LONDON — The British defense company providing in-flight refueling technology for the U.S. Air Force's KC-46 tanker program has reported massive pretax losses for 2016 and launched a major rights issue to help repair its balance sheet.
Cobham reported a statutory pretax loss of £847.9 million (U.S. $1.05 billion) as a result of writing down the underlying value of the business — that compared with a £39.8 million loss the previous year. Sales of £1.95 billion were down marginally on 2015.
A £500 million rights issue, the second in nine months, is a key part of a drive by a recently installed management team to revive the fortunes of the company, which has substantial operations in the U.K., Australia and the U.S.
Cobham provides dozens of components for the F-35 fighter and is a Tier 3 supplier of electronics, communications and other high-tech systems.
Rolling out the company's 2016 results, CEO David Lockwood, who only joined Cobham late last year, said the rights issue was needed "to reassure our customers, to give us the flexibility to drive operational improvements and to provide us with a sustainable platform for the future."
The chairman and chief financial officer have recently been replaced and the new chairman, Mike Wareing, warned in a statement that this was the start of the board reshuffle, not the end.
The release of the figures comes just a couple of weeks after Cobham revealed it was taking a £150 million charge on development of the wing aerial refueling pod and Centerline Drogue System for the troubled Boeing contract to supply KC-46s to the U.S. Air Force.
The company signaled at the time of the KC-46 announcement that more bad news was on the way in its 2016 figures — and in that sense, they did not disappoint.
Cobham's new management pointed to a litany of causes behind the problems.
"During 2016, there have been a succession of performance issues in a number of Cobham businesses. These have stemmed from weaknesses in management and financial controls; contractual and commercial failures and, in a few businesses, more challenging market conditions," Lockwood said.
The executive also pointed to poorly timed acquisitions or poorly managed integration of purchases as being among a list of other problems.
Cobham has made a string of acquisitions over the last 10 years, most of them in the United States. Its latest one: a $1.46 billion deal to acquire wireless communications company Aeroflex in 2014.
The company's current weakness raises the question of whether Cobham itself may become an acquisition target.
Defence industry commentator Howard Wheeldon, of Wheeldon Strategic Advisory, said it was possible, "but unless someone was to strike very soon, on balance I think that the answer is probably that a year from now Sir Alan Cobham's legacy will still be independent."
It's not that long ago Cobham's name was regularly being touted as a potential takeover target for U.S. and European defense and aerospace companies.
Wheeldon reckons potential buyers may have run the rule over the company, but it's unlikely there will be a queue forming.
"In respect of retaining its independence, I suspect that the answer is: 'Yes, it can and will retain that.' I may well be wrong, but knowing that several companies have probably trawled over [it already] I am not sure that there is the willingness to take on risk," he said.
"Clearly, if Cobham was to be bid for by a U.S. or maybe U.K., player I sense that in order to sell the potential of making a bid to their own shareholders, a breakup, meaning selling the notion on the basis that the sum of the parts is greater than the whole, would be required. The trouble is that alongside this notion there is another requirement, one that says notwithstanding the rights issue, with so much debt taking on Cobham, is not without risk," he said.
It wouldn't be entirely bad news for anybody casting an eye over the company. Despite the massive problems, Cobham still managed to report profit before tax of £175 million in 2016, albeit much reduced from the previous year; secured more than £2 billion in new sales; and ended the year with an order book just short of £3 billion.