Commercial Dependence Impacts Aerostructures Rating

The Aerostructures Corp., a designer and manufacturer of aerospace structures including wings, fuselage sections and precision-machined components, has a relatively small revenue base, has a significant portion of its revenue tied to a single customer and is dependent on a weak market for commercial aircraft. As a result, Moody's Investors Service has assigned a B1 rating to the company's proposed $165 million senior secured credit facility, which consists of a $35 million revolver and a $130 million "B" term loan.

Historically, the company's revenue base has ranged from $300 million to $400 million, with this year's results likely to be at the low-end of the range, according to Moody's. "But we want to stress that, although this is not currently the brightest sector in the world, they do have the lion's share of the strongest companies, with Airbus Industries being a big customer," said David Berge, a senior analyst at Moody's. Given the number of ship-sets under contract for delivery to original equipment manufacturers next year, the rating agency believes that 2003 revenue from commercial aircraft production should hold steady at approximately the same level as this year.

Another positive is the added element of diversification through the military sector, Berge said, noting that Aerostructures has a long history with U.S. military contractors, such as Lockheed Martin and Bell Helicopter. "Defense spending has taken a leap and has a better outlook than the commercial sector," he added.

The rating also is supported by equity provided by The Carlyle Group, which installed a new management team in 1999 to turn around the company. Since then, operating results have shown substantial improvement, Moody's noted. Through cost-cutting methods and the renegotiation of contract terms, EBITDA has increased significantly.