Magellan Aerospace Corporation
Magellan Aerospace Corporation
Magellan Aerospace Corporation
Sales: C$625.39 million ($432.64 million)(2000)
Stock Exchanges: Toronto
Ticker Symbol: MAL
NAIC: 336411 Aircraft Manufacturing; 336412 Aircraft Engine and Engine Parts Manufacturing; 336413 Other Aircraft Parts and Auxiliary Equipment Manufacturing; 336414 Guided Missile and Space Vehicle Manufacturing; 336415 Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences
Magellan Aerospace Corporation is Canada’s largest dedicated manufacturer of aerospace components. The firm acquired a number of historically significant aerospace firms in the 1980s and 1990s, such as Aeronca, Inc. and Bristol Aerospace.
The origins of Magellan Aerospace Corporation, known as Fleet Aerospace Corporation before 1996, can be traced back to the beginnings of several well-known aviation firms. Fleet Industries, an aircraft manufacturer formed in 1930, would give the holding company its name. Bristol Aerospace Limited was formed the same year in Winnipeg as MacDonald Brothers Aircraft Company. Bristol produced light bombers and attack aircraft for the Royal Air Force during World War II. It would be acquired by Magellan Aerospace in 1997. Aeronca, Inc., a famous maker of light planes in the 1930s and 1940s, was founded in 1928 and acquired by Magellan in 1986. Ellanef Manufacturing Corp., not acquired until 1999, was founded in 1945. Orenda Aerospace, established in 1946, was also acquired in the 1990s.
By the 1980s, Fleet was supplying a number of major North American aerospace programs, including Boeing airliners, de Havilland commuter planes, and Grumman, Sikorsky, and Lockheed aircraft. It also supplied components for the Challenger business jet produced by Canadair.
Canadair, a state-owned company based in Quebec, was put up for sale after a Conservative administration came to power in 1984. Fleet investigated the possibility of acquiring it with a group of other investors. Canadair boasted a large technical talent base. Its products included Challenger business jets, fire-fighting water-bomber aircraft, battlefield surveillance systems, and components for a variety of civil and military aircraft. It would have made an attractive and complementary acquisition, but the deal was not completed.
Growth by Acquisition in the Mid-1980s
Fleet soon did acquire another famous aerospace manufacturer. The company reached an agreement to acquire control of Charlotte-based Aeronca Inc. in June 1986. Fleet’s bid was worth $18.6 million. When it initiated bidding, Fleet challenged an Ohio state law that prevented suitors from acquiring more than 20 percent of a company’s shares without the approval of shareholders.
Aeronca had pioneered the light plane business in the United States but had specialized in advanced aero structures since the 1950s. The buy doubled Fleet’s size and boosted its U.S. defense business. Sales of the combined company were about C$120 million ($87 million). By the 1980s, Aeronca had added subsidiaries producing boats and computer software; both would be axed after the Fleet acquisition.
Another merger followed in the last half of 1988. Fleet acquired Langley Corporation, a San Diego-based aerospace manufacturer with 125 employees. After the merger, Langley Corp. was renamed Fleet Aerospace Inc.; it continued to trade on the NASDAQ exchange while its corporate parent Fleet Aerospace Corporation remained listed in Toronto.
Fleet Aerospace Corp. (FAC) also owned Engineered Magnetics Inc., whose products were used in military aircraft, missile systems, and satellites. A unit of FAC’s Aeronca Electronics unit, the Brooks Automation Division, was acquired by its managers in April 1989. Brooks Automation produced wafer-handling equipment for the semiconductor industry.
FAC faced a series of major difficulties in the last half of the 1980s. In early 1986, the U.S. Department of Defense began investigating allegations by a former Fleet employee that the company had sold defective components to U.S. military contractors. The company’s top officers would later be sanctioned for violating securities laws and misleading investors during 1987.
Scaling Back in the Early 1990s
By October 1989, the parent company was trying to sell its 88 percent holding in Fleet Aerospace Inc., which was losing money thanks to a series of unprofitable long term contracts. Long-term debt more than doubled to nearly $18 million as FAC itself posted a $5.4 million loss for 1989, prompting it to put other subsidiaries on the block. FAC recorded a $2.3 million gain on its sale of an 83 percent shareholding in Fathom Oceanology Ltd. in 1989. Its Saskatchewan-based SED Systems Inc. unit attracted several potential owners in early 1990.
FAC sold Engineered Magnetics to a group led by Los Angeles investors in August 1990 for an undisclosed price. The sell-offs extended to a division of Aeronca Inc., and Fleet considered putting Aeronca Inc. up for sale before it found financing for it. Fleet Aerospace Corp. announced a C$32 million loss for the fiscal year ending September 30, 1990 on sales of C$134 million. In early 1991, Fleet announced the sale of its Langley Division business, apart from real property, for about $4 million to a group of investors based in Pennsylvania.
FAC’s poor financial performance during this time prompted an attempt led by a former vice-president to oust the firm’s top management. Ultimately, the company’s efforts in scaling back operations reduced losses for fiscal 1991 to $2.7 million on sales of $119.7 million. In spite of a downturn in its business with de Havilland, these losses were largely due to the cost of downsizing. George Dragone, FAC’s president since 1983, along with another director, resigned in early 1991 as the Ontario Securities Commission investigated charges they misled stockholders and broke stock exchange rules in 1987. The two were fined for the incident and barred from trading for a year.
By 1992, FAC’s losses had narrowed slightly but the company was seeking a partner to help it face vigorous foreign price competition. In spite of cutbacks, foreign competitors were still reportedly able to undercut fleet by as much as 30 percent. At the time, FAC employed 340 workers, 80 percent of them at Aeronca Inc. in Middletown, Ohio, which was then specializing in high temperature engine compartments. FAC’s Fleet Industries unit, based in Fort Erie, did 40 percent of its business with de Havilland. Losses for fiscal 1993 were C$7.3 million on revenues of C$99.5 million.
FAC underwent a capital restructuring in the mid-1990s. In the first phase, completed in January 1995, Fleet eliminated $29 million in bank debt. Fleet Aerospace Corporation was renamed Magellan Aerospace Corporation in October 1996. The headquarters was moved from downtown Toronto to the main plant in suburban Mississauga, Ontario.
The man behind the deal making was Murray Edwards, a Calgary financier who was just 35 years old when he took over Fleet in November 1995. An article in Canadian Business stated that Edwards and partner Larry Moeller bought out the Canadian Imperial Bank of Commerce and the Ontario government for C$20 million. Institutional investors provided the company C$8.5 million in capital. Edwards, who owned 45 percent of Fleet’s outstanding shares, became CEO and chairman. (He had first invested $2,200 in the company in 1987, when he was a practicing lawyer. The subsequent downturn in Fleet shares ultimately spurred him to become more involved with the company.)
Magellan—still called Fleet—had added three other subsidiaries, at a combined cost of C$27 million: Mississauga, Ontario-based Orenda Aerospace Corporation; A-R Technologies, based in Richmond, British Columbia; and Middleton Aerospace of Massachusetts.
By 1997, employment at Magellan’s Fleet Industries unit had swelled to 480. A C$3 million federal technology investment helped the unit land a contract to produce MD-95 wing components for South Korea’s Hyundai Space and Aircraft Co. Another C$18 million in government aid allowed Magellan’s Orenda Aerospace division to build a C$32 million piston engine plant at a retired military base in Nova Scotia.
Magellan is a consolidator in the aerospace industry. Original Equipment Manufacturers (OEMs) are asking for integrated, high value-added suppliers capable of sharing risk and delivering value. Magellan is positioned to leverage its critical mass and core competencies to provide that value, delivering integrated design, development, and project management in Aeroengines, Aerostructures, Rockets and Space, and Specialty Products. Magellan’s dedication to establishing enduring customer relationships has earned it a global reputation for integrity and stability. Professional and experienced, Magellan conducts business openly and honestly at every level of the organization. Magellan’s commitment to meeting deadlines and schedules, to working to budgets and agreements, and to taking a partnership approach with its customers is its operating mandate and culture. Quality and value are the fundamentals of the aerospace industry. Magellan recognizes this and has the processes, experiences and expertise in place to lead the market in delivering value. The drive to deliver value is fundamental to its engineering, development, and production processes, and exemplifies Magellan’s commitment to the highest quality product at the lowest cost.
More Acquisitions in the Late 1990s
The recapitalized company was again on the make in 1997. In July, Magellan bought Bristol Aerospace Ltd., a Canadian unit of Rolls-Royce PLC, for C$62.5 million. Bristol, a 70-year-old aviation pioneer, had jet, rocket, and missile engine repair and overhaul facilities. Bristol stood to benefit from a parts and labor shortage at Boeing, many of whose suppliers had not recovered fully from the previous recession. The unit won a C$99 million contact from Boeing Canada Technologies to supply composite panels for the Boeing 737. Magellan posted a profit of C$15.5 million for 1997.
Magellan acquired another aerospace parts manufacturer, Chicopee Manufacturing Ltd., in May 1998. Based in Kitchener, Ontario, the company had annual revenues of about $45 million. The string of acquisitions had turned Magellan into Canada’s largest dedicated producer of aerospace parts. Ellanef Manufacturing Corp., a New York state specialty manufacturing firm with revenues of $88 million a year, was acquired in May 1999.
In 1999, Magellan’s units won new contracts to supply engine exhaust nozzles and plugs (Aeronca) for a new extended range version of the Airbus A340; engine turbine shafts for Allied Signal Aerospace (Middleton Aerospace); turbine frames for GE Aircraft Engines (Bristol); and fuselage components for the Cormorant Helicopter (Fleet Industries).
In the last half of the 1990s, Magellan subsidiary Orenda Aerospace was developing a turbine engine to operate on biofuels. Bio-fuels, made from agricultural or forestry waste, were difficult to burn in traditional jet or combustion engines. The new technology suggested potential remedies to both energy and waste problems.
New Horizons Beyond 2000
In early 2000, Bristol Aerospace won a $13 million government contract to build SCISAT-1, Canada’s first science satellite since 1971. Bristol had produced many payloads for rocket and space shuttle missions and was developing a role in the commercial space business.
Aeronca’s exhaust system contract for the Airbus A340 led the unit to expand its Ohio plant and increase its workforce of 220 by 30 percent. Aeronca was also supplying the new A318 small jetliner program. Ellanef won contracts to supply Northrop Grumman Corp.’s F/A-18 programs in October 2000.
Another small airliner program, Boeing’s B717-200, gave Magellan one of its largest contracts ever. The $400 million deal, announced in February 2001, had Fleet Industries and Bristol Aerospace producing wing flaps and other components for the B717, formerly known as the MD-95. This added to another $600 million worth of contracts Magellan already had to supply other Boeing programs through 2006. Bristol won a C$4.6 million order to supply engine collector housings for the U.S. Army’s Ml Abrams tank in October 2001.
Aeronca, Inc. (U.S.); Ambel Precision Manufacturing Corporation (U.S.); Bristol Aerospace Limited; Chicopee Manufacturing Limited; Ellanef Manufacturing Corporation (U.S.); Fleet Industries Ltd.; Langley Aerospace; Magellan Aerospace USA, Inc.; Middleton Aerospace Corporation; Orenda Aerospace Corporation; Orenda Recip Inc.
- Aircraft manufacturer Fleet Industries is founded.
- sileFleet Aerospace acquires Aeronca, Inc.
- Fleet is renamed Magellan Aerospace after restructuring.
- Magellan embraces the role of industry consolidator.
- Magellan ventures into space, biofuels, and tank parts.
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—Frederick C. Ingram