Northstar Aerospace Inc. received a notice from a major customer claiming breach of obligations under certain contracts and the aircraft parts maker said it expects to violate its financial covenants as of Jan. 31.
Shares of Northstar Aerospace, which provides gears for Black Hawk helicopters and Rolls-Royce’s Trent engines, plunged to a two-and-half-year low of 35 cents on Monday morning on the Toronto Stock Exchange. The company’s shares have lost more than half their value in the past six months.
Northstar Aerospace, which raised going concern doubts in September, 2011, said it is still in talks with lenders to amend its credit agreement.
The company, however, cannot give a schedule for when the discussions may be completed with lenders, said David Anderson, North star’s general counsel.
Northstar, which has a market capitalization of $24.5-million, had total liabilities of $155.9-million as of Sept. 30, 2011, according to Thomson Reuters data.
Its key customers in the commercial market include GE Aviation, a unit of General Electric, and Honeywell International, while its defence clients include the U.S. government, Sikorsky Aircraft Corp and Agusta Westland.
TD Securities analyst Tim James downgraded the stock to “hold” from “speculative buy” and cut his price target to 80 cents from $1.50, citing concerns over the debt covenant and the customer contract breaches.
Northstar said the notification from the customer demands that it cure such breach or resolve the claims within 10 days.
General counsel Mr. Anderson, however, declined to clarify whether it was a defence or a commercial customer.
“The company is evaluating the notice and has not reached any conclusions concerning the contents of the notice,” Mr. Anderson said, adding, “I think it is premature to discuss the exact content of the notice until we have evaluated it.”
Analyst Mr. James said the U.S. defence budget cut, which includes unspecified delays in Army helicopter modernization, could weigh on the company’s business.
Last week, the Pentagon unveiled a 2013 budget plan that would cut $487-billion in spending over the next decade by eliminating nearly 100,000 ground troops, mothballing ships and trimming air squadrons.
“This... if approved by Congress, could negatively impact Northstar’s business beyond 2012,” Mr. James wrote in a note to clients.
The budget plan would provide new challenges for Pentagon’s top suppliers such as Boeing, which is also one of Northstar’s customers.