Gulfstream Aerospace Corp
Gulfstream Aerospace Corp
P.O. Box 2206
500 Gulfstream Rd.
Savannah, Georgia 31402-2206
Fax: (912) 964-3775
Sales: $887.00 million
SICs: 3721 Aircraft
Gulfstream Aerospace Corporation, a private, medium-sized company located in Savannah, Georgia, is a world leader in the manufacture of business aircraft. The history of Gulfstream began in the 1950s, when the huge Grumman Corporation of New York, largely a manufacturer of military aircraft and parts, evolved an airplane for the use of big business as well as government. In 1959 the company unveiled the world’s first business plane, the Gulfstream I. Two hundred of them sold quickly. When Grumman introduced the Gulfstream II in 1966, a record 256 of them were sold quickly at home and abroad. The GS II could fly faster than commercial jets and was the first business aircraft capable of carrying a full crew and seating up to sixteen passengers. This unique business jet caught the imagination of the monied public. Soon versions of the corporate jet were created by other companies, including Canada’s Canadair and France’s Dassault-Breguet, Gulfstream’s chief competitors. In 1967 Grumman set up an assembly plant in Savannah, Georgia, for the manufacture of GS IIs.
Despite the popularity of the corporate jet, the business jet fell on hard times during the recession of the late 1970s, prompting Grumman to sell off its business jet assets and concentrate on its main industry, the manufacture of military aircraft. Allen E. Paulson, head of his own holding company in California, American Jet Industries (a company that converted planes into prop-jets), had longed for the moment when he could become owner of his own aircraft manufacturing company. Paulson had grown up in humble circumstances. As an adult he became an aircraft mechanic for TWA and eventually learned enough about aviation to do business in aircraft parts, the basis of his early fortune. In 1978 he seized the opportunity to buy the Gulfstream plants and offices from Grumman for $52 million, forming the Gulfstream Aerospace Corporation. Despite recessionary times, plans were in the works to create an even better, more sophisticated business jet, the Gulfstream III.
Paulson’s entrepreneurial daring paid off, and the early years of his company were surprisingly profitable. Revenues climbed from $187 million in 1980 to $582 million two years later. Under its dynamic new owner, Gulfstream transformed itself in the first year and a half from what had been largely an aircraft assembly plant to a major manufacturing center. Aircraft parts that had formerly been purchased from numerous vendors were manufactured by Gulfstream, increasing the company’s production capacity. Paulson saw to it that the company transformed itself into a high-tech establishment with state-of-the-art manufacturing equipment and the latest computers. The company also expanded outside of Savannah, acquiring in 1981 a large (400,000 sq. ft.) plant in Oklahoma City, the Gulfstream Aerospace Technologies. Company morale was high, and the new GS III had a backlog of sales that the company raced to meet. The new corporate jet was in such demand that its production continued until 1987. Its popularity was due to many factors, including its long flight capability. It earned the distinction of being the first business jet to fly over both poles nonstop.
Times were changing for aircraft manufacturers, however. Over the previous ten years, the cost of developing a new jet had risen nine fold, and competition from foreign companies—whose aircraft industries were often government subsidized—was keen. In the mid-1980s, despite boom economic times, the aviation industry stagnated; 1982 was perhaps the worst year in the industry. Gulfstream’s profits shrank, and Paulson offered eight million shares of the company’s common stock for sale (out of 33 million shares, 70 percent of which he still owned). These were quickly snapped up, raising $152 million for the company.
At the same time, the domestic auto industry was experiencing flush times. The nation’s third largest auto maker, Chrysler Corporation, headed by Lee laccoca, was casting about for ways to diversify. Chrysler Corporation bid $637 million for ownership of Gulfstream Aerospace in 1985, keeping Allen E. Paulson as chair of the new subsidiary. That same year, General Dynamics Corporation acquired Cessna Aircraft (an even bigger company than Gulfstream), which had been suffering financially for some of the same reasons.
Production of the GS III was brisk and plans were in the works for the premier business jet of the twenty-first century, the GS IV, yet Paulson chafed under what he considered to be Chrysler’s ignorance of the aviation industry. Nonetheless, Chrysler’s purchase of Gulfstream enabled the subsidiary to move forward and prosper, establishing record profitability in the years of Chrysler ownership. In 1987 production of the GS III ended and the GS IV was on the market, sleeker, faster, and practically noiseless, with a $15.8 million dollar price tag ($3 million more than its predecessor). In that year the GS IV set a world record for speed as it flew around the world. Gulfstream Aerospace had a backlog of 100 orders for the new GS IV, the biggest backlog in company history. In 1986 the company again expanded, acquiring a plant at Long Beach, California.
However, with the onset in 1990 of another recession, Chrysler decided to divest its non-automaking subsidiaries. A major effort had to be made to streamline the company to counter the onslaught of Japanese automobile competition, which had resulted in a $664 million loss in revenue for Chrysler that year. Once again, Gulfstream was for sale to the highest bidder, and Paulson was eager to repurchase the company and develop it.
With the assistance of Forstmann Little & Company, Paulson purchased all 25 million shares of Gulf stream’s common stock from Chrysler to the tune of $825 million. Gulfstream Aerospace Corporation once more was an independent private company under Paulson’s ownership, and again he purchased the company, as in 1978, at the height of a recession.
Paulson had big plans for the now-independent company. He envisioned the development of a supersonic world class corporate jet (which could reduce flying time from New York to California to less than three hours) in cooperation with the Sukhoi Design Bureau of the Soviet Union, as well as successors to the GS IV (now on the market: the GS V and the “expanded” version of the GS IV, the GS IV-SP). William C. Lowe was named president and CEO of the company, while Paulson retained his position as chair of Gulfstream.
While the joint project with the Soviet Union fell through and the supersonic jet was placed on the back burner, Paulson’s other plans materialized under Lowe’s management. Lowe was highly experienced, having served more than 25 years as a manager at IBM and as president for development and manufacturing at the Xerox Corporation. At Gulfstream, Lowe endeavored to diversify and streamline the company, although aircraft and aircraft parts continued to be Gulfstream’s chief manufactures. It entered the international military market in its production of the SRA, or Special Requirements Aircraft. The company also concentrated on upgrading its older GS Ils and Ills, for the more cost-conscious customer, to comply with FAA noise regulations, and to extend their life span into the twenty-first century. The international market became increasingly important to Gulfstream Aerospace; by the fall of 1991, well over 60 percent of GS sales were abroad.
Gulfstream evolved after its inception in 1978 from an aircraft assembly plant in Savannah, Georgia, to a major manufacturer of highly sophisticated jet aircraft, a world pacesetter. The company downsized in terms of employees from 5,500 to 4,900 while at the same time expanding its facilities considerably. It grew to include not only the original plants in Savannah, but also its engineering support center, Gulfstream Technologies in Oklahoma City, and assembly plants in Long Beach, California. In the fall of 1992, the new Gulfstream V, complete with computer workstation aboard and state of the art telecommunications, was unveiled at the National Business Aircraft Association Conference in Dallas; featured also was the upgraded GS IV-SP (Special Performance) business jet. Both aircraft were designed with advanced collision-avoidance features, and both promised to do well in the future.
As it entered the 1990s, Gulfstream looked ahead to the next century with more than its share of problems. Marketing luxury business jets in an era of budget cutting was becoming ever more difficult and challenging. Gulfstream Aerospace, although a flourishing company with excellent future prospects internationally, especially in the Asian and eastern European markets, was perennially cash strapped. An attempt in the spring of 1992 to duplicate the sale of common share stock of two years earlier fell through, with few buyers. Skepticism about Gulfstream’s ability to pay its huge debt of nearly one billion dollars was a chief factor in the lack of interest to buy stock in the company. This forced Gulfstream’s management to postpone its stock offering for a more propitious time.
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