Precision Castparts Corp., a global aircraft and industrial supplier with three other companies in the San Fernando and Santa Clarita valleys, recently purchased North Hollywood-based aerospace manufacturer Klune Industries Inc. for an undisclosed amount. Precision officials say the acquisition will boost the company’s aerostructures business because Klune makes parts for aircraft such as Boeing’s 737 passenger jet and Gulfstream’s 605 business aircraft, which have high sales potential. Los Angeles-based private equity firm Vance Street Capital LLC sold Klune to Precision, a Portland, Ore.,-based publicly traded company with a current market value of about $23.3 billion. Terms of the all-cash deal were not disclosed. Vance Street has owned Klune since 2010. Klune designs and manufactures aerostructures, or components such as floor beams, door frames, latches and spars that are used in the interior of commercial and business aircraft. In addition to its North Hollywood location, Klune has manufacturing plants in Utah and Washington state. The company employs a workforce of 740, including about 350 in the San Fernando Valley. Precision Spokesman Dwight Weber said the company runs an efficient business model, allowing it to invest in its newly-acquired properties and keep its employment stable or growing. Precision is a well-run company with a strong understanding of what they do well, said Neal Dihora, an equity analyst who follows the aviation and aerospace industry for Morningstar Inc. in Chicago. “They are not going out there and making up a market they want to be in,” Dihora said. Buying spree Precision began building up its aerostructures business in July 2011 with the acquisition of Primus International in a deal valued at $900 million. In May, Precision added to that business by purchasing Centra Industries, a Canadian company. Buying Klune Industries was yet another strategic move. Weber said the company is looking to purchase other companies that make products from materials such as aluminum and other metals and use similar technologies and have a good return on their assets. Precision is making its acquisitions at the right time — just as the production rates large commercial aircraft manufacturers are ramping up, Dihora said. “They (the aircraft companies) are hitting home runs and they have a window where they want to increase production rates,” Dihora said. “Precision Castparts wants to be ready and maintain (production rates) across all their products.” This month, Boeing Co. snagged orders of 94 single-aisle 737s from two Asian airlines. In July, the aircraft maker announced that it received three orders for two models of the 737 aircraft totaling more than $18 billion. Military and commercial aerospace contracts account for 64 percent of the sales at Precision. The balance of the company’s business is divided between serving the energy industry and general industrial uses. In the aerospace industry, between 10 and 12 percent of revenue comes from military contracts and the remainder is derived from supplying the commercial aviation sector. In the second quarter ended July 1, Precision Castparts reported net income of $342.1 million, or $2.33 per diluted share, on revenue of $1.97 billion. Precision also owns Faber Enterprises in Canoga Park, Avibank Manufacturing Inc. in North Hollywood, and AVK Industrial Products in Valencia. Changes at Klune Klune Industries was started by the Clune family in 1972. The Clunes sold a majority share in the business to Vance Street in 2010. The sale to Precision ends the family’s ownership involvement with the company. During the two years that Vance Street was a majority owner, Klune transitioned from serving military clients to mostly commercial aircraft manufacturers. Working with Klune CEO Allen Ronk, the private equity firm also made changes in the executive ranks. It added a new chief financial officer, head of operations, and someone to handle lean manufacturing practices. “That improved the efficiencies and generated cash out of working capital,” said Jake Blumenthal, a principal at Vance Street. In August 2011, Klune acquired GCM Aeropsace in Kent, Wash., a move that increased the company’s exposure in the commercial market. GCM supplies components and assemblies for the wings, airframe, fuselage and control mechanisms of the Boeing 737, 777, 787 and 747-8. “The military platforms are growing but not as robustly as commercial,” Blumenthal said. “The growth in the Boeing platforms is substantially higher and they are a much more interesting sector right now.” Vance Street has an ownership stake in five other Southern California manufacturers serving the aerospace and military markets. The firm’s strategy is to hold onto its portfolio companies for a period of three to seven years and then find liquidity for its investment, Blumenthal said.
Precision Castparts Purchases Valley Aerospace Supplier
