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At First Aviation we have a favored expression: "better is better." It used to be that a company could offer the market a product with better attributes and demand a premium for that product. Today, the market demands products with the best attributes at the lowest possible price. This phenomenon is driving the trend to outsourcing and globalization. Successful companies cannot afford to perform tasks that are not core to their success. Everything else is being outsourced to suppliers whose focus it is to perform these tasks better than anybody else. Furthermore, those tasks that are being provided by the experts must be delivered at the lowest possible cost. The pressure to grow earnings in an environment of low revenue growth will continue to drive outsourcing and globalization as means to accomplish objectives.
First Aviation Services Inc. (FAvS) is the holding company for Aerospace Products International (API). FAvS was created in 1995 to acquire National Airmotive Corporation, a leading repair and overhaul specialist for Allison turbine engines, but sold this unit in late 1999 to concentrate on the distribution and logistics businesses. API supplies a number of components to companies in the aerospace industry, manufactures custom hose assemblies, and provides third-party logistics services. Another majority-owned subsidiary of FAvS, AeroV Inc., manages a business-to-business e-commerce service.
Oakland, California's National Airmotive Corporation (NAC) was founded in 1960. It became an authorized maintenance center for the Allison Engine Company (later a division of General Motors) in 1970. NAC specialized in gas turbine engines such as the Allison T56/501, used in military turboprop aircraft such as the Lockheed Martin C-130 Hercules and the P3C Orion; the Allison 250, which dominated the light helicopter market; and the Pratt & Whitney PT6, used in planes and choppers.
In late 1990, Intermark Inc., NAC's corporate parent at the time, put NAC up for sale. It was acquired by Triton Group Ltd., a San Diego-based investment group.
In February 1992, NAC moved its Allison 250 overhaul and repair operation from Van Nuys to a new 9,600-square-foot facility at Brackett Field in La Verne, California. NAC also had a satellite operation in Salt Lake City.
NAC acquired Heli-Turbine International and Heli-Dyne, Inc., both helicopter service centers, from Long Beach-based California Airmotive in April 1994. In late 1994, Sabreliner Corp. forged a deal to buy NAC from Triton. Sabreliner overhauled a wide range of engines, though the Allisons serviced by NAC were missing from its lineup. The price was reported to be $12 million to $15 million plus the assumption of another $15 million in debt. However, the deal was called off in February 1995. A month later, First Aviation Services emerged as the buyer. FAvS paid Triton $13 million in cash and assumed NAC's debt.
Creation of First Aviation: 1995
First Aviation Services Inc., headquartered in Westport, Connecticut, was created by First Equity Group in March 1995 as a holding company for National Airmotive Corporation (NAC), which it acquired from Triton Group, Ltd. on June 1, 1995. FAvS paid $30.36 million for NAC, including assumed debt of $17.96 million. NAC had net sales of $83.09 million in the fiscal year ending March 31, 1995. It had 350 employees at the time of its acquisition by FAvS.
Michael C. Culver was CEO of FAvS. He had cofounded First Equity ten years earlier along with Aaron P. Hollander, who served as chairman of First Aviation's board.
First Aviation's headquarters were relocated from Stamford to Westport, Connecticut, in March 1997. The company had reported sales of $104.24 million for the fiscal year ending January 31, 1997.
IPO and API in 1997
FAvS completed an initial public offering on April 4, 1997, simultaneously acquiring Aircraft Parts International Combs (API Combs) from AMR Services. "API Combs was conceived from ground zero in 1988 to be the aviation products supplier of the future," noted FAvS's 1997 annual report. Originally called Aircraft Parts International, the company built its service on advanced communications technology and next-day delivery from its warehouse in Memphis--also home to overnight shipping giant Federal Express.
In 1992, API parent company AMR Combs had consolidated its corporate jet support unit with API, which until then had focused on regional airlines and fixed-base operators (FBOs). The two divisions together had sales of $45 million at the time.
After the IPO, which listed FAvS on the NASDAQ, First Equity's (indirect) holding in First Aviation was reduced from 75 percent to 41 percent, but it remained the controlling shareholder. FAvS was aiming to provide "total aftermarket support to its customers" by capitalizing on consolidation in the aerospace parts industry; the IPO gave it more flexibility in pursuing future acquisitions by paying down debt. FAvS was interested in companies whose customer base, product line, or technology complemented or expanded its existing operations, according to a company press release.
G.E. "Jerry" Schlesinger was named president of API in October 1997, three months after joining FAvS. Feeling some effects of the Asian financial crisis, FAvS launched a cost-cutting effort at NAC in April 1998, hoping to save $3 million a year. Eighty jobs were cut and the light turbine engine operations were consolidated at the Long Beach, California facility.
Sale of NAC: 1999
A year later, FAvS announced it was considering selling off NAC as the parent company reported a $1.7 million loss for the fiscal year ended January 31, 1999. The company had a total of 510 employees at the time; 380 of these were with NAC. FAvS sales were $153.7 million, up just $100,000. The NAC unit, though, was posting record sales--$94 million. However, the FAvS board had developed a strategic plan to invest in the growing logistics business. In September 1999, Rolls-Royce agreed to buy NAC for $73 million. Rolls-Royce was growing its Aero Repair and Overhaul business, reported Aero Safety and Maintenance.
Expanding in Asia/Pacific and Cyberspace in 2000
API set up a hub in the Philippines in the spring of 2000 in order to improve service to customers in Asia and the Pacific. (Besides its original Memphis warehouse, API also had distribution centers in Calgary, Alberta, and Montreal.) API Asia Pacific Inc. set up toll-free telephone service throughout the region, and also used e-commerce and mainframe-to-mainframe data interchange. The hub was located at Clark International Airport, a former U.S. Air Force Base convenient to FedEx Corp.'s Subic Bay hub. The previous fall, FedEx Global Logistics chose API as the sole aerospace service provider in its Integrated Solutions Group. Several other contracts with major air freight carriers followed in the next two years.
Another important venture was soon launched to bring EDI access to small aviation parts suppliers--which made up 80 percent of the market, according to the trade publication Overhaul & Maintenance. EDI, or electronic data interchange, had traditionally only been available to original equipment manufacturers (OEMs) and their affiliates. However, AeroV, which began as a subsidiary of FAvS, made EDI standards accessible over the Internet, giving small parts suppliers more direct access to airlines. In June 2000, FAvS gave ARINC a 25 percent equity stake in AeroV in exchange for a direct link to ARINC's global EDI network.
API acquired five distribution centers from Superior Air Parts, Inc. in July 2001, paying $4.6 million in cash. Superior also hired API to provide third-party logistics services. FAvS revenues passed the $100 million mark for the first time in the fiscal year ended January 31, 2002. Net sales were $105.7 million, producing a gross profit of $22 million.
Principal Subsidiaries: Aerospace Products International, Inc.; AeroV Inc. (75%).
Principal Divisions: Distribution; Logistics.
Principal Competitors: AAR Corp.; Aviall; Aviation Distributors.