Boeing Buying Parts Supplier KLX for $4.25 Billion

Boeing Co. has announced it will spend $4.25 billion in cash to purchase KLX Inc. a plane parts supplier that includes debt of $1 billion, as the largest maker of planes in the world gives a big boost to its fast-growing new division that offers spare parts, maintenance and other services to different airlines.

The plane maker is paying $63 a share to purchase KLX including its Aerospace Solutions Group. The divestment as well as separation of the Energy Services Group of KLX must be successful for this deal to go through, said Boeing in its announcement of the acquisition.

The sale will also be subject to regulator’s approval as well as shareholders of KLX. The sale is expected to close during the third quarter of 2018.

The deal is the biggest struck thus far by CEO Dennis Muilenburg, who has scouted out acquisitions that would help Boeing more than triple its sales at its services businesses to over $50 billion within the next 10 years.

Boeing held early talks with Woodward Inc., a parts maker, according to reports in the media during February, and continues its talks to form a new joint venture giving it control of the commercial jets of Ebraer SA.

KLX will be absorbed into Boeing Global Services and become completely integrated with the parts subsidiary of Boeing, Aviall, with a cost savings annually anticipated to be more than $70 million before 2021.

There is no change to the 2018 guidance for Boeing or its capital deployment strategy or commitment to returning its complete free cash to shareholders, said the company. Boeing is expecting that the acquisition would be earnings neutral until the start of 2020.

While Boeing has remained focused on its organic growth, it is exploring targeted investments and takeovers to complete its product portfolio, said CEO Muilenburg. Boeing is searching for deals in different areas like avionics, where the aircraft maker is doing its own work that it previously gave to suppliers.

The services division was created in 2017 by Boeing through the assembling different profitable units that give support to customers and together represent close to 15% of all sales.

This foray rattled suppliers of the aerospace industry as well as makers of engines, which typically earn the largest portion of profit working on aircraft over their commercial lives that often last more than 30 years.

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