Costa Mesa’s J.C. Carter Fetches High Price
In a deal underscoring the aerospace industry’s belief in a bright future, an Orange County aircraft fuel systems manufacturer with $50 million in annual sales has been purchased for about $100 million by Cleveland aerospace products maker Argo-Tech Corp.
The deal between the two privately owned companies calls for Costa Mesa-based J.C. Carter Co. to continue operating under its own name and management as an Argo-Tech subsidiary. Employment at the company, which has 250 workers, is not expected to be affected.
The purchase price reflects an improved market for well-positioned small aerospace companies, analysts said. While defense spending has dropped in recent years, spending on civilian aircraft is expected to grow substantially as older aircraft are replaced and new jets are built to meet anticipated demand for air travel.
Industry watchers said orders for new commercial jets are expected to top $490 billion over the next decade, and that about 15,000 new aircraft worth more than $1.1 trillion are expected to be ordered worldwide in the next 20 years.
While the price paid for Carter in comparison to its annual sales is higher than normal in the industry, those ratios have been accelerating rapidly since the aerospace market hit bottom in the early 1990s, said analyst Peter J. Armet of JSA Research Inc. in Rhode Island.
The average price paid for an aerospace manufacturer “bottomed out at about 40% of annual sales in 1992 and has climbed back to 1.2 times sales now,” Armet said.
One reason is that subcontractors have begun scrambling to consolidate, mirroring a wave of large mergers that has left giants like Boeing Co. and Lockheed Martin Corp. ruling the aerospace and defense industry, said Los Angeles defense and aerospace consultant Michael Beltramo.
“The prime contractors are severely cutting back the number of subcontractors they are willing to deal with,” Beltramo said, “so the subs need to consolidate in order to get stronger.”
Operating efficiencies and expansion of product lines drove a recent acquisition involving Irvine defense and aerospace contractor Tolo Inc. The company last month agreed to be acquired by Rohr Inc. of Chula Vista for $24 million, slightly less than Tolo’s anticipated 1997 sales of $25 million. Rohr sought Tolo because it has proprietary manufacturing processes that can dramatically reduce the weight and production cost of many of the aircraft parts Rohr makes.
It was the chance to combine complementary product lines that brought J.C. Carter and Argo-Tech together, said Badrik Melikian, Carter’s chief operating officer and a 10-year veteran of the company.
He said the companies expect to gain access to new clients because of the combination. The purchase price, he said, shows Argo-Tech’s confidence in the future of the business. The combined companies will have 800 employees and $160 million in sales for 1997.
Carter makes fuel system components for most military and commercial aircraft and aerial refueling products for the military.
The company, founded in 1946 to make liquid oxygen pumps for the nascent U.S. space industry, also makes equipment for ground-based aircraft fueling systems, designs and compiles software programs for aviation fuel management systems, and makes submergible electric pumps for handling fluids at extremely low temperatures.
About 70% of Carter’s revenue comes from sales to aircraft companies, Melikian said.
Argo-Tech, once a unit of Cleveland-based defense contractor TRW Inc., makes aircraft fuel pumps. The company has $115 million in sales and 550 employees.
