Hexcel Corporation HXL and Woodward, Inc. WWD recently agreed to mutually terminate their previously-announced $6.4-billion merger deal. The decision has been duly approved by the boards of both companies.
What Led to the Termination?
Both Hexcel and Woodward decided to call off the mega-merger deal in response to the increasing impact of the coronavirus (COVID-19) pandemic on the aerospace sector and global markets.
At the start of the year, the global aerospace market was expected to witness strong growth in 2020, driven by passenger and cargo growth on a global scale. This along with an expanded product portfolio would have benefited the combined company. However, things started to fall apart as the virus outbreak gradually forced airline companies worldwide to halt operations. This has resulted in sapping demand for air travel and increasingly huge losses for airline companies. Consequently, airlines across the globe started to delay taking scheduled deliveries of aircraft from manufacturers, apart from the dearth in new orders.
This, in turn, has negatively impacted aircraft manufacturers along with parts suppliers like Hexcel and Woodward. So synergies from the combination of these two might have not brought out the desired outcome amid the pandemic.
Notably, aircraft giants such as Boeing BA and Airbus Group EADSY have been forced to temporarily shut down many of their manufacturing facilities recently to maintain social distancing. Per a Reuters report, Boeing recently extended the suspension of production operations at its Washington state facilities and also looks to shut down its manufacturing facilities in South Carolina. Meanwhile, Airbus has also temporarily halted production in Alabama and most of its manufacturing plants based in Europe, after suspending production operations in Spain and France, last month.
Since we are still unsure as to when the effects of this outbreak will dissipate, it is difficult to estimate when exactly the aviation industry will start returning to the growth trajectory. This, in turn, will decide the fate of both Hexcel and Woodward, as these companies are the primary suppliers of aircraft parts and components to Boeing and Airbus. Hence, the decision to terminate the merger agreement seems rational as the companies can now focus on their respective businesses during these unprecedented times.
Zacks Rank and Price Movement
In the year-to-date period, shares of Hexcel, carrying a Zacks Rank #3 (Hold), have plunged 55% compared with the industry’s decline of 29.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The Boeing Company (BA) : Free Stock Analysis Report
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Woodward, Inc. (WWD) : Free Stock Analysis Report
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