Kaman Corp. President and CEO Neal Keating is trying to take a proactive approach to battle the potential economic and health headwinds from the coronavirus.
Earlier this week, the Bloomfield-based helicopter and engineered-parts maker made public that Keating is taking a voluntary 20% salary pay cut starting April 1, and that the company is tapping a $200-million credit line in response to the pandemic, which is causing major disruption in the aerospace industry and global economy.
But unlike many other U.S. companies, Kaman isn’t reducing headcount yet, or cutting other employees’ pay. Instead, the two moves represent both proactive and symbolic gestures as Kaman, and the rest of the country, wait to see the full economic impact from the rapidly spreading COVID-19 virus.
“The steps we have been and are taking are forward-looking to be prepared for any impact on us, rather than a reaction to any impact we’ve seen so far,” Keating said in an interview Thursday afternoon. ”Obviously, a lot of airplanes are parked. But I don’t know if this will be a quick recovery as we had after 9/11, or whether it will be a slower recovery as we saw coming out of the 2008 financial crisis. We will be prepared to deal with either one.”
Keating, who made a base salary of $1 million in 2019, said the $200,000 pay cut was mainly a gesture to lead by example and demonstrate that “everyone is in this together.” (When including incentives and other payouts, Keating’s total compensation was $3.9 million last year, according to U.S. Securities and Exchange Commission filings.)
Kaman is drawing on $200 million of an $800-million credit line to ensure it has enough liquidity if this becomes a long and deep downturn.
The company now has $270 million in liquidity to get through it.
“It’s a very fluid situation,” Keating said. “We are actually meeting as a senior leadership team twice a week to go through a set agenda of items to cover operational performance of the company.”
Kaman’s C-suite talks about topics that include the company’s current financial picture, HR and IT issues, and how many people are working in its manufacturing plants in the U.S. and abroad, and steps that are being taken to ensure they are kept clean and safe, Keating said.
So far, Kaman has kept open all of its more than a dozen U.S. and international plants, including in Middletown and Bloomfield, which are deemed essential business services.
Last week, the Defense Department declared that defense contractors, are “critical infrastructure” to national security, a designation that comes with a requirement to maintain a consistent, normal work schedule.
They’ve changed operating procedures on shop floors to ensure they are cleaned more regularly and provided more personal protective equipment to workers. The company’s cafeterias remain open but they’ve done away with self-service stations.
About 700 or so Kaman employees are working from home right now, Keating said. The company employed 2,935 peopleworldwide at the end of last year.
There are no plans right now to implement significant cuts to capital expenditures this year, and Keating said it’s important the company maintain its $12 million or so investment in research and development, which he called the “lifeblood” of the company.
Other more discretionary spending, like a plan to repave its Bloomfield headquarters’ parking lot, could be delayed, he said.
Broader portfolio
The coronavirus crisis comes at a time when Kaman has been transforming its business. The company has made two big moves in the last year, including selling off its distribution business for $700 million and recently acquiring California-based Bal Seal Engineering for $330 million, broadening its portfolio.
Its primary business is still aerospace, but it serves both the commercial and defense markets with a mix of traditional airframe and self-lubricating bearings and flexible self-drive systems as well as engine aftermarket components.
Its customers include Airbus, Bombardier, Embraer and local giants like Pratt & Whitney and Sikorsky.
It also serves industrial and medical device customers, including making miniature bearings for implantable heart and insulin pumps.
Kaman is among the Greater Hartford publicly traded companies whose stock prices have taken a beating in recent months as concerns over the spread of coronavirus haunt Wall Street, the nation and world.
The 14 publicly traded companies headquartered or with major operations in Greater Hartford collectively lost 41% of their stock value over a nearly two-month period starting Jan. 21, which was the date of the first U.S. confirmed coronavirus case, a Hartford Business Journal analysis of stock prices found.
Kaman’s stock price during that period fell 45% to around $36. Its stock price on Thursday closed at $40.68.
Keating said there isn’t much Kaman can do about its stock price right now since the entire aerospace industry is getting pummeled by investors.
Despite recent uncertainty, Kaman is coming off a strong 2019, when it nearly quadrupled its annual profits, reporting net income of $210 million, or $7.47 per diluted share, vs. about $54 million, or $1.92 per diluted share, in 2018.
In February, however, Kaman warned that it anticipated aerospace headwinds this year, but largely due to the grounding of Boeing’s 737 Max, which will cost the company an estimated $12 million in revenue.
Keating said Boeing recently announced it may restart production in May or June, which would be some good news for the aerospace sector.
In terms of estimated financial impact from coronavirus there are no clear indications yet, Keating said. In February, the company said the health emergency hadn’t affected its operations and Kaman hasn’t changed its 2020 outlook.
But Keating is also looking at the situation realistically.
“I think it would be surprising for any company to say they aren’t going to have some kind of impact from this,” Keating said. “It is just too early to give a meaningful update on impact for 2020.”
