Global Fastener News

Hagan: Boeing Paying High Price for Aviall

John Wolz

At nearly $2.1 billion Boeing Company is paying a high price to acquire Aviall Inc., fastener acquisition specialist Richard Hagan of NY-based Pinnacle Capital Corp.

On May 1 Aviall announced it had agreed to be acquired by Boeing for $48 per share or $1.7 billion. The day before Aviall shares closed at $37.70. Over the prior 52 weeks Aviall traded from $27 to $40. Aviall traded as low as $15.25 in April 2004.

Aviall distributes aerospace parts, including fasteners, to more than 19,000 government/military, general aviation/corporate and commercial airline customers, including over 300 airlines.

Aviall reported 2005 net sales of $1.295 billion, gross profit of $228.5 million, EBITDA of $129.3 million and EBIT of $106 million. Aviall had $358.5 million of debt outstanding on March 31, 2006, making the transaction’s total $2.071 billion.

“This means Boeing is paying 16 times trailing EBITDA (operating cash flow), 19.5 times trailing EBIT and 1.6 times trailing net sales,” Hagan calculated.

“It seems to me that the only justifiable reason for Boeing to pay such a high price for Aviall is the fact that Boeing shares presently trade at 17.5 times trailing EBITDA and 25.1 times trailing EBIT,” Hagan analyzed.

Boeing shares closed at $83.45 on the day prior to the Aviall announcement and have moved to $87.60 as of May 8. Over the past 52 weeks Boeing traded from $58.60 and $87.25. With Boeing shares trading at such a high multiple of operating cash flow (EBITDA), Boeing management no doubt anticipates a dump-up in the share price from the addition of Aviall,” Hagan suggested.
“In my view, at such a lofty valuation for Aviall, an exchange for Boeing shares rather than all cash at least for some significant portion of the purchase price would have been a whole lot more sensible,” Hagan advised.

“This deal just confirms what industry participants already understand these are very heady days for the aerospace industry and all signs indicate that this party is likely to last for quite some time.” E-mail: rphagan@pinnaclecapital.com
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