60 Heartland Boulevard
Our ability to offer large contractor capabilities with the flexibili ty and responsiveness of a small company, while staying competitive i n cost and delivering superior quality products, is what defines CPI.
CPI Aerostructures, Inc. (CPI Aero) produces structural aircraft part s, primarily for the U.S. Air Force and other branches of the militar y. The company outsources most of its manufacturing; its niche is com bining components from third parties into complex assemblies. Major p rograms for the company include the massive C-5A freighter, the T-38 jet trainer, the A-10 Thunderbolt attack aircraft, and the E-3 AWACS. CPI is little known outside the aerospace industry but has been grow ing both organically and by acquisitions.
CPI Aero was formed in Farmingdale, New York, in 1980 as Composite Pr oducts International, Inc. It had been started by Arthur August, a 25 -year veteran of Grumman Corp., as a technical consulting firm. CPI w as manufacturing components within three or four years. In 2003, CPI President Edward J. Fred told the Wall Street Transcript that the idea was to create a company with the technical expertise of a pr ime contractor but the flexibility of a much smaller organization.
CPI assembled replacement parts for U.S. military aircraft under cont ract to the government. Projects included windscreens for the Fairchi ld A-10 attack jet. Annual sales were about $2-$3 million in the early years. In the late 1980s CPI became a subcontractor to San Diego-based Rohr Industries, putting together structural components a nd subassemblies for a number of civil airliner projects.
"We call ourselves a mini-prime," Arthur August told Long Island B usiness News. CPI brought a high level of skills to jobs that wer e too small ($10 million to $50 million) for prime contractor s. August added that the new availability of electronic data via flop py disk closed the "information gap" between large and small companie s. "It used to be that huge staffs of people had to be utilized to ac cess the information in government files," he explained.
CPI was able to find a ready supply of aerospace talent after the clo sing of Fairchild Republic's Long Island factory in 1987. August prai sed Long Island as "a hotbed of excellent machine shops." Another off icial explained to LI Business News that CPI was an assembler, rather than a parts manufacturer.
Sales for 1988 were reportedly between $5 million and $7 mill ion. The firm had grown to 50 employees by this time and was adding a nother 10,700 square feet to its 15,000-square-foot plant in Islip, N ew York. In 1989, the company's name was changed to Consortium of Pre cision Industries, Inc.
Military Emphasis in the 1990s
The company went public in 1992 in an offering, raising about $4 million. Its name was changed to CPI Aerostructures, Inc. At the time , business was split 60-40 between commercial and military. The latte r component would eventually make up virtually all revenues.
There were a couple of aborted deals in the mid-1990s. CPI canceled t he acquisition of Valentec International, a producer of stamped metal parts and ammunition components. An agreement to merge CPI with VTX Electronics Corp., parent company of Vertex Technologies, was allowed to lapse.
CPI bought precision electronics parts manufacturer Kolar Machine, In c. for $14.5 million in 1997. Based in Ithaca, New York, Kolar em ployed about 60 people. This operation was terminated in 2001. CPI ha d announced plans to acquire another precision machining company but this deal was canceled. In 2000 CPI called off an acquisition of anot her New York aerospace manufacturer due to the equity interest demand ed by a financier.
Though the acquisition plans faced such setbacks, CPI was displaying strong organic growth spurred by a military shift towards more outsou rcing under the Clinton administration. This produced new demand for CPI's program management services. The company ended the 1990s with r ecord revenues of $21.3 million in spite of the Asian financial c risis and cancellation of a major airliner program, the MD-90.
Record Contracts After 2000
CPI's shares migrated from the NASDAQ SmallCap Market (ticker: CPIA) to the American Stock Exchange in September 2000. "We believe that mo ving to the American Stock Exchange will increase the Company's suppo rt and visibility within the investment community" said Chairman Arth ur August. The company's new ticker symbol, CVU, was an acronym for " ceiling and visibility unlimited"--pilot talk for clear skies ahead.
Most of CPI's contracts were relatively small. Arthur August describe d a $2 million award from Tinker Air Force Base to supply nose co wls for the E-3 Sentry as the largest single military contract the co mpany had landed in two years. Revenues, $8.3 million in 2000, wo uld almost double annually in the first few years of the millennium a s CPI landed increasingly larger contracts.
While the U.S. Air Force was spending billions on new stealth aircraf t, Vietnam era warhorses made up a large segment of its fleet. The se rvice planned to keep these planes flying for many more years, supply ing an increasing source of business for CPI.
In 2001, CPI landed a ten-year, $61 million contract to supply st ructural inlets for the T-38 Propulsion Modification program. The awa rd size was a record for the company, which typically dealt in contra cts worth $200,000 or so.
Chief Financial Officer Edward J. Fred took the role of CEO from comp any founder Arthur August in 2003. Fred, a ten-year veteran of Grumma n, had joined CPI in 1994. Eric S. Rosenfeld succeeded August as chai rman in late 2004.
CPI had a record sales year in 2004, as revenue rose 11 percent to &# 36;30.3 million. However, net income slipped $3 million, though g ross margins remained in the 33 to 34 percent range. CPI employed a l ittle more than five dozen employees at year end and was eligible for preferential treatment as a small business.
This helped CPI win its largest contract to date, which was also the largest government set-aside for small business: a seven-year contrac t to supply components including wingtips and panels for the Lockheed C-5A Galaxy. The deal had a potential value of $215 million. Fro m 1995 to 2004, CPI had received awards of $71 million related to the program. The C-5, one of the world's largest freighters, was fir st delivered in 1970 and the Air Force was planning to keep them oper ational until 2040. Rival Vought Aircraft Industries Inc. was also fa rming out some of its C-5 production to CPI.
CPI initially profited from the U.S. occupation of Iraq. Its share pr ice boomed and the company was able to raise $9 million in a seco ndary offering, eliminating its debt. However, heavy use of the C-5 k ept the aircraft out of routine maintenance, resulting in a temporary fall off in CPI's spares sales. Aerospace industry giants such as Th e Boeing Company and Northrop Grumman Corp. were increasingly outsour cing their production of replacement parts to smaller companies.
CPI moved into new quarters in January 2005. At 75,000 square feet, t he new facility was almost double the size of its previous plant. CEO Edward Fred told Newsday the company was remaining in Edgewoo d, New York, after several decades due to the availability of skilled workers and Long Island's aviation legacy.
Long Island Business Journal reported that local machine shops handled 30 to 40 percent of CPI's subcontracting requirements. The c ompany patronized retired workers as well as its neighbors. In Inc . magazine, Fred credited his over-65 hires with improving the wo rk ethic of his younger employees.
In a 2003 interview with the Wall Street Transcript, Fred comp ared the CPI's corporate culture to that of "The Grumman Family." Sta ff operated on a first-name basis. "There are no politics," said Fred . "We will not allow it." The company enjoyed low turnover. Underpinn ing it all was the importance of their work to the U.S. air fleet.
CPI was not well-known in the investment community, and had been work ing with an IR firm to raise its profile. The company also got a new logo and a new name in 2005, abbreviating its trade name to CPI Aero. Its rise landed it a spot on the Fortune Small Business faste st growing companies list. With virtually no similar competitors, a n umber of long-term contracts, and a supporting role every time C-5s d elivered U.S. military resources abroad, more growth seemed likely fo r CPI. CEO Edward Fred told the Long Island Business Journal, "We don't consider ourselves a mini-prime anymore. ... We do everythi ng the primes do."
Principal Competitors: The Boeing Company; Lockheed Martin Cor poration; The Nordham Group; Northrop Grumman Corporation; Vought Air craft Industries, Inc.