Roots in ‘49er Days : Ducommun: Final Chapter for State’s Oldest Company?
Its founder made a fortune selling picks and shovels to the ‘49ers who came to California in search of gold. One hundred-forty years later, the Los Angeles company that bears his name has lost more money than Charles L. Ducommun ever dreamed of.
During the past five years, troubled Ducommun Inc. has sold off its metals and electronics operations to raise badly needed cash. The money-losing aerospace business that remains has been plagued with cost overruns, bloated inventories and production problems.
The company has lost money for four straight years--a total of $67.5 million since the beginning of 1985. The situation is so grave that Alan N. Ducommun, the founder’s 72-year-old grandson, gives California’s oldest company only a 50-50 chance of survival. “It’s pretty damn sick,” he said.
Whether the firm prospers depends a good deal on Norman A. Barkeley, a one-time chairman of Lear Siegler Corp. who became Ducommun’s chairman in January. Former Lear Siegler colleagues say the 59-year-old Barkeley knows the aerospace business and is a good salesman. But they find it hard to evaluate his skills as a chief executive.
Barkeley had been Lear Siegler’s boss for only four months when the Santa Monica-based company was sold to Forstmann Little & Co., a New York investment firm, in December, 1986, after a bidding war involving a number of different players.
“I really don’t know what he is like running a company,” said James N. Thayer, Lear Siegler’s former chief financial officer. “We were fighting a bunch of corporate raiders and all that external stuff. There wasn’t enough time for him to run the company.”
Though Barkeley held important jobs during his 31 years at Lear Siegler, most decisions of any consequence were made by the company’s longtime chairman, Robert T. Campion. “Bob Campion was a very strong guy,” said Thayer, now chief executive of Gibraltar Financial. “He ran the company.”
Even so, NewSouth Capital Management Inc., a Memphis, Tenn.-based pension fund management firm that owns about 12% of Ducommun, thinks that Barkeley may be the right man for the job. “He’s experienced in aerospace and is a hands-on manager, not a financial gymnast,” said Charles Slatery, a portfolio manager for NewSouth. Barkeley wants to revive the company “if that’s possible,” Slatery added. “He’ll sell it if it can’t be turned around.”
Barkeley is said to be quiet, reflective and hard-working, often starting 12-hour days at 6:30 a.m. He refused to comment for this story, saying through a spokeswoman that there was nothing new to say about Ducommun.
Barkeley was introduced to Ducommun by director Thomas P. Mullaney, a Beverly Hills investment banker who had also been a Lear Siegler director. “We put him on the board to see if we could work with him,” said Robert C. Ducommun, 37, a director and great-grandson of the company’s founder. “If we all felt comfortable with him, we decided that we would bring him in as CEO.”
Barkeley joined the board in 1987, about the time he left Lear Siegler. He became Ducommun’s president and chief executive last July.
Robert Ducommun has nothing but praise for Barkeley, who has transformed Ducommun’s upper management into something of a Lear Siegler alumni club. He has hired Lear Siegler’s former treasurer, its human resources director and its auditor. The new head of Ducommun’s troubled aerospace company, Jay-El Products, is also an ex-Lear Siegler executive.
At the same time, Barkeley has reduced the company’s work force by 15% to 1,000 employees since last summer.
“I think very highly of him and his team,” Robert Ducommun said. “He has completely rebuilt the middle management of the company and has everyone thinking in terms of how we can become profitable.”
“He is trying to be a hero,” said Alan Ducommun, who retired from the board last December. He said Barkeley might be able to keep the company going “if the banks stay with him.” The company is negotiating a new loan agreement with its banker, Security Pacific. Ducommun’s $15-million revolving credit line is secured by all its assets and expires on June 30, according to loan documents.
Investment analysts say Barkeley will no doubt try to refinance the $38.6 million in convertible debt on the company’s books. The debt is a heavy burden to the company and, because it is convertible into stock, has severely eroded the Ducommun family’s ownership stake in the company. In fact, three large bondholders control more than 40% of the company, according to its 1988 proxy statement, while the family’s position is just 23.4%.
Lost a Fortune
The family and other shareholders have lost a fortune on paper as Ducommun’s troubles have hammered down the company’s stock price. Ducommun’s shares closed Friday at $1.625 on the American Stock Exchange, down from a 1987 high of $21.
The family’s stake is worth just $1.3 million today, down from $27.4 million in 1986. The dividend, which provided family members with at least $200,000 annually, was dropped a year ago. In 1987, the last full year for which figures are available, Ducommun had revenue of $76.3 million and a loss of $19 million.
The Ducommun that Barkeley runs is nothing like the original company. Early in its history, it switched from selling hardware to making it--the company supplied engine parts for Charles Lindbergh’s Spirit of St. Louis. After World War II, it evolved as a mini-conglomerate with interests in metals, electronics distribution and aerospace.
The company’s troubles began in 1981, when it sold the slow-growth metals operations to Centaur Metal Service Inc., which filed for bankruptcy protection in 1985. Unable to collect payment from Centaur, Ducommun took a whopping $13.3-million after-tax loss.
Next, a recession in the electronics industry led to difficulties at Kierulff Electronics, Ducommun’s large electronics distributor. Those problems were compounded by management turnover at Kierulff, and the company lost critical distribution contracts with Motorola, Advanced Micro Devices and other important electronics parts makers.
Ducommun sold the business to rival Arrow Electronics in September, 1987, but, as with the metals sale, the electronics transaction has returned to haunt the company. Arrow contends that it paid too much for Kierulff and has sued Ducommun to recover $4.5 million of the $130-million sales price. Ducommun said the suit is without merit.
Those sales left Ducommun with four small aerospace companies that make highly specialized parts for Boeing, McDonnell Douglas and the military. Its largest unit, Jay-El, is the most troubled.
When Ducommun bought Jay-El in 1983, the maker of aircraft control panels--it built control switches for Apollo rockets--had $13 million in annual sales and was profitable. Within three years, Jay-El’s sales had mushroomed to $20 million, but the company did not make a dime.
Change Caused Chaos
Andre M. Johnson, former president and part owner of Jay-El, said the problems started when Ducommun changed the company’s production and inventory systems. Johnson said Ducommun created a computer program that was supposed to track orders and parts, but it did not work.
“They had a big-company mentality. As so often happens, they put in the computer system without taking time to understand the business,” Johnson said. “It caused a lot of chaos. We became very delinquent on orders. Slipshod equipment started getting into production. We had a lot of unhappy customers. Ducommun pushed too hard, too fast.”
In interviews, several former Ducommun executives acknowledged that the effort to computerize Jay-El was a failure, at least initially. “Boeing had people in there all the time, watching over production,” said W. Donald Bell, a former Ducommun president.
Ducommun has reported that it plans to take a $1.5-million inventory writedown at Jay-El for work started without a sales order. Working without an order is an unusual practice in the aerospace industry, industry experts said.
It has also reported an anticipated $2-million charge against fourth-quarter earnings to reflect cost overruns at AHF-Ducommun, another aerospace company that makes a portion of the space shuttle’s external fuel tank, among other things. AHF-Ducommun and a sister company, Aerochem, lost a big chunk of business when space shuttle flights were suspended after the 1986 explosion of the Challenger shuttle. Now that the shuttle program has resumed, the companies expect to recoup lost business.
Barkeley replaced Wallace W. Booth as chief executive and later as chairman. The autocratic Booth, a former Rockwell International executive, ran Ducommun for 11 years. He was the architect of its expansion and later, its retrenchment.
Bell, the former president, contends that Booth made a fatal mistake when he sold the electronics business. He said a report by McKinsey & Co., a consulting firm that was commissioned by Ducommon, recommended against the sale because the distribution business had started to rebound. Bell said the now-favorable electronics market helped hand his new Silicon Valley company, Bell Microproducts, a profit last year. “We made more money than Ducommun,” he said.
Was Right to Sell
But Slatery, the NewSouth fund manager, said Booth was right to sell the electronics business because Ducommun did not have the cash to fund its growth. Booth fired Bell over a disagreement about the direction of the company in March, 1987.
Throughout the company’s troubles, the Ducommun family stayed on the sidelines.
Alan Ducommun said it was up to his older cousin, Charles E. Ducommun, to raise objections. “Charles represented the largest block of stock (in the family). It was incumbent on Charles to lead a change. He had picked most of the board members and was a past chairman of the board,” Alan Ducommun said. “In no way did Charles ever indicate that he was willing to make a change. That was my feeling, and maybe that is a cop-out.”
Charles Ducommun refused to discuss Booth, who is expected to resign from the board soon, or to talk about the firm’s past decisions. He said the Ducommun family can afford to be patient because it does not need the money.
The Ducommun stock was only a small part of a family fortune that includes Los Angeles real estate, oil wells, other stocks and bonds and a company that makes ball bearings. Many of the holdings have been liquidated, although the Ducommuns still own American Metal Bearings in Garden Grove. Even with Ducommun Inc. shares at all-time lows, the three Ducommun grandchildren are wealthy.
Charles Ducommun, the family’s 75-year-old patriarch and father of Robert Ducommun, has an art collection that is probably worth more than his Ducommun Inc. shares.
Charles Ducommun is circumspect about the company’s misfortunes. “Of course, as stockholders, we have to be concerned,” he said. “The company has our name on it; I don’t want to see it get into a bad situation. But we’ve been in situations like a roller coaster before.”