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Triumph Wins $1.7B Embraer Contract

Zacks Equity Research

A Triumph Group Inc. (TGI) affiliate, Triumph Aerostructures-Vought Aircraft Division, won a contract to supply fuselage segments, rudder and elevators for the second-generation E-Jets of Brazilian aircraft manufacturer Embraer S.A. (ERJ). The contract is roughly worth $1.7 billion over its lifetime.

Per the contract, Triumph Group will design and build the center fuselage section III, rear fuselage section, and also the rudder and elevator components on the tail section of Embraer's second-generation family of E-Jets.

Over the next four years, Triumph Group intends to spend around $130 million for the development of the parts, with $25 million to be incurred in fiscal year 2014.

Wayne, PA-based Triumph Group offers a variety of products and services to the aerospace industry. Triumph is capable of producing a wide range of aircraft parts including hydraulic, mechanical and electromechanical control systems, aircraft and engine accessories, structural components, auxiliary power units, and avionics and aircraft instruments.

The present contract is a major one for Triumph Group as it expands the company’s presence in the jet market. Embraer expects to officially launch the program later this year, with deliveries set to start in 2018.

The introduction of the new generation jets, with advanced features is expected to make Embraer the leader in the 70 to 120 seat airline market. The company has its operations in 42 countries.

The second generation E-Jets comprise state-of-the-art engines, along with new aerodynamically advanced wings, full fly-by-wire flight controls, and advancements in other systems. This is expected to result in double-digit improvements in fuel burn, maintenance costs, emissions and external noise.

Currently, Triumph Group seems to be busy acquiring and adding to its portfolio. Recently, the company completed the acquisition of the pump and engine control systems business of Goodrich Corporation from United Technologies Corp. (UTX). Last month, it took over Primus Composites from Precision Castparts Corp. (PCP) for an undisclosed amount. This move comes as a part of the company’s strategy to widen its global footprint and expand its structural composite potential.

Primus Composites is a global supplier of composite and metallic propulsion and structural composite components and assemblies. Its main customers include Airbus SAS, Rolls Royce, Aircelle and Bombardier Inc.

Triumph Group’s organic growth has also been reasonably strong based on the addition of products and services, expansion of operating capacity and marketing of a complete product portfolio.

However, we remain concerned about the uncertainty related to defense budgets as the demand for Triumph Group’s military and defense products is largely dependent on government defense spending. Moreover, with energy as well as commodity prices increasing daily, the company may find it more challenging to maintain and expand margins further. The company presently retains a short-term Zacks Rank #4 (Sell).

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