Ducommun Incorporated

views updated

Ducommun Incorporated

111 West Ocean Boulevard, Suite 900
P.O. Box 22677
Long Beach, California 90801-5677
U.S.A.
(562) 624-0800
Fax: (562) 624-0789
Web site: http://www.ducommun.com

Public Company
Incorporated: 1907 as the Ducommun Hardware Company
Employees: 1,200
Sales: $170.77 million (1998)
Stock Exchanges: New York
Ticker Symbol: DCO
NAIC: 336412 Aircraft Engine & Engine Parts Manufacturing; 336413 Other Aircraft Parts and Auxiliary Equipment Manufacturing

California’s oldest company, Ducommun Incorporated has gone from repairing watches for prospectors to supplying the world’s most advanced aerospace programs, including the space shuttle, military aircraft, and virtually all new civil airliners. The company divested its metals and electronics supply businesses, hitching its wagon to high-tech aviation. Ducommun celebrated 150 years in business in 1999.

Gold Rush Origins

Swiss watchmaker Charles Louis Ducommun came to the United States as a young man. He was swept up in the California Gold Rush in 1849, and left Arkansas on foot, a mule carrying all his possessions. He was 29 years old at the time and smallpox had already blinded him in one eye.

His journey took nine months and brought him to the frontier village of Los Angeles, population 1,600. Los Angeles was gateway to the gold mines of northern California. Ducommun was well-placed to grow along with the city, which incorporated the next year as its population doubled.

Ducommun opened a small shop on Commerce Street and began repairing watches. He soon branched out into hardware and sundries, from pencils to saddles. He associated with the pioneer town’s most eminent citizens, including governors. He helped found the city’s first bank, the Farmers and Merchants Bank, as well as the municipal water board. He was also known to extend credit to customers hit by hard times such as the drought of 1863. His clock and meteorological instruments kept track of official time and weather for the city. As Los Angeles entered a period of ferocious growth, Ducommun stocked the orange, oil, and construction industries.

Ducommun died in 1896, passing ownership of the company to his sons Charles Albert, Alfred, Emil, and Edmond. They incorporated the business in 1907 as the Ducommun Hardware Company and soon relocated it to a larger store next to the railroad.

Supplying 20th-century Industries

Ducommun acted as a middleman in the metal industry. This line of business prospered with the coming of World War I. Ducommun supplied regional machine shops making all manner of armaments.

Ducommun began supplying the booming movie industry in the 1920s. In the 1930s, Ducommun supplied legendary aircraft designer Donald Douglas on credit, before he had established himself commercially. Ducommun products also flew with aviation pioneers Lockheed, Ryan, and Lindbergh.

Ducommun provided materials for military aircraft and ships during World War II. The company had 450 employees at the time. The burgeoning civil aviation industry gave the company good prospects after the war. The company had an initial public offering in 1946 and announced sales of $16.5 million for the year. Within a few years, Ducommun was the largest metal materials distributor in the Pacific.

Charles E. Ducommun became company president in 1950, representing the third generation in the company’s management. Ducommun grew alongside the nascent space program as the Southern California economy as a whole focused on aerospace.

Ducommun diversified in 1961 when it bought East Coast distributor Kierulff Electronics. It bought specialty fastener distributor R.G. Wallace Co. in the late 1960s.

In the 1970s, Ducommun expanded its geographic range west to Hawaii and east to Texas. Its role also grew in depth. For example, Ducommun’s metal service centers were installed with a computer link with client Hughes Aircraft Co. The system was designed to allow Ducommun to handle more of the metals handling functions of its clients. Mills, also looking for competitive advantages, raised their minimum order requirements for economies of scale, making the service center approach even more valid.

Charles Ducommun’s descendants left management in 1977, though they remained the company’s largest shareholders. Sales hit a new peak of $245 million in 1978; however, a recession was just around the corner.

Decade of Divestiture: 1980s

Revenues were $164.6 million in 1980, with earnings of $3.8 million. Ducommun soon recovered from the recession of 1979–80. By 1983 earnings had doubled: $8 million on sales of $304 million.

In 1981 the company exited metal sales, selling Ducommun Metals Co. to Centaur Metals for $57 million. That same year, Ducommun bought Aerochem and Airdrome Parts, continuing its commitment to aviation. Purchases of Aircraft Hydro-Forming, a supplier of aircraft structures, and Jay-El Products, a maker of switches and keyboards for the aerospace industry, soon followed. In 1983 this segment accounted for ten percent of Ducommun’s sales, but a quarter of profits.

However, Ducommun also sought to become a major player supplying the new computer industry. In 1981, its Kierulff subsidiary bought the distribution operation of Texas Instruments, with nine outlets. This made Kierulff a national player. It added several more outlets in the mid-1980s and acquired MTI Systems, a supplier of computer makers in the Northeast, for $6.3 million.

In the early part of the decade, the company’s electronics distribution operation grew to become the country’s fourth largest. AT&T chose Ducommun’s Kierulff unit as a distributor of its PCs through its approximately 30 electronics distribution centers.

In the mid-1980s, chairman Wallace W. Booth, a former Rockwell International executive, focused the company on aerospace at the expense of electronics. President W. Donald Bell, who felt electronics had not been supported adequately, resigned in disagreement with this new direction in 1987. The previous president, David G. Schmidt, had also resigned after a year over clashes with Booth.

The electronics components distribution businesses (Kierulff Electronics, MTI Systems, Ducommun Data Systems) went to Arrow Electronics Inc. of Melville, New York, in January 1988 for $125 million worth of stock. (The additional revenues and efficiencies from the purchase helped Arrow put itself into the black for the first time in four years.)

As Ducommun shed its metals and electronics businesses, gross annual sales fell to $60 million in 1988, down from $360 million in 1980. Ducommun was left with Jay-El Products, Aerochem, AHF-Ducommun, and Tri-Tec Engineering.

The explosion of the space shuttle Challenger in 1986 virtually grounded AHF-Ducommun Inc. for a couple of years. This subsidiary made the spacecraft’s fuel tanks. A general slowdown in defense spending hurt other parts of Ducommun’s aerospace business. Ducommun lost an average of $20 million a year from 1985 to 1989. In 1988 Norman Barkeley, accompanied by a new management team, was brought in to replace Booth. Barkeley’s mission: “Survive.” By this time, AHF-Ducommun had contracts to supply parts for McDonnell Douglas MD-80 and MD-11 airliners as well as the next generation Advanced Tactical Fighter. In the Wall Street Journal, Barkeley attributed Ducommun’s subsequent turnaround to “plain old, ordinary grunt work”—elevating prices while cutting costs. Ducommun posted nearly $2 million in income on sales of $74 million for 1990. The company had also cut its long-term debt 75 percent in two years. The ratio of defense to commercial to space work went from a 45-45-10 split to 60-30-10.

Still Pioneering in the 1990s

In 1993, Ducommun-AHF bought a novel piece of equipment that would triple its business in a few years. This digital router used computer files from designers at the aircraft manufacturers to custom shape metal fuselage parts.

The purchase of Brice Manufacturing brought Ducommun into the airline seating business in 1994. The acquisition seemed poised to prosper in the light of FAA regulations requiring sturdier seats on civil airliners. The next year, Ducommun made a brief foray into telecommunications when it bought 3dbm, which it sold to COM DEV International three years later.

Company Perspectives:

The people of Ducommun are strongly focused on our future and on delivering profitable growth.

Ducommun began trading its shares on the New York Stock Exchange in 1996. With relatively little competition and a sustainable mass, it seemed poised to prosper during the aircraft industry’s cyclical recovery. Airline orders poured in from airlines that had postponed new aircraft purchases during the recession. Aircraft manufacturers were outsourcing more of their production. Ducommun won a long-term contract to supply fuselage skins to Boeing’s 747 program. Boeing, in fact, accounted for nearly a quarter of Ducommun’s business.

Ducommun went on a shopping spree, buying five companies in five years. The acquisitions gave Ducommun a critical role in the production of several diverse aircraft programs, including McDonnell-Douglas fighters, Boeing airliners, and the space shuttle. At the end of his ten-year tenure in 1998, Barkeley saw profits rise to their highest level ever. Ducommun Incorporated posted the highest operating income, $29.8 million, in its history in 1998. Sales were up nine percent to $170.8 million for the year.

Barkeley was succeeded by Joseph Berenato, first as president and CEO, then as chairman. Berenato continued the company’s course of growth by acquisition and internal development. Company literature compared the aerospace components Ducommun sold in the late-1990s with the hardware sold to pioneers more than a century earlier.

High valuations of potential takeover targets postponed Ducommun’s acquisition plans in 1998 and 1999. The company did purchase American Electronics, Inc., which made satellite components, in June 1998. It bought privately held SMS Technologies in May 1999. The new purchase was to be incorporated into Ducommun’s MechTronics of Arizona Corp. subsidiary, a similar operation. SMS would remain in California, however.

Sales for 1998 were $170.77 million and the company boasted above-average profit margins. As it neared the year 2000, Ducommun braced for an anticipated downturn in the commercial aircraft market. Bright spots included the next generation of Boeing 737 aircraft, as well as the C-17 and F-18 E/F military planes. In June 1999, the company received a contract to provide leading-edge wing skins for the A330/A340 line of civil airliners, from Airbus, which was just beginning to outsource more work.