Since news of a possible sale became public more than a year ago, Boeing Wichita employees have feared a buyer eager to slash costs through cuts and layoffs.

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Since news of a possible sale became public more than a year ago, Boeing Wichita employees have feared a buyer eager to slash costs through cuts and layoffs.

But that’s not the style of likely buyer Onex, say labor leaders and industry analysts familiar with the Toronto-based company.

New to the aerospace business, Onex is a buyout company with a history of acquiring businesses cheaply, growing them and selling for a healthy profit.

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In July, Onex sold Loews Cineplex, acquired when it was in bankruptcy, for $1.6 billion, doubling its investment in two years.

“Onex has a good reputation,” said Tom Buffenbarger, national leader of the International Association of Machinists. “We have a good relationship with them.”

Horst Hueniken, an analyst who covers the company for Canadian firm Westwind Partners, said slash-and-burn is not the typical strategy of Onex Chairman and Chief Executive Gerald Schwartz

“He’s probably thinking of growing this business, not shrinking it,” Hueniken said.


Onex




Likely buyer of Boeing Wichita



Headquarters
Toronto


Business
Investment company


Total Assets
$11 billion.


Cash on hand
$1.4 billion


Employees in owned companies
71,000


Prior investment areas
Health care; electronics manufacturing; automotive.

Source: Onex


Boeing is working out final details with Onex. It will announce the long-awaited decision within days.

The deal will mark a strategic transformation of Boeing’s commercial-airplanes division.

With Wichita becoming an external supplier, Boeing’s commercial-jet-building operation will be heavily concentrated in the Puget Sound region.

Here, executives will plan strategy, marketers will sell airplanes, engineers will design airplane concepts and mechanics will assemble the final products from large prefabricated pieces coming in from around the globe.

But the laborious manufacture of those prefabricated pieces will be done largely by outside suppliers.

The new manufacturing process for the forthcoming 787 Dreamliner means that the airframe will arrive in Everett in five or six major pieces, fully stuffed with wiring and ducting, for a quick three-day assembly.

After the Wichita sale, the only major part of the 787 to be made by Boeing will be the tailfin, manufactured in Frederickson, near Tacoma.

The military part of the Wichita facility will remain part of Boeing.

Boeing to be customer

Under new ownership, the commercial part of the Wichita plant, which employs about 7,300 people, will continue to be a key Boeing supplier.

Boeing Wichita makes fuselages for the 737 single-aisle jets, engine casings for the 747, 767 and 777 twin-aisles, and the nose-and-cockpit section of every jet assembled in the Puget Sound region.

Wichita also will supply the forward fuselage and nose-and-cockpit section of the 787.

Onex emerged as an unlikely suitor after major aircraft-parts makers GKN of Britain and Vought of Texas pulled out.

Onex is a public corporation with annual revenues of about $13 billion, assets of $11 billion and almost $1.4 billion in cash on hand.

The company is run by a group of 16 men with financial, business and legal degrees, led by Schwartz.

All of them derive their main compensation from bonuses that kick in only when the annual compound return on investment exceeds 15 percent, said analyst Hueniken.

They won’t invest without a clear expectation of getting a return that tops that lofty hurdle.

Delegate philosophy

After acquiring majority control, Onex typically installs someone at board level to steer the strategic direction while staying out of day-to-day management.

Onex managing director Nigel Wright is leading acquisition negotiations with Boeing.

While a slash-and-burn buyout firm might aim to cut costs to lay the groundwork for a quick resale, Hueniken said, such a strategy would give only a one-time lift. It wouldn’t provide the high returns Onex needs from its typically five-to-10-year investments.

“Doing it on the backs of people is not a key to long-term success,” he said.

Hueniken cited the 1986 Onex acquisition of Sky Chefs, American Airlines’ in-house flight caterer.

Onex streamlined the business and acquired competing companies until it was the largest airline caterer in the world. Onex sold 16 years later, making $1.4 billion on its investment, equivalent to a 31 percent annual return.

“They basically turned a not-very-profitable operation into a very profitable one and grew it immensely in size,” Hueniken said.

The outcome for employees pleased labor leaders as much as financial analysts.

In 1999, Onex bid to buy Canadian Airlines. Negotiating with the Canadian Auto Workers union, which also has many aerospace employees, Schwartz impressed union President Buzz Hargrove.

“He’s a very credible guy; he’s got a lot of integrity,” Hargrove said. “He was someone we felt strongly we could work with.

“I never thought he had to know a lot about airlines. The people running it knew a lot about airlines, but we ended up in a lot of trouble.”

Onex’s acquisition was ultimately blocked by the courts, and the airline entered bankruptcy four years later.

One possible strategy for Wichita that would fit with Onex’s history is to grow the business by building aircraft parts for other companies.

Business-jet makers Bombardier, Cessna and Raytheon Aircraft have facilities in the city. The plant could potentially make parts for Airbus.

Boeing would not comment yesterday on the status of negotiations.

Wichita congressman

A spokesman for U.S. Rep. Todd Tiahrt, a Republican and ex-Boeing employee whose district includes Wichita, confirmed that when the congressman met Boeing CEO Harry Stonecipher in the halls of Congress last Friday, Stonecipher told him final negotiations on pensions were under way and he should expect a sale announcement this week.

Washington state leaders of the Society of Professional Engineering Employees in Aerospace (SPEEA) union are holding off on flying to Wichita until Monday, in anticipation of an announcement then.

Bob Brewer, SPEEA’s Wichita director, said he’s keen to begin the labor talks that must follow, hoping the new owner will match Boeing’s wages and benefits.

“To me it doesn’t matter who’s supplying the money,” Brewer said. “It’s how they treat the employees and how the business grows.”

Dominic Gates: 206-464-2963 or dgates@seattletimes.com