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April 2013
Flying High
By Barbara Fagan

     Air travel delays are a fact of life. Bad weather is a frequent culprit, but delays can be caused by equipment problems as well. The most serious equipment problems prevent aircraft from flying, described by a term called AOG or “aircraft on ground.”

     “For us, AOG has the same meaning and urgency as the term STAT does in a hospital,” explains Bill Polyi, president and CEO of Magellan Aviation Group. “When an aircraft is grounded there may be a couple of hundred passengers waiting in a terminal somewhere. That’s where we come in. One of our greatest strengths is being an AOG (same day service) company.”

     Magellan Aviation Group is a global aftermarket supplier of aircraft parts and products and a specialist in aircraft engine leasing and trading. The group’s Magellan Aircraft Services operates out of 108,000 square feet in southwest Charlotte.

     The company also operates Magellan Aviation Services out of 25,000 square feet in Shannon, Ireland, and has satellite offices in Florida, Peru, China, Singapore, Germany, Indonesia, Israel, and South Africa.

 

Aircraft on Ground Specialist and More

    “We buy used aircraft and new and used aircraft parts and engines and redistribute them throughout the world to airlines and maintenance and repair organizations (MROs),” explains Polyi. “So if an airline is in an AOG situation, we can supply the needed part and get it to them quickly.”

     Magellan employees staff their AOG service phone line 24/7 365 days a year.

     “I received a phone call one Sunday morning from a Canadian airline customer of ours,” Polyi recalls. “They‘d found a defective part on an overnight check of an aircraft scheduled for a flight later that day. We had the part they needed but overnight courier service wasn’t an option, so I booked a flight to Montreal and hand carried the part to the maintenance manager. Mechanics installed it while passengers boarded the aircraft. The flight departed safely and on schedule.”

     Closer to home, the company also supports many of the NASCAR teams’ flight operations.

     Polyi describes, “On a regular basis, one of their maintenance crew will drive to our Charlotte location and pick up a part or we’ll hand deliver a part they need for their Embraer Brasilia turboprops or Bombardier CRJ regional jets so they can fly to their next race.”

     But AOG services are only a part of what Magellan offers. Core services include parts trading and sales as well as engine and aircraft sales and leasing; they are also involved in consignments, joint ventures, asset management and can provide technical advisory services.

     Magellan clients range from airlines like US Airways, Delta, Lufthansa, Air France, American Airlines, Aerolineas Argentinas, British Airways, DHL and Continental to MROs and OEMs (original equipment manufacturers) like Standard Aero, MTU, SR Technics, Pratt & Whitney, Honeywell, GE, Boeing, EADS and Bombardier. Leasing and financial institutions like GECAS and CIT Group are also clients.

     “A few years back we won an exceptional consignment contract over several companies that were significantly larger than us,” Polyi touts. “That consignment agreement made us the exclusive remarketing company for Bombardier’s surplus aircraft. Part of the reason we won the contract was the 20-plus year history we had with Bombardier.

     “They knew that we would do a very good job of remarketing and liquidating those assets for them in many different ways because we had the logistics infrastructure to handle a dozen aircraft or more as well as the financial resources to manage a large inventory and the global marketing team to support our customers.

     “The most important thing in our industry is relationships. Many of the acquisitions that we make, whether a purchase, lease or consignment, are done through those close relationships we’ve built over the years.”

     And those relationships have been built over not just years, but decades. Magellan’s current management team has an average of 20 years’ aviation experience and has managed the sale or lease of over $2 billion worth of aviation assets.

 

Taking Off

     The company’s roots date back over 30 years to New York where Bobby Fessler, who traded in a range of products—none of them aircraft parts—found some JT9D fan blades in an auction. Their resale was profitable and so Fessler acquired additional aircraft parts, eventually founding Air Ground Equipment Sales (AGES) in 1979.

     When AGES was purchased by Volvo Group in 2000, Fessler and other AGES senior management and owners, including Polyi, began Magellan Aviation Group, with engine leasing being a core business.

     “Airlines normally have to remove their engines between 5,000 and 10,000 hours, depending on the engine type and their operating environment,” explains Polyi, who started his career with Pratt & Whitney Canada and has 30 years of experience in commercial engine sales, leasing and management.

     “Airlines can forecast for those removals but they can’t plan for everything. Something like bird ingestion or premature engine failure—an airline can’t plan for that,” he says. “That’s where we come in. We can loan an airline a short-term spare for unplanned engine removals.”

     Typically, Magellan engine leases run three to six months, but a current industry trend is also spurring growth in the engine leasing business, lengthening lease terms.

     “Airlines are moving away from owning all their assets,” according to Polyi. “Some airlines may lease as much as 50 percent of their assets. We now have engines on lease for up to eight years. Leasing engines long-term saves capital expenditure for the airline.”

     The company had a modest inventory of only four engines when they started, but now boasts more than 100 engines in their pool, ranging in value from $1 million up to $10 million each depending on engine type and condition. They are looking to continue growing their engine pool with newer high-tech engines in the next three to four years.

     “We have a wide range of engines from the 50-passenger turbo props like the ATR and the Dash 8s up to the Triple 7 (Boeing 777),” explains Polyi. “Engine sales and leasing makes up about one third of our business.”

 

Destination: CLT

     Magellan’s focus is on the commercial airline market which covers large commercial aircraft, both narrow and wide body, regional jets and regional turbo props.

     “We’re the leading company in the regional side,” Polyi says. “We had limited funds when we started the company so we weren’t able to buy $10 million or $20 million airplanes. We bought in the $1 million to $3 million range and those were the regional turbo props.

     “We’ll continue to stay pretty focused on a few aircraft and engine types and just be the best in the industry for that segment.”

     The company is primed for growth. In fact, growth has been a repeating theme throughout Magellan’s history and was a driving force in the company’s relocation to Charlotte in 2007.

     “We were outgrowing our facility in Boca Raton,” Polyi says, “and we were looking for a place with a more reasonable cost of living and cost of warehousing. Our first thought was to move to northern Florida, but we didn’t limit the search to just there. We also considered Atlanta, Savannah, Raleigh and Charlotte. After doing research on all those areas, Charlotte came up as the city with the most benefits for a growing company.

     “Our cost of warehousing went from $15 per square foot to $4. The cost of a new home was 50 percent less than in southern Florida. Here, there are professional sports teams, a great uptown, and at the same time, mountains a couple of hours to the west and the ocean a few hours to the east. Charlotte had all the big city advantages without the big city disadvantages. I thought Charlotte would be a good place to continue growing, but it has exceeded all my expectations.”

     Magellan’s Charlotte facility serves their customers in North and South America. The Shannon facility in Ireland handles clients in Europe and Africa, but with over 500 customers in 75 countries, Magellan is expanding its presence in other key regions. Starting in 2006, the company has opened satellite offices in Peru, Germany, China, Singapore, Indonesia and Israel.

     “We’ve really covered the Asian Pacific and Australian regions,” Polyi says. “We’re looking to the Middle East and Africa next. While China is the fastest growing country by number of aircraft, Africa is going to be one of the fastest growing aviation markets percentage-wise. The African economy is expanding so fleets there could double or triple in the near future. It’s also a good market for the used aircraft and engines that we offer.”

 

Strategic Copilot

     In 2011, Magellan’s goal of growth led them to search for a long-term strategic partner.

     “We’ve grown this business organically,” Polyi explains. “We grew it on our personal savings and on our strong business relationships and the transactions and acquisitions we were able to make, and we’ve been successful. In 2007, we were a $25 million company. We finished 2012 at $110 million. I attribute that to the team we have here. They’re the best team in the industry.

     “But once you get up to the $100 million level, it’s hard to reach the $200 million to $300 million level organically. That’s why, in June of 2012, we sold 50 percent of the company to Marubeni Corporation. Marubeni is a major Japanese trading company that dates back to the time of the Samurai. They’re one of the largest ‘green’ companies in the world and they’re widely diversified with divisions in industries from energy to food products to chemicals and forest products. We joined their transportation division.

     “We selected Marubeni out of all potential partners because we thought they offered the best advantages, but they also selected us. We fit a need in their business. Their aerospace division had joint ventures with airlines, aircraft manufacturers, engine manufacturers and even MROs. What they didn’t have was an aftermarket supplier. Magellan fit perfectly into that opening in their organization.

     Marubeni Corporation’s emphasis on environmental business also complements Magellan’s business philosophy. Magellan is a founding member of AFRA (Aircraft Fleet Recycling Association), an international association promoting efficient, environmentally sound and revenue-producing methods for aircraft disposal. AFRA members include every sector of the aviation industry and their goal is to recycle close to 100 percent of the materials from current end-of-life aircraft and the estimated 12,000 aircraft expected to retire within the next 20 years.

     “Our sweet spot is purchasing aircraft that are between 10 to 15 years old,” Polyi states. “We typically expect to be able to remarket those parts for another 10 to 15 years. And we stay focused on new technology and current production aircraft and engines. This gives us what we call a ‘long tail’ on the cycle to sell those assets.”

     Many retired aircraft are stored at desert locations in the U.S. Southwest. The dry climate of these “aircraft boneyards” prevents corrosion and preserves the planes. Disassembly of the aircraft also often takes place in desert locations like Tucson, Ariz.; Marana, Ariz. and Victorville, Calif. In the case of newer aircraft, purchasers can often pick and choose where the airline will deliver the plane.

     “We recently bought two ex-Jetlite 737-700s and had them flown from India to California for disassembly. We also have a line of CRJs being disassembled in Tucson and just completed disassembly of several ATR72s in Myrtle Beach,” says Polyi. “Once the aircraft were torn down, we trucked the 1,000 to 1,500 parts—engines, landing gears, etc.—here to our warehouse for receiving and repair management prior to sale or lease.”

     Magellan expanded their Charlotte warehouse last year and the generous space houses everything from nuts and bolts to aircraft engines.

     “This is a growing industry,” says Polyi. “We’ve grown by providing comprehensive support and innovative solutions to our clients. Our industry experience, client relationships and new partnership with Marubeni Corporation sets us up for continued steady growth and a long and prosperous future.”

 

Barbara Fagan is a Greater Charlotte Biz freelance writer.
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