Wednesday, May 23, 2018

After massive layoffs, Tampa aviation company CEO vows to bring them back

TAMPA — Bill Meehan lost count of how many times he gave The Speech that day.

On Aug. 2, the CEO of PEMCO World Air Services gathered his workers in the airline maintenance company's cavernous hangars at Tampa International Airport to give them devastating news:

United Airlines, their biggest customer, had suspended its repair contract.

That meant PEMCO, still emerging from bankruptcy, would have to lay off 474 of its 749 workers.

Meehan repeated the speech when the swing shift came on at 3 p.m. He repeated it in hanger T-1 and again in hanger T-2. He told the graveyard shift at 10:30 p.m. The next day he told it again and again to those who weren't at work when the news broke.

It wasn't the first time Meehan, who spent 26 years at Continental Airlines before taking over PEMCO last year, has had to give that speech.

"I've done it so many times in my career," he said, "and each one is as difficult as the last one."

This time, he hopes, will be different. The company has emerged from bankruptcy, and Meehan has vowed to try in the coming months to hire back everyone who lost their job.

"My commitment is to bring them back," Meehan said, "and that's what they're counting on."

• • •

PEMCO bills itself as a leader in the MRO (maintenance, repair and overhaul) business.

That can be anything from routine maintenance to redoing a plane's interior to swapping out the engines and avionics. PEMCO also converts aircraft from passenger use to cargo use.

The company services hundreds of planes a year in Tampa, where PEMCO has worked on everything from Boeing's massive 747 to Airbus' nimble A320.

The work can take from 24 hours up to 90 days. PEMCO also has facilities in Dothan, Ala., and Cincinnati, Ohio, and partners with an MRO company in China. Before losing the United contract, the company reported annual revenues of about $150 million.

The company started as Hayes International in 1951 in Alabama, servicing military aircraft. In the 1980s it was sold and renamed PEMCO (Precision Engineering and Manufacturing Company.)

Fast-forward to 2007. It was bought by takeover firm Sun Capital Partners. A year later, PEMCO opened a repair shop at Tampa International using two abandoned hangars. Then it moved its headquarters here in July 2009.

In March, PEMCO filed for bankruptcy protection, blaming the recession.

"It's similar to all companies going into bankruptcy," Meehan said. "We had debt on our balance sheet, and we needed to restructure that debt."

It got worse this summer. United informed PEMCO it no longer required its services. Those 474 jobs paid an average salary of $47,500 a year.

A restructured PEMCO officially emerged from bankruptcy on Aug. 28, owned by Avion Services Holdings, a holding company of Sun Capital Partners. Meehan said the company is still paying off its $12 million debt, and recently paid off its back rent at the airport. But it will close its Alabama facility in October and is trying to sell its Cincinnati operation.

Bankruptcy certainly wasn't the goal when Meehan took over the company in June 2011.

"They brought me in here to change the culture, to restructure the company," he said. "I didn't come here to take it into bankruptcy. But after six months of analyzing the process that was an inevitable path we had to take."

• • •

Tampa's aviation repair base has taken hits like this before.

In 2002, just before Thanksgiving, US Airways shuttered its Tampa repair hanger and fired 300 mechanics. In 2005 Delta followed suit, laying off 300 when it shut its heavy maintenance facility at Tampa International.

PEMCO moved to Tampa to draw from that talent pool. Now it's suffering as well.

With the United contract, 90 percent of PEMCO's work was heavy maintenance: installing new engines and avionics. Without United, that lucrative sector has fallen to 50 percent.

But Meehan thinks he can bring some of that business back. He and his sales team have been crisscrossing the country pitching to airlines, banking that he can use his connections and PEMCO's reputation to find customers.

"But in the MRO world it's more than just relationships," Meehan said. "It's about performance. If we can give our customers a safe, reliable and predictable product they will continue to use PEMCO as a facility.

"What they're looking for is not only reliability and predictability, but also something economical. They don't outsource something to spend money. They outsource something to save money.''

Meehan said the business is cyclical. When airlines start shutting down routes after Christmas, when travel slacks off, planes will need to be serviced. The company is currently negotiating contracts for lesser repair services, Meehan said, and will also lean more on its niche of converting passenger planes to freight carriers while it builds the heavy maintenance sector back up.

"This happens all the time in the MRO world," he said. "I anticipate we should be nicely busy by the end of the year."

• • •

Bijan Vasigh, a professor at Embry-Riddle Aeronautical University who has studied MROs and the airline industry, isn't so sure.

Two things, he said, are squeezing the domestic MRO industry: cheaper foreign competition and new planes.

MROs arose because airlines needed to cut costs. They outsourced their maintenance to outside firms so they could shed jobs and salaries.

But now the same market forces that once worked in PEMCO's favor have started to turn against the domestic MRO business, Vasigh said. Airlines still need to cut costs and have found cheaper MRO firms overseas, mostly in Latin America.

"The airline industry is under tremendous financial pressure," Vasigh said. "This is the result of the suffering economy. At the same time, the fuel costs make the airlines less profitable."

He estimated that up to 40 percent of the airlines' costs is fuel alone.

That's why airlines are buying more fuel-efficient planes, Vasigh said, replacing old planes that won't require the kind of heavy maintenance that makes MRO firms the most money.

"The older the aircraft, the more expensive they are to operate," the professor said. "The bottom line is they have to reduce costs. If they can do that by replacing older fleets with a newer fleet, they will do that."

But newer planes won't need heavy maintenance until 10 years into their life cycles, he said.

So how can an American MRO company survive the twin threats of cheaper competitors and planes that don't need fixing?

"They have to become more cost-competitive," Vasigh said. "For some of them, absolutely, yes, they can deliver much better service at a competitive price. They will survive.

"The ones that can't do that? They won't survive."

• • •

Then PEMCO has no choice, Meehan said. It must become more competitive.

"Business ebbs and flows all the time," he said. "We need to make sure that we're the best option for our customers."

How can PEMCO do that? Meehan said by keeping costs low, but cutting wages alone won't do it.

"To make it competitive in the international market, you couldn't cut salaries that low," he said. "If you go down to Latin America, the competitive wage rate is paltry compared to what we offer in the U.S."

The answer, then, is to do what Meehan was brought in to do: streamline the process as much as possible. After each plane is serviced, the company takes a look at the steps, or "flow" of work done. Then it decides what steps can be eliminated, or done better, for the very next plane.

"You hear all the buzz words, Six Sigma and all that," Meehan said. "It's just continuous improvement, always doing things in the most efficient and safest manner."

PEMCO has actually lost 420 of the 474 people it told the state it would have to let go. Meehan said 18 positions were retained by sending the workers to Alabama. The company has rehired about 30 people and hopes to add more as new customers come onboard.

But those workers are coming back under a new pay structure. Some will make more, some less, Meehan said, but the workers who have been rehired are being paid about the same.

Those U.S workers do have an advantage over their foreign counterparts that Meehan says PEMCO can exploit: "The skill of labor down there and the productivity of the average laborer is nowhere near what ours is. In addition we have all certified technicians.

"We have to do it quicker and better, and that's the bottom line."

Indeed, speed and efficiency is the key to the MRO world. Airlines can't afford to have their planes languish. So MRO companies need to turn the planes around quickly and consistently.

• • •

Meehan said PEMCO's efforts are already starting to pay off. A new customer started flying planes into Tampa for service on Sept. 17.

The company is negotiating with another new customer that could start maintenance at the end of October. That new contract would allow PEMCO to keep the employees who will return from the soon-to-close Alabama facility.

A key element of his plan to turn the company around, though, is based on faith: that PEMCO can stay competitive, that it can drum up enough business to stave off the pressures that forced the bankruptcy in the first place.

It's one more run for Meehan through the never-ending cycle of the airline industry. He's seen it all: bankruptcy, cutbacks, layoffs — and tragedy.

Continental Flight 3407 crashed while approaching Buffalo International Airport in 2009, killing 49 on the plane and one on the ground. Meehan was the executive in charge of the airlines' emergency response.

Why does he stay in the business?

"It's a passion," he said. "Once you find your passion in life, it's something you crave. It's something you want to do in good times and bad times."

Times researchers John Martin and Caryn Baird contributed to this report. Jamal Thalji can be reached at [email protected] or (813) 226-3404.

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