Archive for Thursday, November 11, 2004

British firm won’t buy Boeing’s Wichita plant

November 11, 2004

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— A British firm long believed to be the most likely buyer of Boeing Co.'s commercial airplane operations in Kansas and Oklahoma said Wednesday it had pulled out of the negotiations.

GKN plc made an "indicative offer" rather than a full bid to Boeing, spokesman Peter Baillie said in telephone interview from London. He declined to quantify the nonbinding offer or to say if Boeing had rejected it.

"Our relationship with Boeing is very important to us. We look at ways where we can strengthen that relationship, but Wichita will not be a part," Baillie said.

Speculation that any deal was off grew after GKN met with a group of investors Monday and told them that it was no longer part of the bidding for the Wichita and Oklahoma operations.

GKN had said in May that it would not pursue a Boeing deal -- but said in September it was again looking at the Wichita operations.

On Wednesday, Baillie dismissed talk that GKN's public decision to walk away once again was a tactical move to strike a better price from Boeing. He said the company does not do business that way.

"We have always been very clear we would only push forward an offer we felt made sense for GKN and the shareholders," Baillie said.

Dick Ziegler, spokesman for Boeing Wichita, said Tuesday he did not know whether GKN was part of the bidding process or had pulled out.

Aerospace analyst William Alderman said Boeing's talks with interested parties were likely at a critical point, where the potential buyer's price range becomes known. A nonbinding bid -- such as the one apparently made by GKN -- sets a price level for discussion.

Alderman, president of Alderman & Co. in South Norwalk, Conn., said he would be surprised if GKN were really abandoning a deal at this point. Rather, he said, GKN may simply be "aggressively negotiating."

"Allowing the public to believe GKN may be prepared to walk may be a negotiating tactic on GKN's part in order to improve their position in negotiation. GKN may be simply posturing," Alderman said.

But aerospace analyst Richard Aboulafia, vice president of analysis at the Fairfax, Va.-based Teal Group, said it could be an indication that there are irreconcilable differences.

"It might not matter if this is just a tactic, it may be a case of 'never the twain shall meet,"' Aboulafia said.

Aboulafia said the only thing anyone knew for sure was that GKN was interested, and they were the most likely to buy the operations. While there was speculation about other interested companies, they were always secondary to GKN, he said.

"(GKN) might have an interest and may still find a way to make it happen, but deals that take this long take this long for a reason," Aboulafia said. "There might not be a connection between the asking price and the willing-to-pay price."

Alderman said even if GKN pulls out, it does not mean the sale of Boeing's operations in Wichita is over.

Another potential buyer would be Dallas-based Vought Aircraft Industries and its parent, The Carlyle Group, an investment firm based in Washington, D.C., he said.

"If GKN and Vought pulls out, then the question is whether Boeing will sell the facility or do it itself," Alderman said.

Another name that has surfaced -- the Canadian investment group Onex Corp. -- is a far less likely buyer because that company, while well-financed, does not have the operational expertise in manufacturing aerostructures, he said.

Boeing is not just selling off an unwanted subsidiary or doing a classic divestiture, Alderman said, but is looking at a relationship. The purchase price is only a part in the economic analysis -- a great deal of the benefit for Boeing is future cost savings by outsourcing more of its manufacturing.

"Boeing doesn't care who buys this facility and Boeing really doesn't care if it gets absolutely top dollar for the facility today," Alderman said. "What Boeing really cares about is it has to get a fair price for the facility, but most importantly it must purchase the components made at this facility cheaper every year."

Boeing must become more efficient to remain globally competitive. It believes that internally it cannot do much better at lowering costs at the plant.

"The old way of doing business in Wichita must change," Alderman said, "And the sale of this facility is one way Boeing believes it can be more effective."

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