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International Airline Support Group, Inc. (IASG) supplies operators with parts for older types of aircraft. Its main customers are cargo airlines using older aircraft such as the DC-9 and MD-80. The company diversified in the late 1990s by acquiring inventories of parts for regional aircraft, such as the Embraer Brasilia, and for the Boeing 747 jumbo jet. The company traditionally has acquired its inventories by buying used aircraft and disassembling them. This has proved very profitable in the past. However, IASG has suffered along with the airline industry following the terrorist attacks on the World Trade Center on September 11, 2001.
International Airline Support Group, Inc. was founded in 1982 by Richard R. Wellman, a scrap metal dealer, and his wife Lynda Wellman. Richard Wellman grew up in a working-class neighborhood of Detroit, recorded the Wall Street Journal in a 1992 article chronicling how much he enjoyed entrepreneurship. His involvement with aviation began in 1955, when he became a mechanic in the U.S. Air Force at the age of 17.
Upon leaving the air force, he worked for an air freight company. After this adventure, which involved shipping cadavers from Vietnam, he bought a share of his own cargo aircraft and used it to ship parts for the auto industry. This expanded into flying odd cargoes to far-flung corners of the world, noted the Wall Street Journal--tedious work that most other companies refused. This sometimes involved flying thousands of head of livestock to third world countries. Wellman also began trading aircraft and parts, a very lucrative sideline.
From 1975 to 1978, Wellman's planes carried air cargo on behalf of Air India. He then returned to the United States, exhausted from globetrotting and beleaguered by a new wave of competitors encroaching upon his market niche. He moved to Miami and became an employee of another air cargo service.
Soon, though, Wellman returned to his old side venture of selling parts. "The fun of it," Wellman told the Wall Street Journal, "is to take something other people think is junk and convert it into cash." He bought a used Boeing 707 and sold the nose gear for $23,000 before he had even towed it into its parking spot. Most of the planes IASG dealt with were no longer in production (DC-8 manufacturing ended in 1972; that of the DC-9 stopped ten years later), but newer aircraft often had some parts in common with the older planes, helping them maintain their value high. About 40 percent of the DC-9's parts were interchangeable with those of the DC-8.
International Airline Support Group (IASG) was formally launched in 1982. Wellman's wife Lynda handled the bookkeeping and became the corporation's secretary-treasurer. IASG began logging an annual profit in 1985 and grew rapidly into the 1990s. Revenue of $8 million for the 1989 fiscal year was nearly triple that of the year before, while net income rose to $487,000 from $55,000.
A major early customer, reported Fortune magazine, was the cargo airline Transafrik Corporation, based in Sao Tome and Principe. However, the agreement to purchase 17 aircraft from Northwest Airlines (11 DC-9's and six 727's) broadened IASG's customer base to include a handful of major cargo and passenger airlines in the United States. Before this, DC-8 parts had accounted for 85 percent of IASG's inventory. The 17 planes, Northwest's oldest, had an average value of $1 million each, according to one estimate.
Going Public in 1990
IASG's initial public offering (IPO) in 1990 raised $2.4 million. Prior to the IPO, in October 20, 1989, a Delaware corporation called International Aircraft Support Group was formed. It was merged into the existing Florida corporation. The shares traded over the counter under the symbol "IASG."
About 70 percent of sales came from overseas. The company more than doubled its revenues in the fiscal year ending May 31, 1991, reaching $21.5 million. At the same time, profits tripled to $1.4 million. Revenues continued to rise in fiscal 1992, to $26.5 million, while net income hit $2 million. This led the Miami Herald to pronounce it Florida's second most profitable company. It had 60 employees at the time. The 1992 results were accredited to big gains in the domestic parts business and sales of whole aircraft and engines. IASG-Virgin Islands, Inc. (IASG-VI) was formed in July 1992 to promote international sales with tax benefits.
Throughout the 1980s and early 1990s, most major carriers were retiring their older, first generation airliners for more fuel efficient ones as well as for quieter models that could meet increasingly stringent noise regulations. According to IASG's Securities and Exchange Commission (SEC) filings, though, DC-8's equipped with "hush kits" to abate engine noise were among the cheapest aircraft to operate, making them particularly popular among cargo airlines and guaranteeing a market for DC-8 parts.
IASG joined International Aircraft Services, a leasing firm in Shannon, Ireland, in a joint venture in April 1990. The enterprise, called Seven Seas Leasing Ltd., leased and sold first generation airliners. Seven Seas was discontinued in June 1992 due to poor market conditions in the aircraft leasing business overseas. IASG also had a wholly owned subsidiary, Barnstorm, Inc., that traded and leased whole planes. Aircraft leasing increased to 10 percent of IASG revenues in the 1994 fiscal year.
In 1991, the company began leasing space for an aircraft and parts storage operation north of Dallas in Sherman. The company soon acquired three MD-80 airliners, a successor to the DC-9, which shared many of the same parts. The MD-80 was still in production at the time. IASG parted out its two MD-80's, acquired from Northwest Airlines, and leased a third.
In June 1993, the company established a subsidiary, International Airline Service Center, Inc. (IASC), in Sherman, Texas. IASC mainly performed maintenance checks on DC-9's and Boeing 727's. IASG provided IASC with the bulk of its business. However, the unit was never able to establish a substantial third party customer base, and it was sold off in May 1995. Later, IASC began refurbishing whole aircraft for resale. The unit also established a subsidiary of its own, Professional Aviation Technical Services, Inc. (PATS), a provider of engineering services. IASG bought Brent Aviation, Inc., a tiny Texas air cargo operator, in November 1993. This was sold to a group of former employees in January 1995.
Revenues were about $33.5 million in fiscal 1993. Sales of jet parts slowed to half their normal rate. One joint venture, Aircraft Partners Limited, had been created to sell three aircraft. Its November 1993 bankruptcy plunged IASG, as the managing partner, into a financial crisis. Softness in the parts market removed any financial cushion.
In an effort to cut costs, the company let go 30 percent of its work force of 130 in February 1994 and dismissed its president, Dennis Young, at the same time. "It makes sense to not have a high-paid executive on top," said Young in the Wall Street Journal. Managers' salaries were also reduced by 20 percent. Meanwhile, the company's shares were delisted from the NASDAQ exchange.
In 1995, Alexius A. Dyer III, head of the Barnstorm Leasing Inc. unit, was named president of IASG and charged with turning the company around. A new management team was installed. Employment was scaled back by more than half, from 60 to 25 employees. A recovery was well under way by fiscal 1996, when the company made a profit of $2.2 million on sales of $21 million.
IASG developed a specialty in McDonnell Douglas MD-80's and DC-9's, which had a significant number of interchangeable parts. It bought an inventory of these types of parts from Pt. Garuda Indonesia in May 1996 for $2.3 million. There were about 2,000 of these planes still in service in the mid-1990s, but the DC-9 was no longer in production. IASG also supplied parts for Boeing 727's, which were also out of production. Fortune magazine noted that IASG made an average profit of 200 percent on the price of a used plane by parting it out.
Move to Atlanta in 1997
IASG relocated its headquarters from Miami to Atlanta in February 1997. In April, the company's shares began trading on the American Stock Exchange (symbol: YLF). The company boasted 771 customers at the time, most of them domestic. Revenues were $21 million in the fiscal year ended May 31, 1997; profit was $1.7 million. That June, the company relocated its warehousing operation from Miami to a larger facility in Fort Lauderdale.
Changes in the aviation industry were helping propel the company's recovery. Company president Alexius A. Dyer III explained in the Atlanta Business Chronicle: "The world's commercial aircraft fleet is getting older and larger, and also more airlines are moving toward outsourcing their parts departments."
By this time, IASG was seeking to acquire other small companies in the fragmented aviation services industry. It was also aiming to expand into the market for regional airliner parts. IASG acquired an Airbus A300 in March 1998 for parts sales. A couple of months later, Mesa Air Group, which had recently been dropped as a United Airlines feeder airline, hired IASG to dispose of 20 Brasilia and 21 Jetstream J31 aircraft. Turboprop planes such as the Embraer Brasilia were being phased out by regional airlines in favor of small regional jets, which passengers found more comfortable. In the fall of 1999, IASG reached an agreement with Delta Air Lines' Comair unit to sell its Brasilia parts on consignment. On the other side of the spectrum, IASG also acquired a significant inventory of parts for the Boeing 747 jumbo jet.
In fiscal 1999, IASG invested $1.5 million for a 50 percent share in a joint venture called Air 41 LLC, formed to acquire twenty DC-9's from Scandinavian Airlines System (SAS) and then lease them back to SAS. These aircraft dropped in value following the September 11, 2001 terrorist attacks, and the venture was wrapped up in 2003.
Broadening Focus Beyond 2000
In 2000, IASG opened a sales office in France as well as a distribution center in the Netherlands, managed by KLM Aerospace Logistics Group. In Autumn 2000, IASG acquired an EMB-120 Brasilia turboprop, the first of the type to be converted to a freighter. IASG leased the plane to North-South Airways (NSA), an Atlanta-based charter carrier that IASG had acquired. While Embraer converted this first EMB-120 to a freighter itself, IASG ordered ten conversion kits, with options for ten more. A stock offering later reduced IASG's shareholding in NSA to 35 percent; by 2003, IASG's investment in NSA had been written off.
IASG soon acquired other regional airliners such as the de Havilland Dash-7 and Dash-8, the ATR-42, and the Dornier Do-328. In December 2002, the company announced the addition of parts for the Sikorsky S-76 helicopter. IASG's revenues were $21.5 million in fiscal 2001, with net earnings of $343,000, about a third that of the previous year. Revenues slipped to $17.2 million in fiscal 2002, producing an $8.5 million net loss.
Principal Competitors: AAR Corporation; Kellstrom Industries; The Memphis Group, Inc.; Volvo Aero Services.
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