B/E Aerospace to Spin off its Business


After a month of speculation related to the sale of B/E Aerospace Inc. (BEAV), the company finally announced that it will split its business to form two independent public traded companies. B/E Aerospace will break up the business into logistics, distribution and technical operation and aircraft seating and other cabin manufacturing operation.

The separation will likely be completed by the beginning of 2015, subject to customary closing conditions. The manufacturing business (“Manufacturing Co.”) includes design, production, and direct sales of aircraft components. Distribution business (“Services Co.”) will solely cater to the aerospace and energy service markets.

With the formation of two standalone companies, B/E Aerospace also escaped from the purview of taxation. On an adjusted basis, Services Co. had revenues of nearly $1.6 billion for the trailing-twelve months ending Mar 31, 2014. Manufacturing Co., on the other hand, has revenues of approximately $2.5 billion for the trailing twelve months ending Mar 31, 2014.

The strategic split reflects the company’s efforts to optimize the individual needs of two businesses and prioritize accordingly to offer increased value to its shareholders. The disintegration would further lead to cost synergies and increased operational flexibility for both the business arms. In addition, management will be able to focus increasingly on efficient capital allocation, free cash flow distribution policy and growth-augmenting initiatives.

Going ahead, the spin-off prompted the company to revise its full-year earnings guidance to $4.35 per share from the prior $4.30 per share. The addition of EMTEQ, Inc. and F+E Fischer + Entwicklungen GmbH & Co. KG to the company’s manufacturing wing will further act as a tailwind.

B/E Aerospace currently holds a Zacks Rank #3 (Hold). Other better-ranked aerospace and defense service providers include CAE Inc. (CAE), Curtiss-Wright Corp. (CW) and Spirit AeroSystems Holdings, Inc. (SPR). All the above stocks currently carry a Zacks Rank #2 (Buy).

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