Latecoere Plans Dual Supply Sites on Tunisian Disruption
Stock Chart for Ste Industrielle d'Aviation Latecoere SA (LAT)
Latecoere SA (LAT), a French supplier to the world’s major aircraft makers, said it will develop dual sources for many of its components after disruptions to production last year because of political unrest in Tunisia.
Lessons learned from stoppages in the North African country in October will encourage the Toulouse-based manufacturer of aircraft doors and electrical wiring to set up additional capacity in low-cost production centers that it’s trying to develop, Chief Executive Officer Francois Bertrand told journalists today in a briefing in Paris.
“After the experience in Tunisia we decided to change our industrial strategy and secure all production with double- sourcing,” he said.
Latecoere is working in an “extremely promising environment” as order backlogs build at Boeing Co. (BA) and Airbus SAS (EAD), the world’s largest planemakers, Bertrand said. After one of Latecoere’s two factories in Tunisia was crippled for weeks last year by the turmoil, the company recovered by rapidly assembling back-up facilities in France and expanding a new site in Mexico, he said.
Net income plunged 53 percent last year to 3.1 million euros ($4 million) following an 18 million-euro charge to cover the costs of coping with the crisis in Tunisia, Latecoere said yesterday in a statement. Earnings before interest and tax fell 40 percent to 26.8 million euros, with the operating margin narrowing to 4.2 percent of revenue from 7.8 percent in 2011.
The French company expects no further charges this year related to Tunisia, though it will have development costs for building up operations in Mexico to match capacity in Tunisia, Bertrand said. As a result, 2013 will be a transitional year as the manufacturer works to bring margins in 2014 back to 2011’s level, he said.
Latecoere jumped as much as 3.7 percent to 8.97 euros and was trading up 1.2 percent at 1:14 p.m. in Paris. The stock has gained 12 percent this year.
The workforce in Tunisia, which had been as large as 900 employees, will drop to 700 people this year and eventually be scaled back to 500, Bertrand said. Staffing will rise to 500 workers in Mexico, where Latecoere will produce both doors and wiring by 2015.
Revenue in 2013 will probably rise 5 percent, following a 12 percent jump last year to 643.6 million euros, Latecoere said. The operating margin should rise to about 6 percent of sales, and financial debt will increase by about 20 million euros as Latecoere spends money to develop the Mexican site, it said. Net debt was 322.6 million euros at the end of 2012.
Latecoere is generally seeking to spread its geographic presence worldwide to be closer to customers. It chose Mexico to serve North American planemakers Boeing and Bombardier Inc. (BBD/B), Bertrand said. The country’s presence in the “dollar zone” is an advantage in an industry that uses the U.S. currency for all transactions, he said.
Airbus, which is also based in Toulouse, was Latecoere’s biggest customer, contributing 48.4 percent of sales in 2012. Brazilian planemaker Embraer SA (EMBR3) generated 15.5 percent and Chicago-based Boeing accounted for 15.4 percent.
Latecoere said in 2011 that it would seek to merge with another aerospace company to gain critical mass.
Since then, the manufacturer has backed off that ambition. The chief challenge now involves coping with growth as the large airframe makers raise production rates, so consolidation “isn’t the focus today,” though the strategy remained a possibility for the long term, Bertrand said.
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