Parker Hannifin Corporation

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Parker Hannifin Corporation

17325 Euclid Avenue
Cleveland, Ohio 44112
U.S.A.
(216) 531-3000
Fax: (216) 383-9414

Public Company
Incorporated: 1938 as Parker Appliance Company
Employees: 30,000
Sales: $2.38 billion
Stock Exchanges: New York Boston Midwest Pacific
Philadelphia

Motion control through the use of air, liquid, and gas is the principal concern of Parker Hannifin Corporation. Operating internationally through numerous subsidiaries, the company manufactures fluid power systems and components for use in industrial machinery, military equipment, air, sea, and space craft, and automobiles.

Because Parker Hannifin serves more than 800 different industries, the company splits its operations into two main segments, supplying both original components and aftermarket maintenance parts. The industrial segment provides motion-control systems and parts for manufacturers in the agricultural, packaging, processing, and military-equipment fields, as well as those concerned with heating, refrigeration, and air conditioning, plus automotive markets. Products manufactured by this segment include hydraulic and pneumatic cylinders, pumps, motors, fluid filters, hose fittings, and tubing.

The company’s aerospace segment produces parts and systems for both military and commercial aircraft as well as for space and marine craft. Systems for in-flight fueling, nose-wheel steering, temperature-control, and cryogenics come from this section of the company.

Parker Hannifin started as an automobile-brake company. The automotive market has been a lucrative one since its turn-of-the-century infancy. Thought of at first as a rich man’s toy, private transportation was within the reach of the middle class well before 1911, when Henry Ford sold 78,000 Tin Lizzies. By 1918, the first year of the Parker Appliance Company’s existence, there were more than one million cars a year coming out of factories in Detroit, Michigan; Cleveland, Ohio; and other centers.

Engineer-inventor Art Parker entered this profitable field modestly, with a pneumatic brake booster designed to make stopping easier for trucks and buses. This initial effort was doomed; the company’s first promotional tour came to an abrupt end when an ice patch on a Pennsylvania hill sent Parker’s only truck careening over a cliff. This catastrophe sank his bank balance but did not douse his dream of heading a motion-control-manufacturing business.

In 1924 he tried again, offering new flared-tube fitting components to expand his one-product line. Useful for many purposes, these attracted a wide variety of industrial manufacturers. The successful new start encouraged Parker to broaden his horizons. Noting opportunities in the fledgling aviation industry, he made lifelong customers of such pioneers as Donald Douglas of Douglas Aircraft Company and Robert Gross of Lockheed, who soon learned to rely on him as much for his knowledge of hydraulics as for dependable parts. Parker accepted their challenges willingly, helping them to design a hydraulic successor for the heavy gear-and-chain-driven parts then being used to move all airplane control surfaces. This cooperation was so valuable that neither Parker nor the flight industry suffered during the Depression. Instead, all parties flourished, aided by the growing military importance and commercial potential of their products.

Like the aviation section, the automotive division of the Parker Appliance Company grew during the Great Depression years. Though there was a drop of almost 500,000 in privately owned vehicles between 1930 and 1935, this decline did not affect Parker’s profits. Travelers without their own cars simply used buses, which always need parts for maintenance and repair.

Now indispensable to two transport industries, the company achieved $2 million in sales in 1934. Other businesses were not so lucky: although almost four million cars rolled off assembly lines in 1935, many smaller factories had to close their doors. A victim of the Depression, the bankrupt Hupp Motor Car Corporation sold its Cleveland building to Parker, which is still headquartered there.

By 1938 the company was ready to look for international markets for its aircraft components. Technologically advanced in both the automotive and the aviation fields, Germany seemed to be a good prospect. Parker and his wife, Helen, changed their minds after a three-month tour of German aircraft factories, because the activity they saw there convinced them that Adolf Hitler was arming for war.

Once back in Cleveland, Art Parker took immediate action. First, he licensed several patents for military-aircraft parts that would broaden his previously patented product lines. His next step was to concentrate his energies on the aircraft market, shifting his focus from the automotive side of the business. Then, he placed an order for lathes—the largest that his manufacturer had ever filled.

Equipping his business for the demands of war took huge amounts of money. No longer able to channel capital from his recently abandoned commercial and industrial base, Parker insured himself against a cash-flow shortage by selling 10,000 shares of stock. During the final days of 1938, Art Parker saw his business become a public company.

By the time President Franklin Roosevelt declared war on Japan and its allies in December 1941, patents held by the Parker Appliance Company were setting standards for such components of military aircraft as hydraulic-tube couplings, fuel-system valves, and pumps. Two years later, there were 5,000 employees working three shifts seven days a week to produce these parts.

Though urgent at the time, this focus on purely military equipment to the exclusion of other business proved costly after the war. Art Parker, who died eight months before hostilities ended, however, was spared the sight of idle factory floors and the employment roll that had shrunk to 200 people as soon as the company’s lone customer, the U.S. government, turned its attention back to peacetime pursuits. Although the prospect of bankruptcy now faced Helen Parker, she chose to keep the business running and to recruit new management.

With the help of the company’s banker, Charles Sigmier, S. Black well Taylor was persuaded to assume the presidency of Parker and to bring his business associate Robert Cornell with him. The two men set to work immediately, selling off surplus inventory and machinery before they did anything else.

Setting long-term goals to provide direction was their second task. The strategic operations plan they formulated, quickly dubbed the Corporate Creed, emphatically stated that the company was not for sale. It also stressed that management would now strive to reduce the percentage of government business, while still increasing sales to government customers; a wise precaution that would stand the company in good stead during the Korean War. Other proposals declared that growth would henceforth take place both internally, through research and development, and externally, through friendly acquisitions. Parker, however, had to be the dominant party in all acquisitions, which would be undertaken to expand the company’s product lines and keep it on the cutting edge in the field of fluid power. Targets would be profitable family-owned businesses wherever possible, and each new subsidiary would enjoy considerable autonomy. Along with these decisions came the resolve to supply only top-quality products and service.

The postwar era also brought increasing interest in automation, much of which relied on fluid power to control motion through pneumatics and hydraulics. Making every effort to meet these needs by developing the range of their products, Parker also began to experiment with synthetic rubber to be used for more effective seals. The demand for these seals soon became so universal that the company became a leader in the worldwide standards that were benefiting original-equipment industries as well as many other engineering concerns. Another innovation was the decision to emphasize the production of replacement parts for those components whose constant motion caused them to wear out.

In 1957, a year that showed sales totaling $28.5 million, the Parker Appliance Company acquired the Hannifin Corporation of Des Plaines, Illinois. A manufacturer of hydraulic and air-power cylinders and of presses and other essential products used in liquid, gas, or air pressure systems, Hannifin was not a small company itself. Its $7.5 million price brought Parker two Illinois plants and one in Ohio, plus an employee roll of 600. It also brought a name change, for the Parker Appliance Company now became the Parker Hannifin Corporation. In line with company policy, the former Hannifin customers now became customers of the entire corporation. Also in line with company policy, the new acquisition was assured that there would be no competition for the original equipment manufactured by clients; none of the Parker Hannifin divisions has ever competed with its customers by producing identical parts.

In 1960 Parker Hannifin organized an international division to market its products worldwide. Situated in Amsterdam, it was followed in June 1962 by Parker Hannifin NMF GmbH in Cologne, West Germany, a subsidiary gained by the purchase of Niehler Maschinenfabriek, a manufacturer of hydraulic components. These two new channels brought the company a stronger market for valves, pumps, hoses, air filters, and regulators, as well as for the industrial products of its other ten semi-autonomous subsidiaries.

Also burgeoning at this time was the aircraft division, which had entered the specialized field of cryogenics. Joining the product line of tube fittings, missiles, space vehicles, and systems for the control of wingflaps and landing gear was a ball valve handling liquid oxygen for the Saturn space booster. Other components for both commercial and military use included hydraulic torpedo parts and ground support equipment. Important for military action, these items played a significant strategic role when the U.S. entered the Vietnam War in 1965. Later this division would produce another important device; a special assembly for the main flight control of the Sikorsky Black Hawk helicopter. Consisting of only five pounds of bulletproof steel, it continues to function if damaged.

Keeping ahead of the competition in these ways had taken a great deal of prior planning. Mindful of the need for ultramodern manufacturing plants, in 1961 the company had made a heavy investment in equipment to increase capacity and improve operating efficiency. This paid off handsomely the following year, with year-end sales of more than $61 million.

This modernizing, plus the strategic acquisition of profitable foreign companies that continued throughout the 1960s, added a line of refrigeration components and expanded the range of other Parker Hannifin products now being made in Canada, Italy, France, and South Africa. Like domestic plants, overseas plants manufactured standardized components that were easily replaceable. The wisdom of this practice was reflected in 1967 sales, which totaled more than $152 million.

In 1968, outgoing President Robert Cornell was succeeded by the founder’s son, Patrick Parker. Parker had spent three years running the seals division after gaining experience in various departments in Cleveland. Parker introduced new training for machine operators to ensure skilled technical labor for affiliates and subsidiaries. Next came two 1973 courses for distributors and customers. Designed to explain the increasingly complex range of Parker Hannifin products, the first course covered basic industrial hydraulic technology; the second, advanced circuit analysis.

To reduce Parker Hannifin’s vulnerability to the cyclical swings of the capital-goods field, the new CEO focused on the lucrative automotive aftermarket. Reasoning that wear on cars always makes replacement parts necessary, he set his sights on the Plews Manufacturing Company, a maker of quick-disconnect couplings, acquiring this concern in 1968. A 1971 newcomer was the Ideal Corporation, which manufactured hose clamps and turn indicators. Following shortly afterwards were the Roberk Company, which made windshield wipers and rear view mirrors, and in 1978, EIS Automotive Corporation manufacturers of hydraulic replacement parts for drum- and disc-brake systems.

The automotive section was not the only business segment receiving company attention at this time. The aerospace division, although offering a profit potential of 14%—compared to 12% apiece from the other two units—was not growing fast enough. In 1978 Parker Hannifin remedied this situation by broadening both its customer base and its product line. Parker Hannifin acquired two new subsidiaries: Vansickle Industries, a maker of replacement wheels and brakes for lightweight private aircraft, and Bertea Corporation, providing electro-hydraulic flight controls for commercial airliners. Both companies had previously been leaders in their fields, Bertea showing a 12-month backlog of orders as well as a $19 million contract on primary flight-control actuators for new Boeing 767 airliners.

Internal efforts were also needed to pull the company successfully through business cycle troughs. A recession in 1971, causing profits to tumble, prompted a new strategic plan called cycle forecasting. The brainchild of Tommy McCuiston, vice president of corporate planning, the forecasting plan is based on the premise that each industry follows its own cyclical rhythm for a period normally lasting three to four years. Six phases are apparent during this time span: growth, prosperity, warning, recession, depression, and recovery. Each phase demands planning providing for the next. During the growth phase, the company anticipates prosperity by expanding the work force and speeding up its training programs. In line with its acquisition philosophy, it also looks for new manufacturing sources. The prosperity phase finds Parker Hannifin executives planning for the months of warning ahead. Expansion is curbed and superfluous companies are sold at this period of peak earning power. The kingpin of the strategy is strict inventory control, allowing for heavy manufacturing activity during depression periods, before growth-phase demand makes production expensive because of overtime wages.

Proof of the strategy’s success came with the year-end sales figures for 1980, which passed $1 billion for the first time. Another benefit of the planning came to the fore in the research field, allowing the company to move actively into the field of biomedical engineering. Here, long-used principles of hydraulics were applied to the development of life-enhancing equipment like the implantable insulin dispenser for diabetics, made by the aerospace division.

In 1984, Paul Schloemer succeeded Patrick Parker as CEO and president. Adding 14 acquisitions to Parker’s previous 50, Schloemer guided the corporation into the untapped areas of industrial filters and pneumatics, with the addition of Schrader Bellows, in 1984; and electromagnetic motion control, with the acquisition of Compumotor in 1986.

The 1980s brought other significant changes. A weaker dollar against the Japanese yen and the West German mark lost a considerable amount of value between 1984 and 1987. This brought down the price of U.S. technology and products to a level competitive with those of Japan and Europe, making it cheaper to produce components for foreign machinery in the United States than to import them for later assembly.

The automotive market scored heavily here. Quoted in a 1987 article in Fortune, investment strategist John Connolly noted that between 1986 and 1987, Honda had scaled down from one-half to one-quarter the number of parts it planned to import for cars assembled in the United States. This trend, plus joint product ventures like the Mazda/Ford Probe alliance assured a market for automotive components that helped the company achieve more than $2 billion in sales in 1988, its 70th anniversary.

Other promising trends for growth came from the aerospace division. Several air disasters and near misses brought commercial airlines and air-safety associations to the conclusion that tighter maintenance procedures and more frequent replacement of aircraft are necessary. This means a greater need for complete hydraulic systems and parts for aircraft in frequent service.

In November 1989 Parker Hannifin sold its three automotive aftermarket components divisions to an investor group headed by the president of the Parker automotive group. The company received about $80 million in exchange for its automotive-parts business, and continued to manufacture original equipment for the automotive market. Parker Hannifin also divested its small biomedical group in January 1990. The biomedical group had 1989 sales of about $4 million. These sectors were sold to allow Parker Hannifin to concentrate on its core motion-control markets—both industrial and aerospace—which the company expects to continue to grow. Anticipatory strategic planning, state-of-the-art research, inventory control allowing for efficient filling of backlog and new orders, and many company subsidiaries should help the Parker Hannifin Corporation maintain stability through the 1990s.

Principal Subsidiaries

Bertea Corp.; Brownsville Rubber Co., Inc. (Mexico); Crossroads Realty, Inc.; Parker-Hannifin Disc Co.; Parker-Hannifin International Corp.; Parker-Hannifin (Canada) Limited; Parker-Hannifin N.V. (Netherlands); Parker-Hannifin SpA (Italy); Parker-Hannifin RAK SA (France); Fernand Grando SA (France, 80%); Parker-Hannifin (Espana) SA (Spain); Parker-Hannifin (U.K.) Ltd.; Parker-Hannifin (Africa) Pty. Ltd. (South Africa); Parker-Hannifin Argentina SAIC; Parker-Hannifin (Australia) Pty. Ltd.; Parker-Hannifin do Brasil Industria e Comm. Limitada (Brazil); Parker-Hannifin Sweden AB; Parker-Hannifin Japan Ltd.; Parker-Hannifin Singapore Ltd.; VSI de Puerto Rico, Inc.; Airborne Mfg. Co.; Clark-Feather Manufacturing Co.; Ermeto Armaturen GmbH (Germany); Jackes-Evans of Mississippi, Inc.; Airborne Electrosystems, Inc.; Airborne International, Inc.; Airborne Support Systems, Inc.; JB Systems, Inc.