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Héroux Devtek’s lucrative Boeing deal being challenged

Dec. 19, 2013, Montreal - A “transformational” deal that Héroux Devtek Inc. signed with Boeing Co. in September is being dragged before arbitrators.


December 19, 2013
By The Montreal Gazette

The Longueuil landing-gear maker disclosed Wednesday that
a long-standing business partner, now called UTC Aero Systems, is
contesting that deal, alleging that it breaks a non-compete covenant
signed by Héroux Devtek and UTC.

 

Héroux Devtek president Gilles
Labbé said in a telephone interview that he will vigorously challenge
UTC’s claim, “and I think we’re in a good position to win.”

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Arbitration
is an initial attempt at adjudicating between two parties and is a
preliminary step that tries to sidestep a full-blown lawsuit before the
courts — if and when it comes to that.

 

Héroux announced a major
contract in September to supply Boeing with the entire landing-gear
assemblies for the Boeing 777 long-haul airliners — as well as for the
777X, a stretch version that Boeing confirmed at the Dubai air show in
October that it would build eventually.

 

Labbé told The Gazette at
the time that supplying Boeing directly with complete assemblies was “a
quantum leap forward” for his firm.

 

“It propels us to the front
ranks in landing-gear for commercial aircraft … We’re going to ship to
Boeing the full assembly — the wheels, the brakes, (the pistons), the
whole kit.”

 

The 777 and 777X deal vaults Héroux closer to the
ranks of two companies, Goodrich Co. and Messier-Bugatti-Dowty, to which
it has long supplied sub-assemblies. Both are much larger and are owned
by globally recognized aerospace empires.

 

Goodrich was acquired
recently by United Technologies Corp. (UTC), which also owns Pratt &
Whitney Canada’s sprawling complex on the South Shore. UTC merged
Goodrich with another division, Hamilton Sundstrand, to form UTC Aero
Systems.

 

In September, analysts Benoit Poirier of Montreal’s
Desjardins Securities and Cameron Doerksen of Montreal brokerage
National Bank Financial both described the agreement as
transformational, a major coup for Héroux that would considerably
augment its status in the industry. It wrests from Goodrich a growing
and lucrative stream of revenue and income, as the 777 has a large
backlog of orders and excellent sales prospects for decades to come.

 

Héroux-Devtek
said it was “recently notified by UTC Aerospace Systems of its intent
to initiate arbitration relating to the interpretation of a non-compete
covenant contained in (the 777) agreement.”

 

“The disagreement
involves Héroux-Devtek’s planned activities relating to the
manufacturing of pistons in support of (the Boeing) contract.”

 

Labbé
said Wednesday that “currently, (UTC is) supplying Boeing the whole
landing gear systems (for the 777) and we supply them the pistons. But
starting in January 2017, that’ll be us (supplying the entire system).”

 

Héroux’s contract with Boeing starts in 2017 and runs to 2028.

 

“They’re
telling us now that we’re not respecting the agreement we signed. We
don’t agree with them. We are going to do what we have to do. We’ll use
all necessary means to defend ourselves. We’re very confident about the
whole situation.”

 

“I don’t want to divulge any
information that’s not public (regarding the non-compete covenant). But
we have a difference of opinion on that score. They’re not OK with us
supplying the pistons to Boeing directly. We’re in disagreement with the
interpretation UTC puts on that covenant.”

 

Andrew Martin,
spokesperson for UTC Aero Systems in Charlotte N.C., said by email that
“we have seen the release and decline to comment on the issue.”

 

An analyst who declined to be named said he didn’t expect arbitration to change much for the Boeing contract.