Triumph Group, Inc.
Triumph Group, Inc.
Incorporated: 1993 as Triumph Group Inc.
Sales: $400.11 million (1999)
Stock Exchanges: New York
Ticker Symbol: TGI
NAIC: 336413 Other Aircraft Parts and Auxiliary Equipment Manufacturing
Triumph Group, Inc., was formed out of the Alco Diversified Services division of Alco Standard Corporation. Most of its companies produce or repair aircraft components. Triumph takes a two-pronged approach to weathering the severe cycles of the aviation industry. During boom years, the group’s part-making companies fare well supplying original equipment manufacturers. In down times, airlines fly older planes longer, which boosts business at Triumph’s overhaul and repair facilities. Clients include Boeing (the largest), Gulfstream, Bombardier, Southwest Airlines, and United Air Lines. Commercial aircraft account for 70 percent of the company’s business.
By the late-1980s, Alco Standard Corporation executives were looking for ways to focus the conglomeration on its core operations: paper distribution, office products, and food service. Office products were the fastest-growing segment, the one that the corporation would focus on.
In July 1986, Alco announced plans to sell its distribution businesses. A sale of the Triumph Group was also under consideration at the time. The Triumph Group specialized in aerospace, an industry subject to heavy ups and downs. The group earned $14.9 million on sales of $118.3 million in the fiscal year 1987, while its corporate parent had total revenues of $3.63 billion. In the early 1990s, the Triumph Group’s earnings lagged behind those of Aleo’s Office Products division, which saw a 35 percent increase in profits in the fiscal year 1991, while the paper distribution subsidiary saw earnings fall 15 percent.
The Triumph Group was also a force in the domestic steel industry. Its customers were becoming more demanding in terms of quality and communication. They were also turning over more value-added functions to steel suppliers and reducing the numbers of vendors they worked with. Computerization added a new level of sophistication to the buying process. Triumph President Richard C. Ill joined other steel executives in calling for a Multilateral Steel Agreement to bring order to a domestic market subject to trade wars and floods of cheap imports.
Aleo Standard formed a new operating group out of the 11 companies that made up the Triumph Group, as well as two paper-converting companies and the Aerospace Technologies subsidiary. Known as Alco Diversified Services, the new entity had revenues of $340 million. Ill, a longtime Alco veteran who had been president of the Triumph Group, was named president of Alco Diversified Services.
Aleo Standard sold its food division in 1991. In October 1992, the corporation announced it would sell Alco Diversified Services to a management group and buy a 49.9 percent share of a German office products distributor, IMM Office Systems Holding GmbH, based in Munich. A management-led investment group, Triumph Group Inc., took over Alco Diversified Services in a leveraged buyout in July 1993. The deal was reportedly worth $85 million. Citicorp Venture Capital invested $26 million. Besides aviation repair and overhaul, the 13 companies in the group performed industrial machining, and paper and steel converting. The companies had annual sales of $227 million and employed 1,450 people in 22 sites around the United States. Aviation accounted for $60 million of total sales. The Triumph Group was headquartered in Wayne, Pennsylvania.
Defense cutbacks in the early 1990s tested the group. Triumph divested the struggling Otto Konigslow Manufacturing Co. in 1995, which it sold to two of its managers. After the sale, Konigslow, which manufactured aerospace components, was eligible for preferential treatment under federal bidding practices as a small, minority-owned, disadvantaged company. Sales were $3 million a year, down from an early 1980s peak of $6 million.
Taking Off in the Mid-1990s
The commercial aviation business took off in the mid-1990s. Annual sales increased from $200 million to $300 million in just three years. Ill projected reaching the $500 million mark by 1999. The group posted a profit of $9.7 million in 1996. This was fueled by unprecedented demand for airline capacity. Boeing was making more than forty jets a month to try to satisfy a record backlog. Pressure to keep production resulted in Boeing both using more outsourcing and reducing its number of suppliers.
Triumph had about 1,500 employees and annual sales of more than $300 million. Just nine people worked at corporate headquarters, however, due to the group’s highly decentralized approach. Seven of the companies were involved in specialty metal products; the other six, aviation. The latter group supplied original equipment manufacturers and overhauled and repaired commercial aircraft.
In the mid-1990s, the aviation businesses accounted for two-thirds of Triumph’s annual revenues. Corporate managers invested heavily in acquiring new companies for the profitable aviation division. They aimed to increase profit by 20 percent a year, half of this by acquisition. The new companies generally extended Triumph’s technical expertise or product lines, making the group more compelling when bidding for large contracts. The purchases also tended to extend its customer base. The group generally left the managers of the acquired companies to their own devices, and was known for not raiding assets or laying off workers. Acquisitions included Air Lab, a Seattle company specializing in cockpit repairs, purchased in the fall of 1995. The Teleflex Inc. controls business was bought in January 1996 and renamed Triumph Controls. It had annual sales of $35 million and 150 workers. Another range-extending acquisition was K-T Corp., which formed aluminum fuselage panels for Boeing 777s.
Divestitures were also used to focus the group. Triumph’s largest holding, Quality Park Products Inc., in St. Paul, Minnesota, made envelopes. The company had brought in $100 million in revenues but was decidedly out of step with the group’s aviation-centered growth strategy. It was sold in March 1996 for $27.4 million. Although profitable, Triumph was highly leveraged and needed more cash to expand. A public offering in October 1996 raised more than $50 million.
The group announced it was selling its Air Lab Division to the American subsidiary of Sextant Avionique S.A. in July 1997. Triumph’s A. Biederman instrument subsidiary simultaneously entered into a five-year agreement to service and market the French company’s products. The Air Lab acquisition extended Sextant Avionique’s U.S. franchise into nearly all areas of its product line. Triumph bought Hydro-Mill Co., a California aircraft part manufacturing and repair business, in September 1997. This added about $30 million a year to Triumph’s net sales and broadened its product line. Hydro-Mill had lacked the capital to make the necessary upgrades to win orders from Boeing.
Still Strong in the Late 1990s
DV Industries, a metal finishing company, and DG Industries, Inc., a machining company, were acquired in autumn 1998. Triumph made its first foray into Europe in December 1998, when it acquired the British firm Chase Aerospace Limited. The company serviced auxiliary power units (APUs) and other equipment for the commercial aviation industry. It was expected to contribute $6 million per year to Triumph’s revenues. Although Triumph usually highly valued the goodwill associated with existing company names, it announced it was renaming this acquisition to Triumph Air Repair (Europe) Limited. Soon afterward, Triumph bought Hartford Tool and Die Co., Inc., a maker of engine parts.
At the same time, falling share prices prompted a stock buyback. Ill allayed concerns about projected declines in Boeing’s aircraft production. He stated that downturns in the manufacturer’s larger aircraft programs were to be offset by more work on next generation 737s. Soon afterward, Boeing awarded Triumph Air Repair its largest contract ever, a one year, $7.4 million agreement to service APUs and line replaceable units for Air Force KC-10 tankers. With Boeing’s eight annual options to renew, the deal had the potential of increasing to a value of more than $67 million. Boeing had acquired McDonnell Douglas, the original maker of the KC-10, an aerial refueling version of the DC-10 airliner. Most of Triumph Air Group’s work had been related to Boeing 727s and 737s.
The group acquired aggressively, continuing its strategy of becoming a comprehensive MRO provider. It bought four companies in 1998 alone. In early 1999, its aviation subsidiaries numbered 18. Triumph had total group sales of $400 million for the year ending March 31, 1999. Net profits were about $33 million and employees numbered more than 2,000, including 15 at headquarters.
Triumph bought a maker of oversized aircraft components in May 1999. Ralee Engineering Co., based in City of Industry, California, gave the group the capability of producing virtually all of a commercial aircraft’s structural parts. Ralee had revenues of about $20 million a year.
“Everything Has to Be Right.” Triumph Group, Inc., knows that everything has to work together. We provide a full range of products and services to the aviation industry, with a consistently high level of quality and service. Our companies design, engineer, manufacture, repair, overhaul, and distribute aircraft components for a broad spectrum of the aviation industry on a worldwide basis. We have been providing creative, cost-effective solutions to the best in the business for years.
Operating profits for the aviation group were up by nearly half in fiscal year 1999, to $58.6 million. Net sales increased 36 percent to $328.6 million. Triumph had acquired six businesses during this period, and invested $20 million in its existing ones. Triumph’s manufacturing divisions produced honeycomb flight control surfaces, control systems, and machined metal parts. About half of the Triumph Group’s revenues were derived from aircraft maintenance. Its divisions serviced virtually every commercial aircraft system except for cabins, main landing gears, radios, and engines, or the heaviest of maintenance checks. The maintenance, repair, and overhaul (MRO) market was valued at $25 billion. The world commercial airliner fleet had doubled in size in the previous twenty years. The Federal Aviation Administration ordered airlines to bring aircraft to “Stage III” compliance by the end of 1999—essentially vectoring more planes towards overhauls.
A. Biederman, Inc.; Advanced Materials Technologies, Inc.; Aerospace Technologies, Inc.; DG Industries, Inc.; DV Industries; Frisby Aerospace; Great Western Steel; HTD Aerospace, Inc.; Hydro-Mill Co.; JDC Company; K-T Corporation; Kilroy Steel, Inc.; Kilroy Structural Steel; L.A. Gauge Co., Inc.; Lamar Electro-Air Corporation; Northwest Industries; Nu-Tech Industries, Inc.; Ralee Engineering Corp.; Special Processes of Arizona, Inc.; Stolper-Fabralloy Co. LLC; Triumph Air Repair; Triumph Controls, Inc.
Principal Operating Divisions
Aviation Group; Metals Group.
AAR Corp.; Aviation Sales Co.
- Aleo Standard Corporation executives consider selling Triumph Group.
- Triumph Group spun off from Alco Standard in a leveraged management buyout.
- IPO raises $50 million.
- Triumph enters European market through purchase of Chase Aerospace Limited.
“Aleo Standard in Triumph Spin-Off Plan,” Financial Times, December 14, 1987, p. 26.
Belden, Tom, “Profits Soar on the Wings (and Other Parts) of Planes,” Philadelphia Inquirer, March 29, 1998, pp. Cl, C9.
Binzen, Peter, “Watching the Pennies and Making Things Grow at Triumph,” Philadelphia Inquirer, March 4, 1996, p. C3.
Breskin, Ira, “Triumph Group Inc.,” Investor’s Business Daily, December 20, 1996, p. A4.
“CEO Interview: Richard C. Ill,” Wall Street Transcript, October 1998.
Cook, Brian M., “Steel Service Centers: No More Warehouses,” Industry Week, February 3, 1992, p. 36.
Kjelgaard, Chris, “KC-10 APU/LRU Award Is Triumph’s Biggest-Ever Contract,” Air Transport Intelligence, December 15, 1998.
Lamb, Michele R., “New Flat-Rolled Capacity Implications on Service Centers,” Metal/Center News, June 1995, p. 40.
Leder, Michelle, “In Aviation, the Bargains May Be in the Hangars,” New York Times, February 28, 1999.
Leibs, Anthony, “Aerospace Aftermarket M&A Blasts Off,” Mergers and Acquisitions Report, April 12, 1999.
Marino, Joe, “Only an MSA Will Bring Order,” Metal/Center News, June 1994, p. 44.
Much, Marilyn, “Blue Skies: Triumph Group Keeping Busy as Aircraft Production Soars,” Investor’s Business Daily, February 18, 1998.
Prizinsky, David, “Smaller Should Be Better,” Crain’s Cleveland Business, May 15, 1995, p. 5.
Proulx, Jim, “Overhaul & Maintenance MRO Guide Part II: Triumph Tacks Name to Established Winners,” Overhaul & Maintenance, Fall 1998, pp. 103–105.
Turner, David L., “Aleo Investing in German Firm, Selling Division,” Philadelphia Inquirer, October 6, 1992, p. F1.
Velocci, Anthony L., Jr., “Market Focus,” Aviation Week & Space Technology, August 24, 1998, p. 11.
—— “Primes Pledge to Cut Excessive Audits,” Aviation Week & Space Technology, September 13, 1999, pp. 77–78.
—Frederick C. Ingram