuits

The sale, Boeing’s largest single divestiture in its history, does not include the Boeing Integrated Defense Systems operations in Kansas or Oklahoma. But when Onex takes over, it will offer its products and services to virtually all takers, including military contractors. The sites now cater strictly to Boeing programs, building fuselage sections, struts, nacelles and wing elements used on the 737, 747, 767 and 777.

Onex has been in negotiations with Boeing over a 787 subassembly contract, completion of which Wright said he expected by the time the sale closes this month. The contract calls for Onex to build the front section of the fuselage–Section 41, which stretches from the front door forward, including the nosecone. It also expects to supply engine pylons and other ancillary components.

Along with the Boeing work, Onex hopes to win “significant” subassembly contracts from the likes of Airbus for the A350 and Bombardier for the C Series, and compete for some of the same defense contracts Boeing’s own IDS subassembly plants will no doubt also pursue. It also plans to chase contracts with business jet builders, many of which assemble their airplanes right in Wichita.

Onex plans to invest another $1 billion in the business over the next few years, said Wright, mainly in new capital equipment, efficiency improvement programs and up-front spending on the 787 project. But the company also stresses the need to cut costs, as competition for new business grows ever more fierce. Last year the plants contributed $2.2 billion to Boeing’s total cost. Wright would not specify how much of that Onex hopes to cut.

“We need to combine [employees’] skills with a better cost structure, then diversify our customer base,” said Wright. “That’s the formula that will generate growth at the company.”

For Boeing, the move not only adds some $900 million to its cash coffers, it will serve to create more competition among Tier 1 suppliers and lower the cost of components. “This agreement fully supports our strategy to focus Boeing on large-scale systems integration, which is where we are most competitive,” said Boeing Commercial Airplanes president and CEO Alan Mulally.

Holding $11.8 billion in assets at the end of last year, Toronto-based Onex reported net income of $35 million on revenues of $16.2 billion in 2004. Fifteen separate subsidiaries own controlling stakes in industries ranging from medical services to cosmetics. Aerospace-related holdings include CMC Electronics–the former Canadian Marconi Company–and Celestica, another electronics company that along with aerospace and defense, serves the automotive, communications, computing, consumer and industrial products and mobile communications industries.