The finishing touches for a rescue package to save Kellstrom Industries came just a week before the start of Farnborough, putting the aviation spares management firm on a stable footing after a rough couple of years.

The Florida-based operation, which entered Chapter 11 bankruptcy protection in February, has been bought for $55 million by the privately-held US investment firm Inverness Management.

Zivi Nedivi, president of Kellstrom, who founded the company in 1990 says: "Many people did write us off, but not only did we not go under, we came back stronger than ever."


Although the industry crisis following 11 September drove Kellstrom into bankruptcy, its problems had begun at least a year earlier. The firm, which derives about 75% of its sales from selling and managing spares for commercial aircraft and engines, as well as owning and leasing engines, was badly hit when the industry slowdown that started in 2000 saw airlines retiring their older aircraft faster than expected, says Nedivi.

"We had millions of dollars of spares inventory based on previously planned retirement schedules," he says.

With the aircraft going out of service the spares market slumped. Facing heavy losses Kellstrom reacted by re-structuring its finances and was riding the storm when 11 September came.

"This took down the commercial portion of our business by 50% overnight. We were in a hole we couldn't dig ourselves out of," Nedivi adds.

In response Kellstrom slashed its workforce, moved towards its core spares business by getting out of the engine leasing field, and searched for a longer-term financial solution to its predicament.

During that time it managed to retain its major airline customers, its defence business remained steady, and it was actually making an operating profit, says Nedivi.


The deal with Inverness will see Kellstrom managed by its existing team, who will take a 15-20% stake in the re-organised company. Inverness specialises in acquiring "out-of-favour" industries that have got into trouble through no fault of their own, he says.

GE Capital will provide Kellstrom with a $40 million credit line. Nedivi has re-worked Kellstrom's strategy to shift its spares business to newer and current generation aircraft and engines, with a focus on adding value for its customers by using its inventory management expertise.

"Our major airlines have been faithful and working with us to increase their participation and dealings," he adds.

Its customers include Delta Air Lines, Qantas and Snecma Engine Services. The contract with Delta is a pure out-sourcing deal where Kellstrom supplies all airframe parts, with guaranteed cost savings. Such arrangements are fairly rare at present, but with airlines looking for savings across all areas it will be an increasing trend, believes Nedivi.

In the defence area, Kellstrom concentrates on supplying parts for Lockheed Martin aircraft, such as the C-130, P-3 and F-16. The emphasis in this sector will be on enhancing its relationship with Lockheed to expand its product base, he says.

In 2003, the first full year of operation of the revived Kellstrom, Nedivi expects the firm to achieve sales of $200 million.

At their high point the company's sales had soared to $400 million.

"We went through a traumatic time and a traumatic down-sizing," he says.

Today he believes Kellstrom has a "solid core business and a smarter strategy" to ensure its next few years are at least a little less turbulent than the previous two

Source: Flight Daily News