haeco’s acquisition of timco aviation services, inc
TRANSCRIPT
HAECO’s acquisition of
TIMCO Aviation Services, Inc.
November 4, 2013
Disclaimer
1
This presentation may contain forward-looking statements with respect to the financial condition, results of
operations and business of the Hong Kong Aircraft Engineering Company Limited ("HAECO“). These forward-
looking statements represent HAECO’s expectations or beliefs concerning future events and involve known and
unknown risks and uncertainty that could cause actual results, performance or events to differ materially from
those expressed. Certain statements, such as those that include the words “potential”, “estimated”, and similar
expressions or variations on such expressions may be considered “forward-looking statements”. Financial
numbers in this report may include preliminary unaudited numbers or management accounts and such unaudited
financial numbers are derived from TIMCO’s management accounts prepared in accordance with U.S. GAAP. This
report also contains industry data provided by third party sources. While HAECO has not independently verified
the accuracy of the unaudited financial numbers of TIMCO’s management accounts or the industry data provided
by the relevant third party sources and will not take responsibility for the accuracy of such financial numbers and
industry data, HAECO has no reason to believe that such information is false or misleading in any material
respect.
Agenda
Transaction Summary
TIMCO Overview
Transaction Rationale
2
Transaction Summary
Transaction
structure
Transaction
consideration
and financing
Financial
impact
Anticipated
closing
On October 24, 2013 Hong Kong Aircraft Engineering Company Limited ("HAECO",
HKSE: 00044) announced that it had entered into a conditional stock purchase
agreement for the acquisition of TIMCO Aviation Services, Inc. (“TIMCO”)
TIMCO is controlled by investment vehicles managed by Owl Creek Asset
Management, L.P., a U.S.-based investment manager
HAECO’s 74.99% shareholder, Swire Pacific Ltd.(“Swire Pacific”), has approved the
transaction by written consent
Transaction is subject to regulatory approvals in the United States
The transaction is expected to close in the first quarter of FY 2014
The total transaction value is approximately US$388.8 million (equivalent to
approximately HK$3,025 million), subject to closing adjustments
HAECO will finance the acquisition from a combination of its existing cash reserves and
debt-financing
Significant synergy potential with HAECO’s existing operations
3
Agenda
Transaction Summary
TIMCO Overview
Transaction Rationale
4
Overview of TIMCO
TIMCO provides airframe, line and engine
maintenance, cabin modification services
and interior products and seats
manufacturing
Operates in two divisions: MRO Services
and Aerosystems
Established in 1990
Headquartered in Greensboro, North
Carolina
Over 2,700 total employees
Over 3.2 million man-hours for airframe
maintenance in 2012
Revenue for the year ended 31 December,
2012 of US$354mm (HK$2,756mm)1
MRO Services
72%
Aero-systems
28%
MRO Services
Aerosystems
Airframe MRO LineCare Engine Center
Airframe
maintenance
Composite repair
and manufacture
Line maintenance
LineCare overnight
checks
Complete JT8D
engine MRO
Fully certified test
cell
Lavatories Galleys Design Engineering
5
Seats
1 Financial numbers for TIMCO in this report are derived from TIMCO’s accounts prepared in accordance with U.S. GAAP
Parts Manufacturing
Services Location No. of Employees ApprovalNo. of
Hangars/Facilities
MR
O S
erv
ice
s Airframe maintenance
Greensboro, North Carolina
1,878
FAA,
EASA,
TC,
Bermuda,
etc
4
Lake City, Florida 9
Macon, Georgia 2
Cincinnati, Ohio 1
Engine overhaul Oscoda, Michigan 31FAA
1
Line maintenance 16 line stations across U.S. 134 -
Total MRO Services 2,043 17
Ae
rosyste
ms
Aerosystems
Greensboro, North Carolina
6131
FAA ODA,
PMA,
AS9100C
12
Wallburg, North Carolina 1
Pacoima, California 1
Total Aerosystems 613 2
Corporate Office 62
Total TIMCO 2,718
16 Line stations across the U.S.
Boston, Massachusetts (BOS)
Burbank, California (BUR)
Denver, Colorado (DEN)
Fort Myers, Florida (RSW)
Greensboro, North Carolina (GSO)
Minneapolis, Minnesota (MSP)
Newark, New Jersey (EWR)
New York, New York (JFK)
Omaha, Nebraska (OMA)
Orlando, Florida (MCO)
Panama City, Florida (ECP)
Phoenix, Arizona (PHX)
Sanford, Florida (SFB)
Seattle, Washington (SEA)
Washington, D.C. (IAD)
White Plains, New York (HPN)
1 Includes employees in Seattle, Washington; Atlanta, Georgia; London, U.K.; Hamburg, Germany2 Aerosystems facility is co-located with Airframe Maintenance in Greensboro (Hangar 4)
TIMCO’s presence in the U.S.
6
Future growth
Continued outsourcing trend by
airlines
Healthy aircraft order backlog
Highly skilled, certified and stable
workforce
Skilled and certified workforce with
strong engineering and technical
capabilities
Close relationships with local
colleges and technical schools
provide ready access to new hires
One of the largest 3rd Party MROs
Full range of services including heavy
maintenance, modifications and
retrofits
Multi-year contracts with blue chip
customers
Global interiors engineering and
manufacturing provider
Established worldwide provider of
lightweight, fuel saving interior
products, with attractive portfolio of
lavatories, galleys and seats
Leading MRO services and aerosystems provider in North America
7
Solid financial track record
Sales and Growth
EBITDA and Margin
Steady sales
development
Improving margins
Substantial revenue
visibility through long
term contracts and
backlog
291354 362
2011 2012 LTM June 2013
1 20
26 0%
6%
7%
2011 2012 LTM June 2013
(US$m) EBITDA margin
(US$m)
Sources: Financials based on US GAAP numbers; LTM June 2013 numbers based on unaudited TIMCO management accounts
2,264(HK$m) 2,756 2,817
11 156(HK$m) 204
8
New HAECO Group footprint
9
United States Asia Pacific
Airframe Maintenance
Component Overhaul
Line Maintenance
Engine Overhaul Services
Manufacturing Facilities
Number of airframe maintenance stations increases from 4 to 8
Number of line maintenance stations increases from 9 to 25
Addition of 3 manufacturing facilities and 1 engine overhaul centre
Note: Sales offices in Hamburg and London in Europe not shown in the above map
(5.5)
0.4
7.8
4.9 5.1
2008 2009 2010 2011 2012
3.3
5.3
3.3
4.9
6.6
10.3
2013E 2020E
Retrofit
Linefit
Evolution of 25 U.S. major airlines annual operating profit
(US$b)(US$b)
U.S. airline landscape has dramatically
improved resulting in stable healthy customer
base
Healthy aircraft order backlog with resulting
cabin interior opportunities
Strong cabin interior market growth
Source: Airline Monitor
Global cabin interior market (US$b) Forecast 2013-
2020 – Linefit vs. Retrofit
OEM aircraft deliveries (Unit)
Source: Frost and Sullivan; independent research and analysis
10
1,270 1,380
180 370
2013E 2018E
Other
Airbus and Boeing
1,450
1,750
CAGR
‘13–’20
6.5%
CAGR
‘13–’18
3.8%
Attractive and growing industry
Agenda
Transaction Summary
TIMCO Overview
Transaction Rationale
11
TIMCO is a strategic fit for the HAECO Group
Providing a platform for the HAECO Group to serve the U.S. market, the largest
aviation market in the world
Combining HAECO and TIMCO’s engineering capability and customer network to
enhance the enlarged Group’s market positioning, particularly in design
engineering and cabin integration services
Enabling the HAECO Group to offer cabin interior products and total care
solutions as OEM and IP owner
The HAECO Group will be in a strong position to build customer relationships
throughout the life cycle of an aircraft, offering cabin products from linefit to
retrofit, and services from cabin integration to maintenance and modifications
Extending the HAECO Group’s international operations will enable further
development of relationships with OEMs to capture a larger aftersales market
12
HAECO Group will be in a strong position to build customer relationships throughout the life cycle of an aircraft
HAECO Group will enhance its coverage of aircraft types including wide
body, narrow body, regional jets and VIP aircraft 13
• Airframe maintenance
• Line maintenance
• Cabin maintenance
• Spares and retrofit monuments
• Engine overhaul
• Component services
• Fleet technical management
• Inventory technical management
• Lease return
• Cabin engineering design and certification
• OEM and buyer furnished equipment
• Cabin reconfiguration
• IFE upgrade
• Freighter conversion
• Deregistration
Revenue opportunities at every major event of in the life cycle of an aircraft
Source: Flight International