Gulfstream Aerospace Corporation
Gulfstream Aerospace Corporation
Incorporated : 1978
Employees : 7,700
Sales : $2.43 billion (1998)
Stock Exchanges : New York
Ticker Symbol : GAC
NAIC : 335411 Aircraft Manufacturing; 481211 Nonscheduled Chartered Passenger Air Transportation; 532411 Aircraft Rental & Leasing
Gulfstream Aerospace Corporation, a medium-sized company located in Savannah, Georgia, is a world leader in the design, development, manufacture, and marketing of business aircraft. Its product line includes the Gulfstream IV-SP, which has a range of 4,220 nautical miles, placing Frankfurt in reach of New York; and the Gulfstream V, introduced in 1997, which has a range of 6,500 nautical miles, placing Tokyo within reach of New York. In addition to its aircraft, Gulfstream also offers such services as financing, leasing, charters, management, and maintenance.
Began As Grumman Project
The history of Gulfstream began in the 1950s, when the huge Grumman Corp. 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 16 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, Gulf-stream’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 propjets), 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-square-feet) 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 production continued until 1987. Its popularity was due to many factors, including its long flight capability. The GS III 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 ninefold, 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.
Purchased by Chrysler in 1985
At the same time, the domestic auto industry was experiencing flush times. The nation’s third largest automaker, Chrysler Corporation, headed by Lee Iaccoca, 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 21st 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 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.
With the onset in 1990 of another recession, however, 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.
Taken Private Again in 1990
With the assistance of Forstmann Little & Company, Paulson purchased all 25 million shares of Gulfstream’s common stock from Chrysler, an investment of some $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: 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.
Whereas 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, though 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 IIs and IIIs, for the more cost-conscious customer, to comply with Federal Aviation Administration (FAA) noise regulations, and to extend their life span into the 21st 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, production of which began in 1993. Both aircraft were designed with advanced collision-avoidance features.
Founded in 1958, Gulfstream Aerospace is the world leader in business aviation. The Company has produced over 1,000 aircraft for corporate, government, private, and military customers around the world. The Company’s flagship products—the Gulfstream IV-SP and the Gulfstream V—are the world’s most technologically advanced business aircraft. More than one-quarter of Fortune 500 companies operate Gulfstream aircraft to gain a competitive edge and expand their business horizons.
Nevertheless, Gulfstream had more than its share of problems in the early 1990s. Marketing luxury business jets in a time of budget cutting and recession proved extremely difficult and challenging. The company continued to be cash strapped. An attempt in the spring of 1992 to duplicate the sale of common share stock of ten years earlier fell through, with few buyers. Skepticism about Gulfstream’s ability to pay its huge debt of nearly $1 billion was a chief factor in the lack of interest to buy stock in the company.
New Management Team Sparked Mid-1990s Turnaround
Soon thereafter, Paulson announced his retirement. His shares in the company were purchased by Forstmann Little. Additional management changes ensued as the company’s struggles continued. In April 1993 Fred A. Breidenbach, an executive at General Electric Company (GE) with a background in manufacturing, was named president and chief operating officer. Lowe remained CEO and became chairman as well in May 1993, replacing Paulson. Soon after these changes were made, Gulfstream came close to violating the covenants on $400 million in bank loans. Another new executive, CFO Chris A. Davis, a former colleague of Breidenbach’s at GE, worked to persuade lenders to grant Gulfstream a reprieve while Breidenbach moved quickly to slash costs, cutting the workforce by 750, or 16 percent, by the end of 1993, and scrapping plans to add three new buildings to the Savannah production complex. In November of that year Lowe was pushed out, and Theodore Forstmann, senior partner at Forstmann Little, became chairman (the CEO slot remaining vacant).
By late 1993 the new management team had staked the company’s future to that of the G V, which was touted as an ultra-long-flight business jet with a maximum range of 6,500 nautical miles, 54 percent more than the G IV-SP, and with a slightly roomier cabin. Gulfstream took a $204 million charge against earnings in 1993 to write off the balance of its investment in the G IV-SP, which the managers considered obsolete. As a result, the company posted a $275 million loss for the year. Gulfstream’s future was still in grave doubt, as its G V had potential head-to-head competition from Bombardier, which in late 1993 decided to proceed with the development of its own ultra-long-range model, the Global Express.
Providentially, the surging U.S. economy—which reignited the market for corporate aircraft—provided Gulfstream with a huge boost starting in 1994, as sales increased, company debt fell, and back orders climbed steadily. While the G V remained under development, the G IV-SP proved to be far from obsolete and its sales rebounded. By the end of 1994 the company also had in hand 41 firm orders for the G V. By year-end 1996, this backlog had reached 67, representing about $2.4 billion (at an average per-plane price of $36 million). In October 1996 the reinvigo-rated Gulfstream was able to sell a larger-than-expected $888 million in shares through an initial public offering, one of the largest of the year. Meanwhile, in 1995 the company launched the Gulfstream Shares program in a joint venture with Executive Jet, Inc. The program allowed customers to purchase partial ownership in Gulfstream aircraft in return for a certain number of hours of flying time per year. The intent of the program was to expand the extremely limited market for business jets.
On April 11, 1997, the Gulfstream V received final and full certification from the FAA, easily beating the Global Express to market. The G V had been developed at a cost of more than $250 million, a sum that was soon seen to be more than justified. By the end of 1997 Gulfstream had been able to deliver 29 of the new jets and had a backlog of 45 orders. Company revenues thereby nearly doubled, to a record $1.9 billion, while net income soared from $47 million in 1996 to $243 million in 1997. During 1998 a record total of 61 G Vs and G IV-SPs were delivered, helping to increase revenues to $2.43 billion. At year-end 1998 56 G Vs and 50 G IV-SPs were on back order, representing about $3.3 billion in sales. Meantime, Gulfstream received the 1997 Robert J. Collier Trophy, aviation’s most prestigious award, from the National Aeronautical Association for the Gulfstream V.
In part to keep up with its increasing backlog and to bolster its aircraft maintenance and parts business, Gulfstream in August 1998 acquired K-C Aviation, Inc. from Kimberly-Clark Corporation for around $250 million. K-C Aviation had facilities in Texas, Wisconsin, and Massachusetts, which included the capacity to complete 21 additional aircraft interiors each year. Gulfstream further expanded its service offerings through the launch in 1998 of a central clearinghouse to facilitate charter transportation on Gulfstream aircraft. Also debuting in 1998 were a short-term lease program, which operated through a joint venture with GATX Capital, and Gulfstream Management Services, a joint venture with Chrysler Pentastar Aviation, Inc., which offered owners of Gulfstream aircraft flight crew, dispatch, and maintenance management services. In December 1998 the company announced a new management structure to take it into the next century. A three-person Office of the Chief Executive was formed, consisting of Forstmann, chairman and CEO; Bill Boisture, president and COO; and Davis, executive vice-president and chief financial and administrative officer. With two aircraft models sporting heavy backlogs and a growing array of services, Gulfstream Aerospace appeared headed for smooth sailing for the foreseeable future.
Gulfstream Delaware Corporation; Gulfstream International Corporation; Gulfstream Aircraft Incorporated; Gulfstream Financial Services Corporation; Gulfstream NetJets, Inc.; Gulfstream Aerospace Technologies; Gulfstream Aerospace Corporation of Texas; Gulfstream Aerospace (Middle East) Ltd. (Cyprus); Gulfstream Aircraft Corporation (Hong Kong); Interiores Aereos S.A. De C.V. (Mexico).
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—updated by David E. Salamie