Resolute MDHI boss pledges new profitability

 - October 12, 2007, 7:50 AM

“‘What do they know about the helicopter business? They’ll be begging to be bought out in six months.’ That’s what the rest of the industry was saying about us when we bought the civil division of what had been Boeing Helicopters back in 1998,” recalled Mesa, Ariz.-based MD Helicopters Inc. (MDHI) president and CEO Henk Schaeken. (MDHI is owned by the broadly diversified Dutch investment firm RDM Holdings.) “Well, we’ve had some rough spots since then but we’ve climbed the learning curve, and now we’re making helicopters that are going to make us some money.”

It is possible to build helicopters unprofitably, and that’s what MDHI did for much of last year. That’s when deliveries slumped from 2000’s peak of 41 delivered rotorcraft to an all-time low of just 15 last year. No matter the size of a slump, it’s never good news for any business, especially one under the management of new owners struggling to learn the ropes.

What really represented the stumbling block over which MDHI lost its footing was the unknown, a fact of life that Schaeken readily admits underestimating when it came to bidding on attractive acquisition deals offered by both Dutch and German civil police authorities, each in search of a small fleet of highly customized rotorcraft packed with special-mission equipment. Despite these challenges, the numbers looked good, the deal looked doable, and, what self-respecting helicopter maker interested in surviving past the next fiscal quarter would think of turning down the sale of nearly a dozen helicopters in today’s bear market?

This done, the deals signed, MDHI began assembling and integrating the complex mission equipment packages needed by the two agencies, only to discover that a daunting amount of the new equipment had never been used aboard MDHI helicopters, or their predecessors, when the company was part of Boeing or even McDonnell Douglas. Ordering and obtaining much of this equipment needed long lead-time planning. Failure to coordinate these conflicting schedules led to months of delays, time in which the Dutch and German police helicopters often blocked the progress of other MDHI rotorcraft on the same production line.

As MDHI was recovering from the scheduling damage caused by the Dutch and German police helo snafu, news came of a falling out between MDHI and Kaman that both companies are currently bending over backwards to mend. The trouble began with a phrase in Kaman’s first-quarter shareholders report in which it commented (critically, some, including MDHI, thought) on the low number of helicopters that MDHI had been delivering recently, which would mean lower demand for the MDHI single-engine fuselage assemblies Kaman provides to MDHI under contract. Kaman’s directors told shareholders that they were concerned about the exposure caused by large expenditures for receivables, start-up costs and other costs concerned with the venture. “The company has experienced difficulty with receipt of payments from MDHI,” the report noted.

For his part, Schaeken said payments to Kaman were on track, and that MDHI’s anticipated increased business volume will bear fruit since the company currently has orders for some 50 aircraft to be delivered over the next 12 months. Talks with Kaman on resolving the issue have reportedly proceeded well in recent weeks, and no showstoppers are anticipated.

RDM has no plans to sell its helicopter manufacturing capability, as had been widely reported in the business press. “We haven’t seen a lot of cars with Connecticut or Texas license plates parked in front of real-estate offices around Mesa,” Schaeken joked, alluding to the home states of Sikorsky Aircraft (Connecticut) and Bell Helicopter Textron and American Eurocopter (Texas).