ExelTech bounces back

Blurb: Dorval-based company overcame a disastrous post 9-11 slowdown, by enabling airlines to outsource maintenance, repair and overhaul services

During early 2002, Derek Nice was sweating bullets. North America's airline industry was reeling from the beginning of tens of billions dollars of post 9-11 losses. And ExelTech, --the airplane maintenance, repair and overhaul company he ran,-- was in the throes of massive layoffs.

"It was a terrible time," said Nice. "There was a lot of uncertainty about which carriers would survive. In some cases we're still not sure."

But what a difference three years can make. During that time ExelTech returned with a vengeance, growing almost ten-fold and rehiring most of its staff and then some. Late last year, the company announced a reverse takeover of Quebec City-based Nordtech Aerospace, which will lead to ExelTech trading on the TSX Venture Exchange. According to Nice, the group's 400 employees could perform about $40 million of maintenance, repair and overhaul work next year.

In theory, the airlines' troubles should have dealt a crippling blow to Dorval-based ExcelTech, as it did to so many industry suppliers. But the dark clouds turned out to have a big silver lining.

During the painful restructuring that airlines were forced to undergo, senior executives began looking harder at how they could cut expenses and increase efficiency by outsourcing non-core operations. Moves once shunned due to a desire to please employees or because of stifling union contracts, were now suddenly on the table. ExelTech emerged as one of the primary beneficiaries.

"All of the continent's best run carriers, including West Jet, SouthWest and Jet Blue, outsource significant parts of their maintenance operations," Nice said. "It's one of the reason's that they are so efficient."

Outsourcing provides the airlines several advantages. It enables them to focus on their core competency of moving passengers from one place to another. It also lets sub-contractors, like ExelTech get better at what they do. The end result is a far more efficient supply chain.

At first glance, Canada, with its rising dollar and its higher wage structure, would seem to be an unlikely place for U.S. and Caribbean nations, --which provide about two third's of ExelTech's revenues,-- to outsource work to.

But according to Nice, the Montreal area's strong aerospace industry presence, provides a significant labor pool to draw on. And while price competition is perennial challenge, most airlines take a broader view, by evaluating suppliers on a range of criteria including service quality and delivery time.

"The cheque they write is us a much smaller expense to them than the opportunity cost of not having a plane in operation," Nice said. "Our ability to turn around a job quickly, is a key selling point."

During 2002, after layoffs had reduced ExelTech's staff to less than 40. Bahamasair was one of the first companies to provide the new work that led to its turnaround. According to Tracy Cooper, Bahamas Air's director of maintenance, the post 2001 era was a tense time.

"The U.S. airforce actually spotted and followed one of our aircraft across the Canadian border," Cooper said. "I guess the communications signals must have been crossed."

ExelTech provided mid-life inspections to four of Bahamasair's planes, and then subsequently did major overhaul work on them. This included gutting each aircraft down to the steel frames, verifying the structural components, fixing what needed to be fixed and then putting everything back together. And this year, the Caribbean airline will be sending another three units up north for servicing. According to Cooper, one of ExelTech's big strengths is the fact that its key managers still keep a small business mentality.

"They treat us as if we were their only customer. They make us feel important even though we are a relatively small carrier." Cooper said. "Frankly, I didn't even realize that they had grown so fast."

According to David Carr, editor of Wings, an aviation industry trade journal, ExcelTech has done several things right.

"They seem to have built up a nice niche servicing Dash-8s and ATRs," Carr said. "And they have good potential, especially if they can increase their penetration among legacy carriers, which have been slower to outsource than the discount airlines."

For Nice, who did all of his university studies in business, ExcelTech's comeback couldn't have been sweeter. Like many in the industry, Nice is a air travel fanatic, who took flying lessons at his own expense, while he was in his 20s, and made substantial sacrifices for the chance to work with airplanes.

But Nice, unlike many company presidents, refuses to take much of the credit for the turnaround. He always uses the personal pronoun "we," instead of "I," when describing actions that were taken.

"When you consider that we are just a bunch of technical managers, competing in an international market," he said with a shrug. "I guess we haven't done too bad."





Fact Box:
Company Name: ExelTech
Web-site: www.excel-tech-areospace.com
Owner: Public company
Founded: 2000
Products: Aircraft maintenance repair and overhaul
Employees: 400
Sales: Approximately $40 million
Phone #: 514-631-3884




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Peter Diekmeyer
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Montreal, Canada, H9S 1T6, 514-631-0025



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