The weak state of the global aviation market has led to the cancelation of a contract for Bet Shemesh Engines Ltd. (TASE: BSEN). Revenue from the contract was expected to total $35-45 million over the next 20 years. Beit Shemesh Engines said today that the statements by Bombardier about its decision "to halt the Learjet 85 executive aircraft project because of poor market demand." Beit Shemesh Engines was one of the partners in the project for producing and selling a follow-up version of the engine produced by Pratt & Whitney Canada and MTU Aero Engines for Bombardier's executive jet.
Beit Shemesh Engines added, "The company has received no official notice in the matter, and is considering the implications of the announcement (by Bombardier, A.L.)." The contract was provisionally agreed in April 2010, and the follow-up version of the engine was due to enter into service in 2015. The cost of Beit Shemesh Engines' participation in the project is $3 million. In the revenue forecast from its most recently financial reports, published in November, Beit Shemesh Engines reported $73 million in expected revenue in 2015 and $183 million from 2016 onwards.
Beit Shemesh Engines signed a cooperation agreement with MTU in 2014, including sharing the risk and revenue from the plan to produce and sell an engine for executive jets, as part of its strategy for increasing the percentage of its share in this type of partnership.
Lower profit in 2014
Beit Shemesh Engines produces and repairs parts for both military and civilian aircraft. Most of its business is designed for the jet engine manufacturers market and air forces in Israel and overseas. The company, which operates in the Beit Shemesh area, is controlled by Clal Industries and Investments Ltd. (TASE: CII) (34%), controlled by Len Blavatnik, and president and CEO Avner Shacham (27%). Other key shareholders in the company include Meitav DS Holdings Ltd. (TASE:MTDS) (12%) and Yelin Lapidot (5.5%). The company chairman is former military secretary to the prime minister Johanan Locker.
The Beit Shemesh Engines share price rose 30% over the past year, reflecting a NIS 160 million market cap. The company's revenue fell 1.5% to $56 million in the first nine months of 2014, and its net profit dropped 17% to $2.4 million, as a result of a lower profit margin, due among other things to the shekel's strong showing against the dollar, and a change in the company's array of products.
Published by Globes [online], Israel business news - www.globes-online.com - on January 18, 2015
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