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Héroux-Devtek stock falls after U.S. Air Force rejects bid for new contract

A worker works on landing gear without wheels at the Héroux-Devtek plant in Quebec, in this file photo.


Heroux-Devtek Inc. shares hit a 52-week low Monday after the landing gear maker said its bid for a new contract with the U.S. military was rejected and work under an existing contract will be phased out within two years.

The Longueuil, Que.-based aerospace company said it wasn't selected to manage all the landing gear requirements for the U.S. Air Force's C-130 Hercules cargo plane, KC-135 Stratotanker refuelling plane and E-3 AWACS surveillance plane.

It also said that work under an existing U.S. Air Force contract to make parts and maintain landing gear for the aircraft will be phased out gradually over the course of its fiscal year ending March 31, 2019.

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Analyst Cameron Doerksen of National Bank Financial cut his forecast for Heroux-Devtek, saying the announcement signals that revenue growth challenges will continue. Heroux-Devtek had already warned that fiscal 2018 revenues would decrease largely due to a production rate cut for the Boeing 777.

"The loss of this contract is surprising to us given that Heroux was under contract to support the landing gear for these aircraft until 2021 and the company has been performing repair and overhaul work for the U.S. Air Force for about 45 years," Doerksen wrote in a report.

Doerksen attributed the contract loss to the U.S. Air Force's decision to move to a larger logistics supply-chain management contract. He estimates the contract loss will lower revenues in fiscal 2019 to $409-million from $441-million.

In afternoon trading, Heroux-Devtek shares were down 8.2 per cent at $11.66 on the Toronto Stock Exchange after reaching a low of $11.06.

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