In buyout, Keystone finds key to growth
November 1, 2002
NEWS FOR IMMEDIATE RELEASE
by Bill Wagstaff
In the middle of a helicopter market that has been flat for nearly a decade and seems likely to remain that way for the foreseeable future, how does a 50-year-old rotorcraft repair, maintenance, management and operations company not only survive but actually manage to grow? In the case of Keystone Helicopters, it does so by making the most financial advantage of its prime but previously undervalued market position; its reputation as the middle-Atlantic region’s blue-chip rotorcraft repair and mod shop; and by a steady multi-year policy of diversification and growth, particularly in the modestly but steadily growing aeromedical transport world.
Oh, and add one other ingredient to this mix: money. Keystone has benefited from an estimated $75 million cash injection as a result of its buyout for an undisclosed sum by the Ranger aerospace venture capital group, a network of holding companies. Spearheaded by the peripatetic Steve Townes, Keystone has been energized, not just with money but with an overall plan for the future, all at a time when the overall economy is stalled in a slump, a condition many financial gurus agree is one of the best times to prepare for growth.
Townes has done this sort of thing before. Before engineering the Keystone buyout, he was president and CEO of Aircraft Services, International Group (ASIG), the airport-management services firm he profitably sold to a British services conglomerate. Armed with ample funding from this sale and looking for fresh opportunity, Townes found Keystone last year, which he discovered as undervalued and ripe for dramatic growth.
Meanwhile, the family that founded Keystone was seeking venture capital for some expansion plans of its own. The elder statesman of East Coast helicoptering, Peter Wright Sr., was a U.S. Navy dive-bombing pilot and later a member of the famed “Flying Tigers,” the soldier-of-fortune fighter group noted for giving the Japanese their only real drubbing before that country’s tide-turning defeat at the Battle of Midway. Finished with war, Wright was fascinated with the commercial possibilities offered by the new aircraft that conflict had created, among them the helicopter.
In the postwar era, Wright’s hometown of Philadelphia was a hotbed of helicopter activity, led by the Franklin engine company, a pioneering early helicopter powerplant maker, and Piasecki, another groundbreaking rotorcraft maker. Developer of the trademark dual main rotor helicopter, Piasecki later became known as Boeing Vertol and now is simply a division of Boeing Helicopter.
Wright named his company Keystone and made its home in what were then the rural hills of West Chester, Pa., just west of Philadelphia but not inconveniently so. Over the decades, Keystone’s operations division performed just about every mission rotorcraft can complete, from powerline patrol for Phil-adelphia Electric–38 years later still a customer–to recovering rocket payloads launched by NASA from its Wallops Island, Va. facility. Happily for local land speculators, but not for Keystone, the suburbs soon encircled the company’s home base and today the site is beset by a skein of circuitous helicopter noise- avoidance corridors that have discouraged Keystone from further facilities growth and led it to seek a new home.
A New Keystone
Enter Townes. Canvassing eastern Pennsylvania for businesses to acquire, he sent Keystone president and CEO Peter Wright Jr. a self-confessed “love letter.” Before long a deal was struck, one that created Keystone Ranger Holdings (KRH), a division of Ranger. KRH is a venture-capital group made up of private investors, chief among them Ranger Aerospace LLC, Meridian Venture Partners and CD Ventures. These three, along with smaller private investors and financing from First Union Bank/Wachovia, combined to put together the undisclosed sum needed for a private stock buyout of Keystone.
A visitor looking for changes to the Keystone operation since the Ranger takeover will be hard-pressed to find any, either on the shop floor, in its aerial operations or on the company’s flow chart. Senior management from president Peter Wright Jr. on down have kept their jobs. “What we are changing is the quality of the employees, approving new training and equipment needs to do their jobs even better,” Townes said.
Since the Ranger takeover, training, already intense at Keystone, has been elevated. Wright admitted that getting good mechanics off the street is not easy, even in today’s employment environment. Entry-level A&P mechanics can expect to start at around $13 to $14 an hour. Top rate for mechanics is $24 an hour, with second-shift workers paid 5 percent more.
Pilot salaries begin at $40,000 for entry-level positions, and a 10- to 12-year veteran can expect to make $60,000. Minimum requirements are 2,000 hr TT, with 1,500 hr PIC. But like every operator, the hire/no-hire decision depends not merely on hours but on an overall impression of quality and competence.
Since growth is the goal, Townes has just announced the acquisition of a new home for Keystone, a manufacturing facility recently purchased from a maker of hunting rifle and shotgun cleaning products at Chester County Airport just west of Coates-ville, Pa., 17 mi due west of Keystone’s present site. “This will be our dream facility,” Townes said, “a facility more than twice the size of what we have now, with room to expand and close enough so that the disruption for our employees, in terms of transition and commute distance and times, will be minimized.”
Townes’ dreams for Keystone involve, naturally enough, growth–expansion using Keystone as the foundation of an integrated helicopter operations company with a projected annual revenue of more than $350 million within five years. “We see Keystone as the foundation for future growth,” Townes said. “The company has already started down this road with its aeromedical flight operations division, which forms a solid half of the company’s $65 million annual revenue. We foresee enough business potential using existing facilities and practices to grow to $125 million annually even with no further acquisitions,” Townes said. “But we’re looking for more acquisitions.”
Townes’ business plan calls for market leadership, ideally in three separate helicopter usage areas. Keystone is already the dominant maintenance and services supplier on the East Coast, performing factory-authorized service airframe and overhaul service on helicopters made by Bell, McDonnell Douglas (nowadays MD Helicopters), Boeing and Sikorsky.
This last-mentioned manufacturer, in fact, likes Keystone so much that it made the company its official completions center for S-76 corporate helicopters. “Most of the fuselage is fabricated at the Aero Vodochody factory in the Czech Republic and shipped to us for installation here. New S-76 buyers aren’t roped to a Keystone installation, but most of them come to us.”
The aeromedical services (as opposed to flight ops) division that comprises 35 percent of Keystone’s business began with one of the first such programs in the world at nearby Allentown, Pa. Sacred Heart Hospital (now Lehigh Valley) in 1981. Since then Keystone has established 17 more hospital-based programs at sites in Ohio, Pennsylvania, Massachusetts, Maine and, most recently, Arkansas. Keystone occupies a specific niche in the aeromedical transport world. “We offer the hospital the option of owning or leasing the helicopter. If they don’t, we do,” Wright said. “It all depends on what the hospital prefers. If they’re nonprofit, operated by an HMO, whatever type of helicopter ownership option works out best for them, we work with. What we reserve is the right to provide the pilots and support and maintenance staff, and Keystone maintains and supports the flight operations.”
Who prefers to own and who prefers to lease? “It’s about an even 50/50 split,” Wright replied.
With Keystone’s aeromedical business forming the first of Townes’ flight operations missions, the search for more strategic acquisitions continues. Whether that complementary helicopter business is an offshore oil operator, electronic newsgathering contractor, heli-logger or something completely unexpected remains to be seen. “Keystone gives us a solid business base,” Townes said. “Wherever we take things next, it will be toward a big opportunity that requires a substantial commitment but stands to provide a big yield.”