3701 Flamingo Road
Since our initial public offering we have acquired seven companies and have increased the scope of our products and services to include airframe, engine and component maintenance and airframe, jet engine parts manufacturing and new parts distribution.
Based in Miramar, Florida, Aviation Sales Company (ASC) is the product of a 1993 spin-off of the aviation services unit of Ryder Systems. Through the 1990s, ASC has expanded beyond the business of supplying parts to aircraft manufacturers and the airlines to also providing maintenance, repair, and overhaul services, as well as some parts manufacturing. Acquisitions have fueled growth but also led to crippling debt. Faced with a sluggish industry, ASC has been forced to shed assets to pare down debt and to restructure its business as it enters a new century.
When the company was originally founded in Miami in 1972, the business of ASC was to purchase aircraft and disassemble them in order to sell the component parts to airlines and independent repair aircraft operations. ASC was generating some $12 million in revenues by 1983 when it was acquired by Ryder Systems, Inc., a company best known for its consumer truck rental business. Ryder also had Miami roots. Its founder, James A. Ryder, worked as a truck driver during the early 1930s, hauling materials that were used to build up Miami Beach. He bought his own truck and began a truck-leasing business that would became Ryder Systems, Inc. and make a public stock offering in 1955. In 1968 Ryder launched its one-way nationwide consumer truck businesses. It also ran a number of other businesses, including an oil refinery, a truck-driving school, and a credit card operation. When the U.S. economy suffered a downturn in the early 1970s, however, Ryder Systems found itself on the verge of bankruptcy. The company was forced to sell off assets, and soon James Ryder was forced out. His successor, M. Anthony Burns, former head of Allegheny Airlines, began to revitalize the fortunes of Ryder Systems, which was healthy enough by the early 1980s to enter the aviation services business.
In addition to buying ASC, Ryder Systems made a number of other acquisitions as it assembled an aviation group that in 1987 would post almost $1 billion in sales and become the largest nonairline provider of aviation maintenance and parts. It contributed about 20 percent, or some $60 million, to Ryder's record 1987 pretax profits of $302 million. Aviation was also Ryder's fastest growing group, leading management to plan for even further expansion. Because Ryder had enjoyed 11 straight years of record earnings, the company's optimism seemed justified. When the U.S. economy stalled, however, Ryder saw its pretax profits fall to $180 million. The aviation group was hurt by low aircraft sales as well as a depressed market for used parts. Ryder began a restructuring effort that would result in the sell-off of almost $2 billion in assets and the termination of 9,000 employees. The aviation group would rebound but prove inconsistent. It posted earnings of $46.5 million in 1991, only to see a drop-off of 46 percent to $25.1 million the following year. In many ways Ryder's aviation group reflected the turbulence in an airline industry that suffered from overcapacity, which led to fare wars and massive losses to the bottom line.
A culmination of its restructuring efforts would come in 1993 when Ryder announced that it would spin off its aviation business. For every four shares of Ryder stock that investors owned, they received one share of the new company, which assumed the name of one of Ryder's major mid-1980s acquisitions, Aviall. Based in Dallas, Texas, it consisted of three units: Ryder Aviall, Ryder Airline Services, and the Inventory Locator Service. Other units, including ASC, were expected to be sold off by the new Aviall, Inc.
Acquisition by Aerospace International in 1993
After being put on the market in July 1993, ASC would be acquired by Aerospace International Services (AIS) for $50 million in a transaction that was not completed until December 1994. AIS was created in February 1992 by Houston investor Robert Alpert and two Japanese firms (Japan Fleet Services and Toman), with Alpert holding a controlling interest of 52 percent. The sole purpose of the enterprise was the $55.2 million purchase of the spare parts inventory of bankrupt Eastern Airlines, amounting to some 27 million aircraft parts that were worth an estimated $700 million. AIS originally turned to GE Capital to fund the transaction, but the application was turned down. GE's 34-year-old senior vice-president in charge of mergers and acquisitions, Dale S. Baker, found alternative funding for AIS from a syndication of banks. He was then asked to become the new company's president. After some research into the aircraft parts redistribution market, he accepted the post. For the next two years AIS documented its Eastern Airlines inventory, reselling some of the parts to pay off $42 million of the $57 million debt the company had incurred. It was at the end of 1993 that Baker offered AIS investors the choice of completing the sell-off of the inventory, realizing a 40 to 50 percent profit, and shutting down the company, or using the parts to build an aviation service company. ASC, in the meantime, was put up for sale and Baker saw an opportunity to gain entry into the service business. Although AIS did not make the winning bid for ASC, Baker's belief that the winning bidder might not be able to raise the necessary funds was borne out. Thus, after the passage of several months, AIS finally purchased ASC. Because ASC was a known name in the air industry, the Aviation Sales name was retained. Baker moved to Miami to take over the company with the intention of changing ASC from a parts distribution company to a service company. The combined company boasted a parts inventory with a value in excess of $1.1 billion.
Baker saw the changing airline industry as an opportunity for the new ASC. Airlines were beginning to shy away from keeping a large supply of spare parts, which required an investment as large as $500 million that would not be generating any revenue. On the one hand, ASC would serve as a buyer for airlines that wanted to sell some of their parts' inventories to realize cash; and on the other hand, ASC would sell parts to the airlines and provide all of the necessary inventory management services, including the documentation to show regulators that the parts complied with airworthiness directives or engineering changes. By serving a large number of customers, ASC was banking on the economies of scale to allow it to do a better job with parts than the airlines could do themselves and thereby build a profitable business. In addition, ASC would serve freighter and military aircraft. Moreover, the prospects for ASC looked promising because of two salient facts: the average age of the world's aircraft fleet was almost 15 years and the number of air miles flown was continuing to climb. The need for maintenance and parts would surely keep pace. ASC wanted to position itself to be able to offer a package of inventory and maintenance services, a total solution that would drastically reduce the number of vendors for airlines, who at that time might be dealing with some 200 to 300 suppliers and service providers.
ASC revenues jumped from $28 million in 1994 to $113 million in 1995. To fuel external growth the company made a public offering of stock at $19 a share on June 30, 1996. By August ASC had made its first acquisition, Dixie Bearings, for approximately $9 million. Dixie would generate $7 million in revenues for ASC in the remainder of the year. In December 1996 the company also acquired AvEng Trading Partners, an Oklahoma aircraft engine parts redistributor, at a cost of approximately $8 million in stock. For the year, ASC would generate revenues of nearly $170 million.
Because its customers wanted parts that were overhauled and repaired, and freshly tagged, ASC looked to expand into the $27 billion a year maintenance, repair, and overhaul business (MRO). A major step in this direction was taken in September 1997 when the company bought Aerocell Structures of Hot Springs, Arkansas, an airframe component-overhaul company. ASC paid approximately $18 million in stock for Aerocell. A week later it moved into the business of manufacturing of parts by acquiring the Cincinnati-based Kratz-Wilde Machine Company, subcontract makers of jet engine components, at a cost of approximately $42.5 million in cash and notes and the assumption of some $2.5 million in liabilities. In December 1997, ASC added another subcontract parts maker, Apex Manufacturing of West Chester, Ohio, for $8.4 million in stock. Not only did these acquisitions broaden ASC's business, they helped to boast revenues to $257 million for 1997.
Setting a Goal of $1 Billion in Annual Sales by 2001
ASC continued its aggressive pattern of growth in 1998, as it endeavored to become what its CEO called a total service provider, with the goal of reaching $1 billion in sales by 2001. In March it acquired Caribe Aviation and Caribe's wholly owned subsidiary, Aircraft Interior Design, for cash, notes, and stock at a cost of nearly $25 million. Caribe provided repair and overhaul services, while Aircraft Interior Design manufactured such aircraft cabin parts as overhead bins and seat arms. In July 1998, ASC made its most significant transaction when it acquired Whitehall Corporation for $142 million, in what would be accounted for as a pooling of interests. Whitehall brought with it two FAA-licensed repair stations, specializing in heavy maintenance in narrowbody aircraft. In October ASC then acquired at the cost of $70 million Triad International Maintenance Co., a Greensboro, North Carolina company that specialized in widebody maintenance and modification. In essence, ASC was now able to offer "nose to tail" maintenance and repair, as well as parts inventory management. It was composed of nine companies divided into three groups: distribution service; manufacturing; and maintenance, repair, and overhaul. For the year ASC saw its earnings jump from $4.8 million in 1997 to $25.5 million in 1998. The next step for the company appeared to be the establishment of a global presence.
In 1999 ASC would move to Miramar, Florida, where it was able to secure 41 acres of land to build offices and warehouse space. Although the company's biggest customer, the Boeing Company, experienced a drop in production, ASC appeared quite healthy. While the stock of its competitors suffered, ASC continued to rise, approaching the $50 per share mark early in the year. In August the company acquired for $21.4 million the jet engine and Boeing 727 aircraft maintenance operations located in Oscoda, Michigan, from Kitty Hawk, a Texas air cargo company that decided to outsource its airframe and engine maintenance work. As part of the transaction, ASC would maintain Kitty Hawk's fleet of more than 100 aircraft.
ASC management continued to express optimism about the company's prospects, but in September the company was forced to announce that it would not meet its third quarter estimates. ASC stock lost more than a third of its value in a single day, prompting some shareholders to file a class action suit that alleged that some of the company's "officers and directors issued a series of materially false and misleading statements regarding the growing demand for the company's services, its operations and earnings." Between September 30 and October 5, officers, directors, and their affiliates bought more than 200,000 shares of ASC common stock in the open market. A company press release maintained that this action demonstrated confidence in the financial strength of ASC, but outside investors were not convinced. The price of ASC stock continued to slide. The company began talks of a possible merger with BFGoodrich, which already boasted the world's largest third-party-only MRO operation, but talks eventually broke off.
ASC failed to comply with December 31, 1999 obligations to lenders and was granted an extension until March 31, 2000. The company would announce that for the year it lost almost $22 million on sales of $672 million. As the price of ASC stock continued to fall, the prospects for the company appeared bleak. Unable to meet the March 31 deadline, ASC asked for more time from lenders, but by late April the company expressed "substantial doubt" about its ability to continue in business. With debt that amounted to more than $400 million, ASC had little choice but to sell off some of the assets it had assembled. Manufacturing operations were the obvious targets, as were three A-300 jets that the company owned. The jets would eventually fetch $36 million. In August ASC sold Kratz-Wilde Machine Co. and Apex Manufacturing to Barnes Group Inc. for $41 million. The price of ASC stock rebounded slightly, rising to $6. In September ASC then sold its used parts division to Kellstrom Industries Inc. for approximately $145 million, leaving ASC with a core maintenance and repair business. For used parts, the company would now rely on Kellstrom.
As ASC tried to reduce debt and refocus its business, it continued to report huge losses during the course of 2000. Its stock reached its lowest point when it fell to $1.63. Less than two years earlier, management was projecting that it would reach $54. In late December 2000, ASC sold its Dixie Aerospace Bearings unit for $17.7 million to Wencor West. By now the company's debt was reduced to approximately $50 million. A Texas investor named Lacy Harbor, in the meantime, began to buy up depressed ASC stock. The company granted him approval to increase his stake in the company to 30 percent. ASC went into 2001 with a great deal of unanswered questions. Would it be able to find a repair and maintenance niche in the aircraft services industry, and would control of the company change hands?
Principal Subsidiaries: Aviation Sales Distribution Services Company; Aviation Sales Manufacturing Company; Aviation Sales Maintenance, Repair & Overhaul Company; Aerocell Structures; Aircraft Interior Design, Inc.; Whitehall Corporation.
Principal Competitors: AAR Corporation; Aviation Distributors Inc.; Aviall Inc.; HEICO Corporaiton; First Aviation Services Inc.