Precision Castparts Corp.

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Precision Castparts Corp.

4600 Southeast Harney Drive
Portland, Oregon 97206
U.S.A.
(503) 777-3881
Fax: (503) 653-4665

Public Company
Incorporated: 1956 as Precision Castparts Corp.
Employees: 5,166
Sales: $436.4 million (1995)
Stock Exchanges: New York
SICs: 3369 Nonferrous Foundries, Not Elsewhere Classified; 3324 Steel Investment Foundries; 3724 Aircraft Engines and Engine Parts

A leading manufacturer of large, complex structural investment castings for the aerospace industry, Precision Castparts Corp. also manufactures blades and vanes used in commercial and military aircraft jet engines, as well as castings for use in industrial, automotive, medical, and other commercial applications. During the mid-1990s, Precision Castparts controlled 80 percent of the market for large investment castings, operating as a globally recognized force in a technologically advanced industry. With manufacturing facilities in Oregon, Ohio, Georgia, North Carolina, Colorado, Pennsylvania, and France, the company derived roughly half of its sales from Pratt & Whitney and General Electric, relying on its dominant position in the aerospace market to support its existence.

By the time Precision Castparts had entered into the business world on its own, the company had already established a national reputation as a manufacturer able to produce aircraft castings that the rest of the country’s aircraft manufacturers were not capable of supplying. It was a remarkable distinction to have earned, particularly considering that Precision Castparts’ formative years were spent within the corporate structure of another company, Oregon Saw Company, which was involved in a different line of business. Despite the success achieved by the casting operations that later became Precision Castparts, when Oregon Saw Company was sold in 1953, four years after it was founded, the buyer did not want the casting operations. Occupying a singular position within its field, the future Precision Castparts was left aside and organized along with another company, Powder Power Tools, into a company called Omark Industries Inc. Three years later, in 1956, the casting operations were again passed over when Omark Industries was sold to Oregon Saw, which at the time was only interested in acquiring Powder Power Tools. As a result, the casting operations were spun off and incorporated as Precision Castparts Corp. in October 1956, marking the beginning of the company’s rise to the top of its industry.

While these transactions were being negotiated and concluded, Precision Castparts was busy creating a unique identity for itself in the aerospace castings industry, developing technology that would give it a running start in business once it was spun off as a separate company. The genesis of the company occurred under the supervision of Oregon Saw, when during the early 1950s a group of workers developed a metals casting process for which the parent company had no use. In order to find a use for their process, the team of workers left Portland, Oregon, and headed south to the Los Angeles area, where a rapidly growing aerospace industry offered the greatest opportunity for finding customers interested in their casting process. After two years of doggedly canvassing the region’s aerospace manufacturers, the clique of Precision Castparts workers finally secured their first order when AirResearch Corp. hired the company to make a part no one else could manufacture.

Beginning with the AirResearch order, which the company fulfilled to the customer’s exacting specifications and complete satisfaction, Precision Castparts established itself as a respected manufacturer of structural castings, eventually becoming a world leader in the field largely through its use of the investment casting process. Investment casting involved using a wax replica of a part, then surrounding it with a ceramic shell—the investment—to create a mold. After heating the mold, which melted the wax, molten alloy, generally a combination of titanium, nickel, and other metals, was poured into the mold, creating a final product that rivaled the strength of forged and machined parts, at less than 50 percent of the cost of forging and fabrication. The investment casting process, also known as the “lost wax process,” had originated during the Shang Dynasty (1766-1122 B.C.) in China before becoming a technique widely used by jewelers and dentists. For companies like Precision Castparts, however, investment casting could not produce parts big enough for their customers. Precision Castparts changed that with its proprietary process technology, transforming the casting method into one suitable for large-scale manufacturing purposes and etching a lasting position for itself in the casting industry.

By developing special mold materials and casting techniques, Precision Castparts was able to produce casting pieces as large as 60 inches. Soon Precision Castparts was inundated with orders, its initial success with the AirResearch contract spawning a host of others and providing the fuel to carry the company through the 1950s. At the end of the decade, the company added another casting method to its capabilities when it purchased a vacuum furnace in 1959 to prepare for the anticipated demand for structural aircraft parts that could withstand increasingly higher temperatures.

Vacuum casting soon became a pervasive trend within the industry and Precision Castparts benefited from the foresightedness of its management, as aircraft engine temperatures marched upward from 1,400 to 1,500 degrees Fahrenheit, then to 2,100 degrees Fahrenheit. Two more vacuum furnaces were added to the company’s operations within the next ten years, helping sales increase fourfold between 1963 and 1967 to reach $9.5 million. On the heels of this first consequential surge in annual sales, Precision Castparts went public, making its initial public offering of stock in early 1968 as its prospects became increasingly brighter with each passing year. The company’s greatest growth, however, would be recorded during the next two decades, a span during which Precision Castparts would evolve from a $10 million-a-year company into a $500-million-a-year market leader.

From its founding to the year the company went public, all of Precision Castparts’ growth had been achieved by internal means, but its greatest growth was achieved once management jumped into the acquisitions fray and realized instant growth with the addition of established metals casting companies. Precision Castparts completed its first acquisition in 1976 with the purchase of Centaur Cast Alloys Ltd., based in Sheffield, England. Acquired to manufacture small investment castings for the British and European aerospace markets, Centaur Alloys was organized as a Precision Castparts subsidiary and renamed Precision Castparts, U.K. Ltd. (PCC-UK), bolstering the company’s presence across the Atlantic, where Precision Castparts already sold castings to every major jet engine manufacturer in Europe, including Rolls Royce in Germany, SNECMA in France, and Fiat in Italy.

Domestically, General Electric and Pratt & Whitney ranked as Precision Castparts’ two largest customers, accounting for the bulk of the company’s annual sales, which by 1978 amounted to slightly less than $40 million. Over the next two years, annual sales more than doubled, reaching $97 million by 1980, providing part of the impetus for the next definitive development in Precision Castparts’ history. With sales increasing exponentially, Edward H. Cooley, who had orchestrated Precision Castparts’ development since the company’s incorporation, invested heavily in expanding the company’s facilities and in developing new technology, spending $23 million to double production capacity just as the recessive early 1980s sent the airline industry into a pernicious tailspin.

Cooley’s strategy might have ruined the company, but he was convinced that the airline industry would recover and orders would eventually come pouring in, with his investment enabling the company to take full advantage of the upswing. In the short term, however, aircraft deliveries in 1982 plummeted to less than 60 percent of 1980 levels. As a consequence, Precision Castparts’ annual sales stalled at roughly $90 million, leading Cooley to hopefully confide to Forbes, “We’ve got plenty of capacity, we’re just waiting for the orders.”

Any anxiety created by the costly expansion of the company’s operations on the eve of a downturn in the airline industry was obliterated when Cooley’s predictions became true and the orders for structural airplane parts came rushing in. Sales began to climb upward, enabling the company to complete its second acquisition in 1984, when it purchased two small titanium foundries in Arudy, France. By the following year, annual sales had risen to $145 million, restoring the company’s former vitality and setting the stage for the single most important acquisition in the company’s history.

In the summer of 1986, Precision Castparts paid $66 million for Cleveland, Ohio-based TRW Inc.’s airfoils division, a producer of cast airfoils for aircraft and industrial gas turbine engines. The acquisition nearly doubled Precision Castparts’ U.S. employment from 2,500 to 4,900, adding eight manufacturing facilities to the company’s three manufacturing plants in Oregon, and other facilities in Ohio, Georgia, and North Carolina, and increasing its annual sales volume 80 percent to $180 million. Aside from providing an enormous boost to Precision Castparts’ payroll, manufacturing scope, and annual sales, the addition of TRW’s airfoils division lessened Precision Castparts’ dependence on new aircraft production. Since two-thirds of the airfoils division’s business was derived from the production of replacement parts; its business also moved Precision Castparts inside the aircraft engine for the first time, opening up a new market that complemented the company’s world-renowned expertise in producing structural aircraft parts.

The acquisition of TRW’s airfoils division represented a considerable boon to Precision Castparts’ business, but while under TRW’s management the division had been losing $15 million a year, prompting industry observers to qualify their approval of the company’s acquisition. Although the airfoils division was reporting more than $1 million in monthly losses prior to its purchase by Precision Castparts, the company’s new management moved quickly to find a solution and achieved astounding results before the new division crimped the company’s overall profits. By the end of its first quarter of ownership, Precision Castparts’ management had transformed the airfoils division, renamed PCC Airfoils, Inc., into a money-earner, creating a vibrant new facet to the company’s business. At the end of PCC Airfoils’ first full year, its effect on the company’s finances was clearly evident: net income in 1987 totaled $21.2 million, up substantially from the $9.3 million posted in 1986, while sales during the year had leaped from $192.3 million to $326.2 million.

Recognized as the world leader in large investment casting, Precision Castparts entered the late 1980s buoyed by its acquisition and quick rejuvenation of TRW’s airfoils division and propelled by a strong surge in business. Cooley’s decision to double the company’s manufacturing capacity at the beginning of the 1980s was paying enviable dividends by the end of the decade, as airline companies furiously expanded their fleets, replacing aging aircraft and installing new engines on old planes at a pace that lifted Precision Castparts’ sales upward. Since Cooley’s gamble, sales had more than quadrupled, climbing to $443 million by 1989, while profits had increased sevenfold, reaching almost $30 million.

With an order backlog standing at a record high of $445 million, spirits were high at Precision Castparts as the company prepared to enter the 1990s. In 1991 the company purchased Advanced Forming Technology Inc., a $7 million-a-year company that manufactured metal-injection molded parts for companies involved in the production of military ordnance, business machines, electronics, firearms, and medical instruments. The addition of Advanced Forming Technology’s capabilities to produce small, complex metal parts for numerous industries strengthened Precision Castparts’ involvement in non-aerospace business, which would become increasingly important in the coming years as economic recession once again affected the airline industry. The company’s business grew steadily, with annual sales eclipsing the $500 million mark in 1991, rising to $538 million. In 1992, when PCC-U.K. was sold as part of the company’s consolidation of its European operations in France at its subsidiary Precision Castparts Corp.—France SA, sales climbed to $583 million, from which a prodigious $47.3 million was recorded in net income. But by the following year the airline industry’s slump had affected the company’s financial health. Net income dropped to $1.8 million and sales slipped to $461 million in 1993, stalling the company’s robust growth.

As Precision Castparts entered the mid-1990s, it continued to record stagnant sales growth, although its net income had climbed to $25.1 million by 1994. In April 1994 Precision Castparts acquired ACC Electronics Inc., a small manufacturer of advanced-technology metal matrix composite parts that was renamed PCC Composites, Inc., and organized as a subsidiary. In early 1995 the company acquired Quamco, Inc., a manufacturer of a wide range of tools and equipment for industrial applications. Renamed PCC Specialty Products, Inc., the acquisition illustrated Precision Castparts’ desire to increase its involvement in non-aerospace markets to lessen its dependence on the capricious industry. As Precision Castparts was preparing for the late 1990s and beyond, it was anxiously awaiting the return of a steady flow of aircraft parts orders to restore the pace of growth recorded during the 1980s, with its future growth dependent in large part on the vitality of its primary industry.