It has been a bizarre transformation for UNC Inc., a decade-long struggle by the one-time uranium company to reshape itself.
Now, after years of unimpressive earnings, the Annapolis-based company (known until 1984 as United Nuclear Corp.) finally seems poised to take off, its recent purchase of Garrett Aviation Services propelling it to the forefront of the aviation services industry.
"It is finally happening. They're very definitely on the right track at this point," said Paul H. Nisbet, analyst with JSA Research Inc., a Newport, R.I., investment research firm. "With the acquisition of Garrett, they've got the critical mass they were looking for."
Indeed, the purchase comes at a significant juncture, with the airline industry recovering from its worst slump in history. It nearly doubles UNC's annual revenues to $1 billion a year while creating a work force of nearly 7,000 employees with operations in 25 states.
The acquisition of Garrett boosts UNC's share of the growing business-aviation services market from 22 percent to 52 percent, promising far more opportunities to provide maintenance and overhaul of private corporate jets.
"This is where we wanted to be when we grew up," said Dan A. Colussy, former president of Pan American Airlines who was hired in 1985 to guide the uranium company out of the dying nuclear industry.
"After a difficult time, we are beginning to turn around and tick up," he said.
In its transition, however, UNC has suffered no shortage of growing pains. It has bought and sold two dozen businesses -- ranging from telecommunications to environmental services -- and been mired in the airline industry's misfortunes. At the same time, it has been forced to spend millions to clean up nuclear sites from its former life.
Repeatedly, its financial results have reflected its woes.
"They've been a story of continuing disappointments," said John T. Mahoney, an analyst with Raymond James Associates Inc. in St. Petersburg, Fla. "They'd buy companies and run them for awhile. Then, just about the time they buy some, others would go down the tubes. They get into some more debt and write down businesses they bought six years ago.
"There's no reason right now to think Garrett won't work, but I've seen this pattern over and over," he said.
But others say that given its permutations, the company has survived surprisingly well.
"I think it's quite incredible that they're even existing as a corporation at this point -- given what they attempted to do in a negative market environment," Nisbet said. "A lot of the problems UNC has experienced are the results of attempting to alter the nature of the company radically."
The company, which operated once operated uranium mines, was also one of the earliest suppliers of nuclear reactors for the U.S. Navy. With the decline in the defense industry and the production of nuclear submarines, the uranium market all but disappeared.
"We had to exit the nuclear business," said Colussy, who became the company chief executive officer in 1985 after three straight money-losing years. Then president and chief operating officer of Canadian Airlines International, Canada's largest privately owned airline, Colussy was given carte blanche to reshape the company.
"I told the board that it had to become an aviation company," the 65-year-old Colussy recalled. "Aviation was the thing I knew."
But he also was well aware of the inherent difficulties of the aviation business.
After leaving Pan Am when it was still profitable in 1980, Colussy set out to start his own airline at an underusedBaltimore-Washington International Airport. Shortly after he put $1 million of his own money into the venture, the nation's air controllers went on strike, prompting the Federal Aviation Administration to cancel any slots not being used.
That dashed Colussy's hopes for a start-up airline, and he took over Canadian Airlines International for three years before coming to UNC in 1985.
By 1991, the fortunes of the aviation industry would haunt Colussy again. Just as UNC had finally sold off a mishmash of businesses and emerged solely as an aviation services company, the industry hit a downturn.
Demand dropped for new and rebuilt airline engines; UNC cut prices to keep its customers. At the same time, it was shelling out millions to clean up nuclear reactor sites, though the job of selling those sites was seen as "mission impossible," Colussy said.
After spending $20 million to clean up its 1,100-acre Naval Products plant in Connecticut, UNC finally sold it last year for $25 million to the Mohegan Indian tribe, which will open a $275 million gambling complex called Mohegan Sun Resort this fall. So daunting was the task of clearing regulatory hurdles and finding a buyer that the company's compensation committee rewarded Colussy with a $150,000 bonus.
Recently, UNC completed an eight-year, $35 million cleanup of a uranium mine in New Mexico, though it is still searching for a buyer.
In 1994, the company embarked on a restructuring program, eliminating 5 percent of its work force, closing some factories and taking a $50 million charge against second-quarter earnings.
"We have weathered some tough times and finally been able to grow from virtually nothing into a very focused, full-service aviation company," Colussy said recently.
Array of services
Today, the company's four operating divisions perform a variety of services, including the manufacturing and remanufacturing of jet engine and aircraft components; the overhaul of aircraft accessories; the provision of aircraft engines and industrial gas turbine engines, and pilot training.
At plants around the country, UNC's work ranges from completely refurbishing the interior of Gulfstream corporate jets to repairing engine parts for Boeing 747s and building floor beams for a Boeing 767.
Its headquarters in Annapolis employs 70 people, with an annual budget of $20 million.
While the company has capitalized on the growing business aviation market, it has shied away from the highly competitive business of overhauling commercial airline engines. The practice, known as outsourcing, came under intense scrutiny following the crash of ValuJet Flight 592 in the Florida Everglades. Like a number of other airlines, the Atlanta-based discount airline contracted with air service companies to provide maintenance and repair.
But it is the business of repairing and overhauling corporate aircraft that holds the most promise for UNC.
With an improved economy, the number of turbine power jet aircraft, now 15,800, is expected to jump to 20,000 by 2005. Furthermore, because of the surge in the delivery of new aircraft in the early 1980s, a significant number of jets are coming due for major maintenance.
"There's a bubble of work that needs to be done in the next five to 10 years," Colussy said.
While Garrett developed a strong engine-repair and overhaul business, it did not specialize in repairing parts, as UNC does. Because of the acquisition, UNC expects to receive roughly $50 million a year in parts-repair business that Garrett had contracted elsewhere.
Finalized in May, the acquisition of Garrett appears already to have helped. Revenues for the second quarter, reflecting one month of Garrett operations, jumped 38 percent, to $181.3 million, over the same period in 1995, and net earnings jumped 46 percent to $1.4 million, or 7 cents a share.
While several analysts believe a turnaround is likely, they also say it has taken longer than anticipated, given the fact that the company took a restructuring charge in 1994.
They blame internal problems that culminated last fall with the surprise resignation of President Gerald M. Czarnecki. A former top executive at IBM with no aviation industry experience, Czarnecki lasted barely a year while earnings remained flat.
"He was not the right person," Colussy explained, conceding that the hire was an "expensive mistake", with a buyout costing the company nearly $1 million.
For now, Colussy is serving as president as well as CEO, though some speculate that L. David Clemons, the former president of Garrett Aviation Services who now heads UNC's Garrett Aviation division, will ultimately be tapped to take over UNC once Colussy retires.
In the meantime, Colussy is hoping to boost earnings and the company's stock price, which has languished between $7 and $9.
"Wall Street very appropriately has taken a skeptical position," Colussy said. "We have to prove ourselves, although I think we can demonstrate that we've had very substantial growth in certain areas."
For one, Nisbet predicts that a strong second half this year will pump earnings per share up to 35 cents, from 11 cents last year, and they could jump as high as $1.50 by 2000.
"The company really has settled down and made a strong acquisition," he said. "The management team has been strengthened and there are growth opportunities. When you put all that together, you'll see improving margins."
Pub Date: 9/15/96