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Sunday, February 1, 2009

A Visit With Lynn Tilton

R&W Staff

"Your reputation is engraved by how you handle the more difficult situations."

The world of aviation is filled with corporate executives, but none quite like Lynn Tilton. The friendly and equally feisty investor came crashing through the main gate of the exclusive helicopter community when she bought near-bankrupt MD Helicopters Inc. (MDHI) of Mesa, Ariz. in July of 2005.

At her first Heli-Expo press conference in Dallas (2006), Tilton - dressed in skin-tight leather slacks, boots with 5-in heels and a fur-lined leather jacket - announced she was going to pull the ailing helicopter company back from the cliff, get parts out to hundreds of grounded customers who had been unable to fly for nearly two years, and give the industry a well-needed shaking up. By 2008, Tilton had used huge amounts of her own money to jump-start MDHI’s formerly idle MD500-, 600- and 900-series assembly lines.

As things around MDHI improved, Tilton accused the aviation press corps of not spreading the word that the company was breathing on its own again, and all but stopped granting interviews to or advertising in aerospace publications, that is until now.

So, come sit with R&W at Dulles International Airport near Washington, D.C. as we spend a chilly evening on Dec. 18, 2008 with Lynn Tilton.

R&W: You once said that people should know about you before they write about you. What should I know?

Tilton: I think that my business was created actually with the intent to make the world a better place; by taking what other people would toss away and creating value, and by creating and sustaining jobs in this country so that people wouldn’t go home and tell their families they weren’t able to survive.

R&W: When you took over MD Helicopters in the summer of 2005, you vowed to change the industry so that "mediocrity is no longer accepted, late deliveries are no longer the norm, and spare parts are no longer difficult to find." How have you and MD Helicopters done in that regard?

Tilton: Well, we’ve done a great job on spare parts. Frankly, we’ve spent a lot of this year with zero AOGs [aircraft on ground, meaning the parts are needed immediately]. And to go from number nine and having 265 aircraft on the ground in July of 2005, to come in number two in [ Professional Pilot magazine’s] survey, and number one in spare parts, I think is a pretty amazing accomplishment. And I think if you spoke to our customer base they would tell you that.

R&W: I spoke to a member of your customer base about two hours ago.

Tilton: What did they have to say?

R&W: They said they were a whole lot happier than they used to be.

Tilton: I don’t know if that’s an accomplishment, though, because people were really angry. I care. The one thing that people will tell you is that if they have a problem and they come to me, I take care of it. It is my responsibility to make sure that people are in the air. It is their inalienable right to have their aircraft flying. And I cannot be responsible for keeping them from flying. Is there a moment once or twice when someone orders something and we don’t have it? [Yes], but frankly, it is the rare occurrence when we can’t put people back in the air. I spent a year of losing money and not building aircraft; gathering parts so I could put people back in the air. I brought 1,500 parts in-house, and a lot of it has to do with that. I also said vertical integration makes sense in this industry and people laughed at me. But when I have a problem and I need to get parts out, or if I have a problem with my whole aircraft line and there’s a part issue, I can keep those people around 24 hours a day on shift until we build new parts, until we get it out to the fleet. The aircraft itself is complex. The business should not be.

R&W: Two years ago, you spoke of expanding MD Helicopters’ operation on a global scale, specifically through the purchase of a facility in China. Since aviation is a moving target, is that still a goal? If so, how have you been doing along those lines?

Tilton: We built the facility in Mexico when the Nightstalkers [the Army’s 160th Special Operations Aviation Regiment] told me that they couldn’t get parts and they would have to switch aircraft if we couldn’t deliver. I flew to Mexico and I bought a facility. We began to manufacture our own fuselages. That we did. When I went to China — I spent a lot of time there, I think in 2007 — I grew very uncomfortable with the fact that our technology would be taken from us and the constant renegotiation of deals. And so we ceased to continue on that deal.

Now, in terms of global selling, we do more sales overseas than we do in the U.S. Frankly, I’m moving more and more towards putting everything under the same roof. I find that having operations spread out disperses the force of forward movement and also just makes us less efficient. So frankly, even if one had to pay more in terms of labor hours, since labor is not the largest component of this business, my move now is to keep more and more under one roof. And when we move, we will put a lot of the business completely under one roof and one location. But, you know, you learn as you go."

R&W: Where are you planning on moving to?

Tilton: Ahhh! That’s the $64,000 question. We have not made an announcement, yet. But we will do so in a couple of weeks.

R&W: Is MD actively seeking military contracts at home and abroad?

Tilton: Hmmm. We do special forces contracts around the globe. We absolutely are working globally on military contracts. We tend not to join in on every large competition because it takes a tremendous amount of time, energy and money. And we are a small company, so we tend to focus ourselves on those contracts where we have the highest percentage hit ratio. We don’t want to be everywhere just to say that we threw our hat into the ring. We believe that if someone’s very interested in our aircraft, we end up working very hard on trying to procure those contracts.

After LUH, I certainly was in no rush to again work with the U.S. Army. Will we get involved with ARH? I think it really depends on the RFP that comes out and whether through that RFP we know they really are interest in our aircraft. I’m a patriot. Everything I do is for the people of this country, and there’s no greater honor than to serve the Nightstalkers and our military. So, if in fact it is obvious that our aircraft is one...that’s desired, we will highly consider getting back involved in throwing our hat into the arena. If in fact it’s another one of these competitions where either it is perceived that another aircraft is the choice or it’s an impossibility for me to get my aircraft to what they want because the Army, again, thinks they can take an aircraft, get to perfection and it’ll just be done overnight, then we will not spend our time and energy and money on that, rather than serving the global customer base that actually wants to buy aircraft. But. I hope for our troops’ sake that the Army begins to understand that you actually have to choose aircraft that might make a difference in-theater.

R&W: [The LUH program] was an interesting program, wasn’t it?

Tilton: I’m always shocked by the absence of thought that goes into major projects or the major expenses that this country withstands. [I told the Dept. of Defense that they] put people on $4-6 billion projects that I wouldn’t allow a nickel of mine to invest in. And you make something that could be done in three months to a year. And frankly, then you wonder why you overpay for aircraft. If you have six parties or four parties that have to spend $20 million over the course of a year to be in a competition, you don’t think they’re going to get that money back each time? So, I don’t know. A lot of things don’t always make sense to me — it doesn’t mean that I’m right — they just don’t make sense to me.

R&W: What kind of sales numbers will MD Helicopters post in 2008, and what do you project for 2009?

Tilton: We were supposed to deliver 60 aircraft [in 2008] and we [did] not. And that’s because they weren’t sold. It’s because we did not do what we needed to do. We were working seven days a week up to the end of the year, and I think we will hit somewhere around 50. And I would project somewhere around 90 for 2009. But I’m disappointed that we won’t get to where we were supposed to be. We have some parts issues that should not have been that held us up. No excuses, just reasons. But when you did zero in 2005 and 50 in 2008, it ain’t so bad.

R&W: Pursuant to several incidents of stuck vertical stabilizers on MD Helicopters that use the NOTAR system, all MD520s, 600s and Explorers are currently required by an Airworthiness Directive to operate with their yaw stabilization augmentation system de-energized, resulting in slower permissible airspeeds. How are MD’s engineers progressing in getting to the bottom of the problem and offering a fix for your customers?

Tilton: On the 902 — and I’m going to have to check with [the engineers] — I think we’ve solved this issue with the FAA just recently. We should have taken care of this a long time ago. And I’m not defending the fact that it had taken this long, but I think we have solved the issue. It was a supplier problem, go figure, which means it was a quality problem on our side, right? We should have caught that. But now it’s just a matter of getting the FAA comfortable. We have a great head of engineering [Carl Schopler]. And with Carl, you know, you get one of those masters, who over many years just did it himself, hands-on, old school, and has really helped us, not only to understand our aircraft better, [but also] how we work with the FAA.

[Now, we] actually almost err on the side of too cautious. In terms of every time there’s an issue with our aircraft, we go directly to the FAA. I am a true believer in safety first. And I also believe that your reputation is engraved by how you handle the more difficult situations. And as you well know, we did not have an easy time with the 902 this year. I wanted very much for us to deal with these straight on, and we got service bulletins out. And not only did we get service bulletins out, but I made every customer be called by customer service to make sure they had gotten the service bulletin. And finally, when we thought we had the problem under control and we had another incident (which didn’t turn out to be the same thing, but we thought it was) they’d go out in the fleet for a couple of days. I said, "Look, I will never, never put people’s safety in jeopardy for the reputation or to try to avert something." And I believe, right or wrong, that if we handle this face-on, and we communicate with people, and we give them the truth, that ultimately they will respect us. And you know what? They did. I’ve sort of answered a lot on this one issue, but I think it’s really important for you to know that we don’t avoid issues, and we take responsibility for them. We don’t make excuses. When I heard that it was taking much longer and I told people I was going to step in, things got done. Go figure. So, I think we’re well on our way to that situation being fixed completely.

R&W: The MD600 has never sold well. What is the future of that design?

Tilton: The future is to fix that which ails it. It came out to the market way too quickly. It is loved by great pilots, but it is not an easy aircraft to fly. We are working on fixing the controls and hydraulic issue. I think it can be a great EMS [emergency medical service] aircraft. A lot of the EMS industry is moving toward single-engine, because they get paid the same whether they show up in a twin-engine or a single-engine aircraft. We think the 600 can be a great partner to the 902 and EMS industry, and we’re working hard to get that to where it needs to be.

R&W: Do you know what your sales figures were for the MD600?

Tilton: I don’t know how many 600s we did this year. There were six or seven. The interesting thing is that some pilots love it. The one thing about the 500 series and the 902 is that they are so easy to fly. They have that great controllability. The 600 does not. I think a long single is a great aircraft and we are working on the fixes there. But like everything else, nothing’s ever fast enough.

R&W: When it comes to MD Helicopters, the first thing people want to know is how the company is doing under your command. The next thing they want to know is why you tend to shun traditional Wall Street boardroom attire for your more colorful and risqué dresses and slacks.

Tilton: Poor, Hillary Clinton. She was criticized for wearing frumpy pant suits and I get criticized for wearing sexy attire. Women just can’t win! First of all, how is MD doing under my control? I think we are on our way to being one of the great American success stories, and we are profitable. So, we are making money and I think we have a variable cost structure and an infrastructure that will allow us to withstand the downturn which WILL hit the global aerospace industry, as well as the rest of the economy. I think it will lag and it will not be as severe, but municipalities are not going to have a whole lot of money to buy new aircraft right now, and VIPs are not going to buy new aircraft, EMS companies are going to suffer. There will definitely be a dial-down on the volume of aircraft sold, but I think we’re in a very good position to withstand any kind of downturn. I think the fact that Eurocopter sells against us, saying we don’t deliver parts, is growing old. The truth is beginning to hit the surface that MD actually does take care of its customers and its parts. So I would say that we are not where I would like us to be, but we are in very good shape and heading towards a very sweet future.

In terms of my attire, let’s just say that I don’t like to fit in a box. And frankly, a lot of what I do is just to keep people off balance. I am never what anyone expects and I like that. I am so many things.

Tilton on Tilton:

Place of birth: "New York, NY. That’s why I’m a big Yankees fan."

Married? "Not since I was about 24 years old. Single suits me."

Children: "One daughter who will be 26 tomorrow [Dec. 19, 2008]."

Family: "I’m number three of four. My father was a brilliant and talented man that dedicated his life to making the world a better place. He started out as a teacher and a professor in college, and then actually created the concept that was called ‘market research.’ My mom lives in Teaneck, NJ. She is the publisher of a small newspaper."

Education: "I went to Teaneck High School... Yale undergraduate and I have an MBA from Columbia."

Early ambitions: "Marry the right man and have six kids."

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