MAL in today's Globe & Mail: Magellan fires up cylinders
SALES LIFTOFF / In just 18 months, the company has blossomed from its roots as a hodgepodge of aerospace orphans.
Tuesday, February 24, 1998
By Oliver Bertin
Mississauga -- WHEN Magellan Aerospace Corp. appeared on the
scene in late 1996, nobody took much notice -- it was a hodgepodge
of aerospace orphans that nobody seemed to want.
But 18 months later, that same company has blossomed into the
fourth-largest Canadian-owned aerospace company in the country with
annual sales of about $300-million and a healthy profit.
"We just put [the components] together and made something really
strong," said Richard Neill, Magellan's president and chief operating
officer.
But behind that self-effacing statement lies more than a textbook
turnaround. Personalities also played a key role as did a dose of smart
management, observers say. After all, a host of other people have tried
to turn around the businesses formerly known as Fleet Industries Ltd.
over the past five years, without much success.
A new name and a new owner seem to have made the difference for
the maker of airplane and jet engine parts.
"It is a well-respected company that is very well positioned to take on
new business," said Glynn Williams, an analyst with Newcrest Capital
Inc. in Toronto.
Mississauga-based Magellan has hit "a sweet spot" in the aerospace
business, he added. Its plants have excess capacity at a time when
there is heavy demand for airplane parts and the competition is too
busy to pick up extra work.
Analyst Greg McLeish of Toronto- based Octagon Capital Canada
Corp. agrees. "The management is very strong. They have been able to
build a very strong company and rebuild some of the Fleet assets."
The key to the turnaround at Magellan, observers say, is Murray
Edwards: At 38 years old, he is seen as the shy eminence grise of the
Calgary financial community. He has been quietly building Magellan
into a major aerospace company by finding much-needed capital,
instilling a business discipline on the operations and, probably most
important, showing enthusiasm for a group of companies that have
plodded for too long.
"Murray has been able to use his business expertise," Mr. McLeish
said. "Magellan is not the first company he has [turned around] and
most, if not all, have been very successful."
The companies that he has rejuvenated include Rio Alto Exploration
Ltd. and Foremost Industries Inc., both of Calgary.
Magellan is a new name in the Canadian aerospace industry, but its
components have been around for decades:
Fleet is a sheet-metal maker -- a metal-basher in aerospace terms --
that makes airplane skins and wing parts in Fort Erie, Ont.
It veered close to bankruptcy in the industry downturn of the early
1990s, despite a high-profile board that included former Ontario
premier William Davis and retired U.S. admiral Elmo Zumwalt.
Orenda Aerospace Corp. built the jet engines for the Avro Arrow, the
ill- fated Canadian jet fighter of the 1950s. By the 1990s, Orenda was
an unwanted appendage to Hawker Siddeley Canada Inc., the
Canadian arm of a once-mighty industrial empire.
Hawker's chief executive officer Keith Moore had been ordered to
break the company up and sell off the parts, and he freely admitted that
he had little interest in rebuilding the aerospace arm.
Magellan includes a number of small aerospace companies in the
United States that have quietly gone about their business without raising
much notice:
Middleton Aerospace Corp. in Middleton, Mass., and Aeronca Inc. of
Middletown, Ohio, supply the world's jet engine makers with some of
their most fundamental parts.
Bristol Aerospace Ltd. is usually considered the jewel of the collection.
The Winnipeg company overhauls jet fighters for the Canadian air
force, builds rockets for the U.S. government and makes the panels
that fit on the back of a Boeing 737 wing.
Bristol was part of Rolls-Royce Industries Canada Inc. of Montreal,
but Rolls-Royce was more interested in building huge industrial turbines
than rockets and put it up for sale.
Mr. Edwards bought control of Fleet in early 1996, changed the name
to Magellan and put the basics of his empire together through a series
of acquisitions over the next year.
The numbers tell the tale. In 1995, Magellan -- or Fleet, as it was then
called -- lost $9.3-million on sales of $64.2-million. In 1996, with
Orenda under its wing, it made a profit of $19.4- million on sales of
$136.7-million.
The Bristol acquisition last July is expected to take revenue up to
$290- million for 1997, said Magellan president Mr. Neill, with
$365-million forecast for 1998 and $450-million for 1999. While the
1997 profit figures are not yet available, he expects them to be
significantly higher than in 1996.
Mr. Neill offers many reasons for the turnaround at Magellan and some
are straight out of a business textbook.
He gives considerable credit to Mr. Edwards, now chairman, CEO
and 30- per-cent shareholder of the company. A financial expert and
lawyer rather than an engineer, Mr. Edwards introduced tight controls,
twice-monthly executive meetings, access to financing and the
motivation that was lacking in the component companies.
"If we can build a good business case, he will find the money to go
forward," Mr. Neill said.
Mr. Edwards already has invested about $30-million into new tooling
and there is more money available should a potential acquisition come
on to the market, Mr. Neill said. Then, he refinanced some of the U.S.
operations, abandoned marginal businesses and concentrated on what
Magellan could do best -- the manufacturing of parts for companies
such as Rolls-Royce, Boeing Co. and Bombardier Inc.
Middleton is one of the few companies in the world capable of making
the shaft that runs down the centre of an airliner's jet engine, while Fleet
and Bristol are concentrating on the sophisticated "plastics" used in
jumbo jet wings and the special "glues" that stick modern airplanes
together.
Magellan is also pushing a number of proprietary products that have a
niche all their own.
There is the Black Brant rocket, used by the U.S. government to check
for greenhouse gases in the upper atmosphere, and a giant wire snipper
for emergency use if a helicopter can't avoid hydro or telephone lines.
But one of the most promising new projects is an airplane engine that
Orenda adapted from the racing car version of a 454-cubic-inch
Chevrolet truck motor. In truck guise, it puts out 290 horsepower, the
car maker said. Orenda's version goes up to 750 hp, enough to power
a six-seat executive airplane or a Beaver bush plane.
Magellan has sold about 140 of those engines out of a new plant in
Truro, N.S., and Mr. Neill expects sales to top $50-million when the
plant comes fully on stream next year.
theglobeandmail.com |
