EDO Corporation

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EDO Corporation

60 East 42nd Street, Suite 5010
New York, New York 10165
U.S.A.
Telephone: (212) 716-2000
Fax: (212) 716-2050
Web site: http://www.edocorp.com

Public Company
Incorporated: 1925 as Edo Aircraft Corp.
Employees: 1,500
Sales: $260 million (2000)
Stock Exchanges: New York
Ticker Symbol: EDO
NAIC: 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

Long Island-based EDO Corporation, with corporate offices in Manhattan, manufactures an array of highly engineered products, mostly catering to defense customers, which account for approximately 70 percent of all sales. EDO is organized into three segments: Defense, Communications and Space Products, and Engineered Materials. Defense products include bomb racks, electronic surveillance and jamming systems, underwater communication systems, sonar sensors, and helicopter-towed minesweepers. EDO’s Communications and Space products include antenna products used on military as well as private aircraft, and sensor and communication products used by NASA and commercial satellites. EDO’s Engineered Products consist of electro-ceramic products and fiber composite structural products.

EDO Aircraft Corporation Founded in 1925

EDO’s founder was Earl Dodge Osborn, a little-remembered aviation pioneer. Born in 1893, Osborn graduated from Princeton University in 1915. Before America entered World War I, he traveled to Europe to be part of the American Ambulance and Commission for Relief. He was wounded at the Battle of Verdun in 1917 and awarded the Croix de Guerre before subsequently enlisting in the 78th Division of the American Expeditionary Force. After the war Osborn learned to fly and became a passionate supporter of aviation, in particular the seaplane. He went to work for the Aeromarine Airways Company, a pioneering effort to transport passengers via seaplanes. Osborn was also gaining a reputation as a writer, becoming editor and publisher (and ultimately owner) of Aviation magazine from 1924 to 1929. In 1925, at the age of 32, he decided to become involved in the manufacture of low-powered seaplanes, establishing EDO Aircraft Corp., the name derived from the initials of his name. He set up shop with 14 employees on the shore of Flushing Bay in a small building in College Point, a small town located on the outskirts of New York City. Years later, La Guardia Airport would be built across the water.

Shortly after the Wright Brothers launched the aviation industry, inventors like the Frenchman Henri Fabre and American Glenn Curtiss developed planes that could take off and land on water, which made any sizeable body of water a potential airstrip. Early seaplanes relied on wooden floats, or pontoons, which were not only heavy but were susceptible to water damage after long-term use. Osborn opted to construct his floats out of aluminum, which was lightweight, strong, and durable. Although his Malolo single engine plane was the first to employ aluminum floats in 1926, Osborn quickly realized that there was no demand for such a low-powered seaplane. With seaplanes opening up remote locations around the world to aviation, however, he recognized that there was a sizeable market for his aluminum floats. EDO’s first production floats were designed for the popular WACO 9 biplane, which lacked the power to lift out of the water using wooden floats. Subsequently, EDO improved its floats by fluting the bottoms, an innovation that greatly increased a plane’s ability to lift out of the water and made the reputation of the new company. EDO’s aluminum floats soon became the equipment of choice for all seaplanes, which, because of the lightweight floats, improved performance and gained even greater usage. The company’s work force grew to 100 by the end of the 1920s, when EDO produced eight different models of floats that were used on 25 different makes of airplanes. EDO floats would play an important role in many of the early speed and endurance records, as well as feats of exploration. In 1930, the first non-stop flight from New York to Bermuda was accomplished by a seaplane fitted with EDO floats. In 1933, Admiral Richard Byrd explored the South Pole in a Curtiss Condor biplane using EDO’s floats. Lincoln Ellsworth in 1935 flew similar flights over the North Pole in a Northrop Gamms equipped with EDO aluminum floats. Although EDO had competition in the manufacture of floats, it had no true rivals, finishing the 1930s as the world’s leading maker of this product.

EDO Becomes a Defense Contractor

It was World War II and the need to put a large number of planes on floats that would lead to the U.S. military becoming EDO’s major customer. Even before the attack on Pearl Harbor that precipitated the entry of the United States into the conflict, EDO was geared up for the war effort. The company, with its beefed-up work force of more than 1,000, had already begun the task of fitting a wide variety of military aircraft, from fighters to huge cargo planes, with aluminum floats. The most common usage of EDO floats was on the Kingfisher aircraft, which was carried by virtually every large ship in the U.S. Navy and was launched by catapults to conduct scouting and rescue missions. The Kingfishers were especially effective at picking up downed aviators, saving countless lives throughout the war.

During World War II, EDO also performed sheet metal work on a subcontract basis for airframe manufacturers. This experience led the company to return to airplane manufacture when the war was over. EDO designed and built a seaplane to replace the Kingfisher, and although it was a great improvement, the military only bought 10 aircraft, due to the emergence of the helicopter, which now took over rescue operations for the military. Moreover, the rise of the passenger airline industry and the building of airports caused the demand for seaplanes to fall, and consequently the need for EDO floats declined. The company was forced to contract its work, cutting the number of its employees from a wartime high of 2,400 to just 400. Osborn also became less active in the running of EDO, turning over much of the day-to-day operations to executives he hired away from Bendix.

Postwar Diversification

Unable to rely solely on the manufacture of aluminum floats, EDO began to diversify after the war. Its sheet metal operation built aluminum step stools as well as doors for blueprint machines. Despite its production of these commercial products, EDO nevertheless became increasingly dependent on government contracts, most of which at this time were connected to the company’s sheet metal capabilities. It manufactured a line of aluminum boats, including the A-3 rescue boat that could be dropped from a B-29 bomber and was large enough to accommodate 15 people, a 32-foot cargo launch, and an 18-foot arctic skiff. EDO also used its sheet metal expertise to produce collapsible, lockable crates to hold the possessions of soldiers shipping overseas. EDO expanded into a new area, electronics, but focused on water technology, where the company already had a solid reputation. It began to design and manufacture underwater detecting systems and equipment, becoming heavily involved in the development of SONAR (SOund, NAvigation, and Ranging).

In recognition of its changing business, EDO Aircraft Corp. restructured itself and changed its name to EDO Corporation in 1947. Although the company continued to produce aluminum floats, its new electronics division became increasingly more important to EDO’s future. During the 1950s, the company developed 36 sonar systems and became a leader in the use of sonar for ocean depth sounding. EDO also developed LOR AN (LOng RAnge Navigation), which superceded older sonar systems and became standard equipment for navies around the world. The company then modified LORAN for use in the air, and the major airlines of the world adopted the EDO system. Meanwhile, EDO continued to make aluminum floats, introducing its 2000 series for use with the small Piper Super Cub private airplane. Fitted with EDO floats, the Super Cub was able to travel to any remote part of the globe that featured a river or lake. Later in the 1950s EDO floats also became available for use on the popular Cessna 180.

In 1953, Osborn decided to retire from the company he founded, although he remained a director. A man of varied interests, he became heavily involved in the leadership of the Institute for International Order, which would become later known as the World Policy Institute, an organization devoted to using public education to promote peace through the offices of the United Nations. In 1956, EDO’s management took the company public and began to expand. That same year, EDO acquired King Laboratory, Inc., which would eventually become EDO Western Corp. In 1958, EDO acquired a Utah ceramic manufacturing company in order to secure a supply of ceramic transducers needed in its sonar equipment. It also created EDO Electro-Ceramic Products, which would become a major supplier to the U.S. Navy. With so much of its business now devoted to defense, EDO created the EDO Commercial Corporation to market its aluminum floats and aircraft loran systems. The company added to this division with the 1969 acquisition of Fiber Science, Inc., which produced composite water and waste tanks for commercial airliners.

During the late 1950s and 1960s, EDO became more heavily involved in general avionics, instrumentation, and flight control. Serving as subcontractor for Grumman, the company eventually played an important part in the 1969 Apollo moon landing. EDO probes were used to indicate when the Lunar Excursion Module had touched down, in effect becoming the first part of the craft to reach the moon.

Company Perspectives:

EDO Corporation is a supplier of highly engineered products for governments and industry worldwide. Our advanced electronic, electromechanical, and information systems and engineered materials are products which are critical to the mission success of our customers.

Defense Contributions: 1970s–80s

It was not until the 1970s that EDO began to win major defense contracts in the United States as well as with NATO countries. A major turning point came in 1971 when the U.S. Navy decided to replace mines weeping ships with helicopters. Using its sonar expertise, EDO developed the MK105 helicopter-towed mine detection system, which would be used for the first time in 1973 in the clearing of Vietnam’s Haiphong Harbor and become standard equipment ever since. EDO’s “Towed Array” and “Side Scan” sonars were also applied to commercial underwater drilling and mining operations. In addition, EDO Electro-Ceramics Products began to find commercial uses for its piezoelectric technology, which converted acoustic energy to electrical energy and vice versa, and was important in underwater military applications. EDO now applied it to medical imaging products and fuel level sensors for aircraft. In the 1980s, piezoelectric materials would be used in such products as camera actuators and fish finders, then in the 1990s find applications in automotive sensors, pest control devices, and even sports equipment.

Although a downturn in the single-engine aircraft business led to EDO taking a $9 million writeoff in 1982 and a $1.7 million loss for the year, when the company unloaded certain electronics operations, EDO greatly benefited from the military buildup of the early 1980s. EDO’s finances were helped in large part by upfront payments on a $170 million contract to build ejection release systems, used for either bombs or fuel tanks, for the Tornado fighter aircraft. The company was able to pare its long-term debt to less than $5 million and buy back almost a quarter of its stock, which it distributed as a dividend to shareholders. Although EDO was now a cash-rich company, and it talked about using the money to make select acquisitions, it spent just $5 million to pick up three small companies. By the summer of 1985, EDO, which had generated sales of just $123 million the year before, was sitting on $90 million in cash, and investors were beginning to question management’s long-term vision.

In 1986, EDO made the largest acquisition in its history as a company, paying $13.5 million in cash to acquire Barnes Engineering Co., a manufacturer of electronic parts; however, with Barnes’ stock price lagging well behind the value of EDO’s assets, the move did little to repair a growing rift between the company and its investors. Concerning the management team, an independent analyst, Bob Ince, was quoted in a July 1987 Crain’s New York Business article as saying, “These guys have been there forever. They strike me as very sleepy.” In fact, Osborn, who was now well into his 90s, still attended occasional board meetings. The average age of the board, not counting Osborn, was 67. The company, despite its quality products, was also criticized for not aggressively promoting itself in Washington. It has also allowed itself to become a prime candidate for a hostile takeover, and many of its shareholders began to openly desire such a development.

In December 1988 Osborn died at the age of 95. With the end of the Cold War and declining defense appropriations, the company that bore his name was now forced to transition into a new era. With revenues falling in the early 1990s, it created EDO Sports, employing its expertise in the manufacture of golf club driver heads as well as high-tech carbon-based bicycle spokes for racers. EDO also became involved in the natural gas vehicle business, acquiring Automotive Natural Gas Inc., a leading supplier of natural gas refueling stations. In November 1993, the company finally moved to shake up management, however incrementally. Its 82-year-old chairman, William R. Ryan, stepped down after 21 years, replaced by 68-year-old Gerald Albert, who stayed on as CEO. Frank A. Fariello, 59, was named president. EDO also changed its corporate by-laws to impose an age limit of 70 for officers and 73 for directors, which would result in seven of the 12 board members retiring within the next three years.

1990s and Beyond

EDO’s attempts at diversification did not fare well, resulting in losses of $17 million in 1993 and $24 million in 1994. Fariello took over as CEO and began the process of unloading unprofitable ventures and cutting jobs, returning the company’s focus to the defense business. Instead of directly competing with large defense contractors, however, he sought to become a supplier to such companies as Lockheed Martin and Boeing. EDO returned to profitability in 1995 and reached $7.2 million in earnings by 1998. Fariello then began to build the business by making strategic acquisitions, picking up Technology Services Group for $4.2 million, Specialty Plastics, Inc. for $5.5 million, Zenix Products Inc. for $700,000, and M Technologies Inc. for $4.5 million. Fariello also sold off some assets that no longer fit in with EDO, including Barnes Engineering Company.

In 2000, EDO made its most significant transaction with the merger of AIL Technologies, another Long Island defense company. The origins of AIL reached back to World War II, when the company was created to manufacture a submarine detection system. Although AIL would increase EDO’s annual revenues to over $200 million, it would also add some $35 million in debt. In the long-term, the acquisition would broaden EDO’s product line and strengthen its position as a supplier to major defense contractors. EDO also added AIL’s prestigious chairman—Neil Armstrong, the first man to walk on the moon—to its fold. In November 2000, he succeeded Fariello as EDO’s chairman.

Key Dates:

1925:: Earl Dodge Osborn establishes EDO Aircraft Corp.
1926:: EDO introduces first aluminum floats for airplanes.
1933:: EDO floats are used by Admiral Byrd in Antarctic exploration.
1947:: The company’s name is changed to EDO Corp.
1953:: Osborn retires.
1956:: The company goes public.
1969:: EDO sensors record Apollo touchdown on moon.
1973:: EDO helicopter-towed mines weeping system used in Vietnam.
1988:: Osborn dies at the age of 95.
2000:: AIL Technologies acquired; Neil Armstrong is named chairman.

Armstrong and EDO entered 2001 expecting to cope with an environment of shrinking defense budgets. The September 11 terrorist attacks on the World Trade Center and the Pentagon, however, promised to change business conditions. EDO’s stock had already been rising during the course of the year, following the company’s successful integration of AIL, and rumors of a possible takeover bid. After September 11, EDO stock jumped an additional 57 percent, reaching $31 by early October. Only days after the attacks, EDO filed for a $4 million secondary offering of stock to fund further acquisitions. With America’s “war on terror” promising to be of uncertain duration, there was every expectation that EDO, repositioned in the defense arena, would prosper in the foreseeable future.