Tag Archives: Precision Castparts

Special Report: Precision Castparts’ Troubles Deeper Than Previously Reported

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The restart of the 737 Max assembly line this past summer has yet to alter the trajectory of Berkshire Hathaway’s swooning aerospace manufacturer, Precision Castparts. The company’s profits have crashed landed, and are leading to much wider layoffs than previously disclosed.

Precision Castparts is a worldwide manufacturer of complex metal components and products, provides high-quality investment castings, forgings, fasteners/fastener systems and aerostructures for critical aerospace and power generation applications.

According to The Oregonian, forty percent of Precision Castparts’ workforce will have been laid off by the end of 2020, and its total worldwide layoffs are expected to exceed 13,000 employees.

The number is far larger than the hundreds that it disclosed were laid off in its home state of Oregon in the second quarter.

In June 2020, the company turned its previously announced furloughs in Oregon into layoffs, and added additional layoffs at its Clackamas small structures business operations facility. The company cited the COVID-19 pandemic for the 717 layoffs in Oregon, which represented roughly 24 percent of its workforce in the state.

Plunging Revenues, Dwindling Profits

Falling revenue led to a disastrous third quarter. Precision Castparts’ reported third-quarter revenues of $1.5 billion, down 41.4% from the same quarter of 2019, and third quarter profits were down a stunning 80%.

“The COVID-19 pandemic contributed to material declines in commercial air travel and aircraft production,” Berkshire Hathaway disclosed in its most recent quarterly filing. “Airlines responded to the pandemic by delaying delivery of aircraft orders or, in some cases, cancelling aircraft orders, resulting in significant reductions in build rates by aircraft manufacturers and significant inventory reduction initiatives being implemented by customers.”

When Berkshire Hathaway acquired the company for roughly $37 billion in January 2016, it believed it had found one of Warren Buffett’s famed “elephants”—a company that had durable advantages that created a wide moat. At the time, the acquisition was Berkshire’s biggest ever, topping its $26 billion purchase of BNSF Railway in 2009.

While manufacturing for aerospace doesn’t have the same moat as a regulated utility or a railroad, it still has a huge barriers to entry due to the high cost of manufacturing specialized parts, and the unlikelihood that a customer will switch suppliers once a plane begins its production run.

Before Berkshire Hathaway acquired the company, Precision Castparts had an alluring annual growth rate of 23% over the previous ten years. Almost five years later, growth has evaporated, and the company has already taken $300 million in charges in 2020 to cover the costs of restructuring and inventory write-downs.

A Turbulent Future

Despite the good news that the F.A.A. is finally allowing Boeing’s 737 Max to return to commercial service after being grounded for twenty months, long term Precision Castparts is facing headwinds due to reduced demand over the next decade for aerospace parts.

Boeing, one of the company’s biggest customers, is revising downward the number of commercial airliners it will be building over the next ten years. The 2020 Boeing Market Outlook projected an overall demand for 18,350 commercial airplanes in the next decade — 11% lower than Boeing’s 2019 forecast.

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Commentary: Precision Castparts to Face Long Term Negative Impacts From Airplane Manufacturers’ Woes

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Berkshire Hathaway’s Precision Castparts will have reduced demand over the next decade for its aerospace parts that it supplies to the commercial airline industry, according to a new report issued by Boeing.

Precision Castparts manufactures parts for both Boeing and its rival Airbus, and in February the company laid off 150 Oregon workers as the production Boeing’s 737 MAX was halted. Boeing’s market projections show that its troubles are broader than just the issues it has faced with the 737 Max.

The 2020 Boeing Market Outlook projects that the commercial aviation and services markets will continue to face significant challenges due to the COVID-19 pandemic, while global defense and government services markets remain more stable.

Airlines globally have begun to recover from a greater than 90% decline in passenger traffic and revenue early this year, but a full recovery will take years, according to the Boeing outlook.

As it relates to Precision Castparts’ revenues, the 2020 Boeing Market Outlook projects an overall demand for 18,350 commercial airplanes in the next decade – 11% lower than Boeing’s 2019 forecast.

On the positive side, in the longer term, with key industry drivers expected to remain stable, the commercial fleet is forecasted to return to its growth trend, generating demand for more than 43,000 new airplanes in the 20-year forecast time period.

The BMO also projects a $2.6 trillion market opportunity for defense and space during the next decade. This spending projection reflects the ongoing importance of military aircraft, autonomous systems, satellites, spacecraft and other products to national and international defense. This demand continues to be global in nature with 40 percent of expenditures expected to originate outside of the United States.

In addition to the 2020 Boeing Market Outlook, Boeing also released its 2020 Commercial Market Outlook. Its Commercial Market Outlook is the longest-running jet forecast and is regarded as the most comprehensive analysis of the commercial aviation industry. The Commercial Market Outlook forecast projects:

• Over the next 20 years, passenger traffic growth is projected to increase by an average of 4% per year.

• The global commercial fleet is expected to reach 48,400 by 2039, up from 25,900 airplanes today. During this period, Asia will continue to expand its share of the world’s fleet, accounting for nearly 40% of the fleet compared to about 30% today.

• Single-aisle airplanes such as the 737 MAX will continue to be the largest market segment, with operators projected to need 32,270 new airplanes in the next 20 years. Single-aisle demand will recover sooner due to its key role in short-haul routes and domestic markets as well as passenger preference for point-to-point service.

• In the widebody market, Boeing forecasts demand for 7,480 new passenger airplanes by 2039. Widebody demand will be affected by a slower recovery in long-haul markets – typical after air-travel shocks – as well as uncertainties from COVID-19’s impact on international travel.

• Air cargo demand, a relative bright spot in 2020, is expected to grow 4% annually and generate further demand for 930 new widebody production freighters and 1,500 converted freighters over the forecast period.

In summary, the 43,110 projected airplane types projected by Boeing are:

Regional jets 90 and below 2,430
Single-aisle 90 and above 32,270
Widebody 7,480
Freighter widebody 930

Lastly, as it impacts Precision Castparts, the 11% projected decline in demand for commercial airplanes in the next decade does not take into account competition from China’s budding commercial aviation industry. While only in its infancy at this time, it is not clear what threat it will pose to established manufacturers Boeing and Airbus, and whether Chinese commercial planes will use parts manufactured by Precision Castparts, or instead use parts from domestic suppliers.

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Precision Castparts Lays Off a Quarter of Its Oregon Workforce

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Berkshire Hathaway’s aerospace manufacturer Precision Castparts has turned its previously announced furloughs in Oregon into layoffs, and added additional layoffs at its Clackamas small structures business operations facility.

The company cites the COVID-19 pandemic for the layoffs. The total number of layoffs in Oregon is 717, which represents roughly 24 percent of its workforce in the state.

“As the impact of the pandemic and other macroeconomic factors have weighed on the nation, many of our customers have or intend to curtail or reduce their production,” communications director David Dugan wrote in an email published in the Oregonian. “Due to the resulting impact on orders, we have significantly reduced our workforce to align our production with our customers’ needs.”

Precision Castparts is a worldwide manufacturer of complex metal components and products, provides high-quality investment castings, forgings, fasteners/fastener systems and aerostructures for critical aerospace and power generation applications.

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway’s Precision Castparts Plans 737 Max Layoffs

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Berkshire Hathaway’s aerospace company Precision Castparts has given pink slips to 150 workers in Oregon.

The layoffs are due to the suspension production of Boeing’s 737 Max.

The company has positions across a broad swath of next-generation commercial platforms, including Boeing’s 737 MAX, 777X, 787, and Airbus’s A320neo and A350 XWB.

There is still no firm date on the resumption of production, however, the latest estimates stretch into the summer of 2020 with some deliveries running up to two years late.

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Precision Castparts to Build $128 Million Innovation Center in Mason, Ohio

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After a global search, Precision Castparts Corp. has announced a new Mason, Ohio, campus to house a concept research and development integration center for its PCC Aerostructures division and a manufacturing innovation center for its SPS Technologies business.

PCC’s campus will anchor the US Route 42 entrance of the new Mason R&D Park East, where they will invest $128 million in two facilities on 31 acres. The new campus is expected to bring 190 new employees to the city.

The site in Mason’s new 400-acre R&D Park was, in part, selected for its connectivity to complementary aerospace clients and partners along Innovation Way and southwest Ohio.

“We were really impressed with the strong industry partnerships Mason has established in the business community, as well as the state and local collaboration. This is exactly the type of environment we were seeking,” said Blake Ray, Vice President of Advanced Manufacturing at PCC.

“It was really important for us to test this new integration model in an environment where we were in close proximity to vendors and diverse engineering firms, which strengthen the talent pool,” Mark Gancevich, VP of Technology & Innovation for PCC Aerostructures.

PCC is one of the largest build-to-print manufacturers of complex structural and mechanical assemblies in the aerospace industry. With few exceptions, every aircraft in the sky flies with parts made by PCC. The new Mason engineering campus is designed to create innovative concepts in vertical integration and seamless process improvement.

“We are honored PCC and SPS chose to locate in Mason,” said City of Mason Mayor Kathy Grossman. “This announcement is a continued reinforcement of the strong economic position of our city and a reflection of our positive partnership with JobsOhio, REDI and Mason City Schools. We look forward to helping these innovative technology companies grow here.”

“We are fortunate to have a strong, progressive partnership with Mason City Schools, who work seamlessly with our team to support thoughtful economic growth in the city,” said Mason City Manager Eric Hansen. “They are a critical part of our economic development success, which ultimately benefits Mason taxpayers through a reduced share of the tax burden.”

“We have the highest concentrations of aerospace talent in the country, which played a major part in bringing the largest capital investment from an aerospace company to our region so far this year,” said Kimm Lauterbach, President and CEO, REDI Cincinnati. “Seeing complex projects like PCC’s come to fruition for Mason and the Cincinnati region reinforces the fact we have the right people and partnerships in place to help businesses achieve their goals and set their sights on continued growth.”

The State of Ohio, JobsOhio, and Mason City Council each approved incentive packages for the new PCC Campus investment. Mason City Council approved an ordinance authorizing an economic agreement with the company for an incentive package to include a Community Reinvestment Area (CRA) Tax Abatement, Mason Port Authority Infrastructure and Wellness Incentives, which will bring 190 jobs within four years with a $14.55 million payroll and overall investment of $128 million. In addition, the State of Ohio approved a Jobs Creation Tax Credit, and JobsOhio plans to offer assistance, which will be made public after a final agreement is executed.

© 2019 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Precision Castparts Making Progress on Pollution Mitigation

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Berkshire Hathaway’s Precision Castparts is making progress on its mitigation of heavy metals pollution at its Portland, Oregon plant, according to the Department of Environmental Quality.

The DEQ’s report notes that stormwater testing shows that water discharged into Johnson Creek is no longer contaminated thanks to the water filtration tank system that Precision Castparts installed in 2016.
Under the supervision of the EPA, contaminated soil on the property has been removed.

“In a portion of the site, there were some impacted areas affected by PCBs — or polychlorinated biphenyl — contamination so we had some sampling done there and discovered that there were impacts,” DEQ NW Region Cleanup and Site Assessment Manager Paul Seidel said on KOIN TV. “So that has been cleaned up in part under US-EPA oversight. There’s still more work to do there but there’s been a substantial amount of work completed in the last several years.”

© 2019 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Strike Over at Berkshire Hathaway-Owned Plant

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The strike is over at a Berkshire Hathaway-owned metals plant in upstate New York.

More than 200 workers at Berkshire Hathaway’s Specialty Metals spent three weeks walking a picket line. At issue were the long hours workers put in at the plant, which runs 24-hours a day, seven days a week.

Workers ratified a new contract on Saturday morning and they will be back to work as of Monday.

The Special Metals plant in New Hartford, New York, produces premium quality nickel base superalloys for both static and rotating aerospace and land-based gas turbine applications.

Specialty Metals is owned by Berkshire Hathaway’s Precision Castparts Corp., which is a global conglomerate operating in more than a dozen countries that manufactures complex metal components and products, high-quality investment castings, forgings and fastener systems for power generation, aerospace, space exploration, military and other mission-critical applications.

© 2019 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Workers on Strike at Berkshire Hathaway-Owned Plant in Upstate New York

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More than 200 workers at Berkshire Hathaway’s Specialty Metals have gone on strike. At issue are the long hours workers are working at the plant, which runs 24-hours a day, seven days a week.

The Special Metals plant in New Hartford, New York, produces premium quality nickel base superalloys for both static and rotating aerospace and land-based gas turbine applications.

The strike began on Saturday, and there are 211 employees, along with 25 technicians, that are walking a picket line.

Ron Zegarelli, chief steward at Special Metals, explained that the company is requiring workers to work 60-hour, six day weeks.

“Our guys are fed up,” Zeigler told the Observer-Dispatch, “I told (management) it wasn’t going to work.” He noted that some employees had marital problems, including divorce, due to the demands of a job that keeps them away from home for so much of the week.

The plant is continuing to operate during the strike.

“Special Metals negotiated in good faith and made a fair and equitable offer,” David Dugan, director of communications for Special Metals. “As a result of the vote, we are executing our contingency plans, including having our salaried employees operate our equipment. Through these and other actions, such as leveraging other production facilities, we are well positioned to meet our customers’ needs as negotiations continue.”

Specialty Metals is owned by Berkshire Hathaway’s Precision Castparts Corp., which is a global conglomerate operating in more than a dozen countries that manufactures complex metal components and products, high-quality investment castings, forgings and fastener systems for power generation, aerospace, space exploration, military and other mission-critical applications.

© 2019 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lawsuit Against Precision Castparts Could Become a Class-Action Suit

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Since 2016, Berkshire Hathaway’s Precision Castparts, a manufacturer of investment castings, forged components, and airfoil castings for use in the aerospace, industrial gas turbine, and defense industries, has been facing a lawsuit over pollution from its South Portland, Oregon, operations.

The plaintiffs, Kelley Foster, Juan Prat-Sanchez, Kirk Gayton, and Debra Taevs, allege in their suit that the “South Portland Operations release significant amounts of pollution, including arsenic and nickel, into the surrounding neighborhood. PCC’s emissions have created a hotspot of pollution in South Portland.”

The plaintiffs all live in South Portland, and cite a 2013 study by the United States Forest Service that collected tree moss as a bioindicator of air pollution.

The suit maintains that a map created by the Forest Service “demonstrate that there is a significant air pollution hotspot surrounding PCC’s South Portland Operations, where nickel, arsenic, and other hazardous air pollutants appear in high concentrations.”

As of October 2016, the lawsuit has been consolidated with a similar lawsuit by plaintiffs Brian Resendez, Rodica Alina Resendez, Michelle Francisco and Matthew Talbot that is seeking $10 million in damages.

A motion before the Multnomah County Circuit Court is seeking to certify the litigation against Precision Castparts as a class-action lawsuit, which would potentially add the residents of roughly 5,000 residential properties to the suit.

A jury trial has been tentatively scheduled for mid-July 2020.

© 2019 David Mazor


Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Commentary: For Berkshire Hathaway, Precision Castparts is Easy as One, Two, Three

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Now that Berkshire Hathaway has acquired aerospace manufacturer Precision Castparts, exactly what has Berkshire got for all its billions?

One: Berkshire gets a fast-growing company. Precision Castparts’ annual growth rate has been 23% over the past ten years.

Two: Berkshire gets a company with a wide moat, as the costs associated with the aerospace industry create high barriers to entry.

Three: Berkshire gets a company that will benefit from the explosive growth in commercial air travel in India and China over the next two decades.

About Precision Castparts

Precision Castparts manufactures structural investment castings, forged components, and airfoil castings for aircraft engines and industrial gas turbines. It is a world-leading producer of complex forgings and high-performance alloys for aerospace, power generation, and general industrial applications, and its customers include Airbus, Boeing, GE, and Rolls-Royce, among others.

With annual revenues of approximately $10 billion, the company reported $2.412 billion of revenue in the second quarter of 2015. Of that revenue, 72% came from aerospace, 15 % came from power, and 13% came from general industrial and other sales. Operating margins in the last quarter were a healthy 25.7%. The company has a 15% return-on-equity.

The company has 29,350 employees at 157 manufacturing plants.

Strong Management in Place

Unlike both Heinz and Kraft, where 3G Capital took on the duties of replacing senior management, Berkshire is lokking to leave Precision Castparts’ management in place. After all, traditionally that has been one of Berkshire’s acquisition criteria, stating, “Management in place (we can’t supply it).”

In the case Precision Castparts, the company has a strong leader in CEO Mark Donegan, who during his thirteen years at the helm, has led the company to an 11-fold return. Among his strengths, Donegan has a keen eye for the type of “bolt-on” acquisitions that Buffett likes.

An Area Growth for Berkshire

With the Great Recession now in the rear view mirror, airlines are placing large orders to replace aging fleets. These orders, which are primarily to Airbus and Boeing, benefit Precision Castparts as it supplies key components to both the A320neo and 737 MAX.

Doubling the Market

While Precision Castparts manufactures everything high-pressure blades for power generators to medical prosthetics, it is complex metal components for the aerospace industry that not only brings in the majority of its revenues, but also offers solid opportunities for growth.

As large as the commercial market for jets already is, it is expected to double by 2030 due to strong demand from India and China. By 2030, the Asia-Pacific market is expected to grow to 30% of all world-wide passenger mileage.

Boeing predicts that 38,050 new aircraft with a total value of $5.6 trillion will be needed in the next two decades. Roughly 10,500 commercial jets are needed just to replace fleets of old, fuel-guzzling aircraft that are aging out of service.

Locking in a Customer

With the needs of the aerospace market highly specialized, whether its engine turbine blades, or the large wing ribs for the Airbus’s giant A380, there is very little company switching among airplane manufacturers. Witness its relationships with both engine makers Pratt & Whitney and GE that go back over 45 years.

As Berkshire plots its course in the 21st century, it is assured of solid growth in an industry that is highly technical, needs manufacturing on a mammoth scale, and has high cost barriers to entry for potential competitors.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.