Industry Insider: MD Helicopters

HAI Convention News » 2009
February 19, 2009, 10:43 AM

Lynn Tilton runs Patriarch Partners, a New York equity company that specializes in buying and turning around distressed companies. In 2005 Patriarch acquired MD Helicopters. Tilton described MD as “long broken” when she personally took charge of it, bringing suppliers current, reestablishing customer support and restarting aircraft production. Last year Tilton hinted that Patriarch might expand its aircraft holdings to include a very light jet manufacturer. Those plans apparently are now on hold, with Tilton calling it “[not] the best use of our capital.” However, she talked with HAI Convention News before Heli-Expo about the road to restoring MD to profitability, and the company’s future.

Reports suggest that you have poured as much as $200 million into MD Helicopters and that the company turned profitable in the fourth quarter of 2007. Is this true and do you expect to post a profit for 2008 and 2009?
We had a good year [2008]. We could have had a better year had we not fallen back on our deliveries. We expected to deliver more than 60 aircraft in 2008 and we [were], I think, 10 aircraft short on the deliveries because we had a little bit of a setback on some parts that kept aircraft on the line too long. It is because I [re]built this company from the bottom-up that we understand our cost on every aircraft. We make money on every aircraft we sell and we are still in very good shape.

Can you give more details about the supply chain problem? What are you looking to do this year?
We did have an issue with supply chain with either not ordering parts soon enough or not realizing that parts were low in terms of inventory. That came about because we did not have parts on time for the aircraft that were on the line, and we have since fixed that. Ultimately it all falls on me because responsibility rolls up hill.

You’ve made a lot of product improvements to your existing line, but some of your competitors have new products with large order books. At what point do you have to stop refining your existing products and introduce a new one to stay competitive?
The MD 902, while there are only a little over 100 in the market, is the most modern technology in the market and it never really hit its stride. So we have a very new product that is being embraced with great enthusiasm, especially in the Middle East, where the MD 902 can fly all day long in summer in the heat and humidity, when other aircraft need to sit- [during parts of the day], because they can’t carry the loads in that type of heat. So I think we actually have a brand-new product that is coming into the market. I can take an MD 902 and change 20 things on it and call it a different aircraft, but the reality is our aircraft still service markets very well. And when I talk to the customer, the customer wants additional speed, additional payload and additional dispatch. And frankly I don’t need a new aircraft for that. I’m just trying to be a thinker and I always say that this business is very much a Hollywood business in that people feel that perception is reality.

I believe in validity. I believe in delivering. Frankly, nobody ever thought this company would breathe again. Frankly, we are not only breathing, but a lot of people are breathing hard. So I am not worried about the introduction of a new product. I’m worried about keeping our customers happy. Our customer support has been excellent. [MD was rated Number Two in overall product support, just behind Bell, by AIN’s readers in 2007 and 2008.–Ed.] Our AOG is almost nonexistent. We spend a lot time talking to our customers. We like to keep our customers in the air at all times. If we can build 100 aircraft, I have a very nice company.

Having backlogs when you lose money and don’t deliver doesn’t do you very much good, does it? I like being the little engine that could.

What can you tell us about new orders for the 902?
We have a full order book for 2009 and we have a couple of large, foreign military orders that we expect to come through. We are very excited about the prospect for that aircraft.

Some industry analysts have suggested that MD cannot survive unless it is acquired by a larger company. How do you view this assessment?

As ignorance. I don’t carry the huge infrastructures my peer group carry. And frankly, I own this company. They have stockholders and are parts of huge
conglomerates or big government. On what basis do they pass judgment on MD’s
survival? If I am the owner and I am happy, and MD is making a profit, then why do they think it will not survive? I have always been disrespected by my peer group and, frankly, it hasn’t affected me or the ability of this company to go from zero deliveries in 2005 to way in excess of 50 and profitable [last year], so I would take that with a grain of salt and those from whence it comes.

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