Mercury Air Group, Inc. History

Address:

5456 McConnell Avenue
Los Angeles, California 90066
U.S.A.

Telephone: (310) 827-2737
Fax: (310) 827-5510

Website: www.mercuryairgroup.com

Public Company
Incorporated: 1956
Employees: 1,152
Sales: $225 million (1996)
Stock Exchanges: American
SICs: 4581 Air Freight and Ground Handling

Company Perspectives:

Our team of world class employees gives Mercury Air Group, Inc. the competitive edge in providing petroleum products, cargo and aviation services around the globe. Mercury Air Group was founded in 1956 by three original members of the legendary AVG Flying Tigers, whose focus on teamwork continues to guide our Company's core mission of service to the aviation industry today. Mercury Air Group's greatest asset is its people. By working together, we guarantee our customers an exceptional level of service and, in turn, we are able to build lasting values for our shareholders.

Company History:

Mercury Air Group, Inc. is one of the fastest-growing companies in the air services industry. The firm provides fuel, fueling, and maintenance services, and air cargo services to airline companies and airports around the globe, and aviation services to the United States Government. In 1996, total revenues grew by over 23 percent, and projections for the financial future of the company seem just as promising. Mercury Air Group's international aviation fuel services business provides fuel to more than 100 airlines throughout the world, and prides itself on being the largest independent supplier of fuel and fueling services at Los Angeles International Airport (LAX). Mercury Air Cargo, one of the company's subsidiaries, provides air cargo services for many of the largest airlines in the world, and handles such diverse items as perishable food and flowers to 50-ton generators. Maytag Aircraft Corporation, the other primary subsidiary of the company, provides aviation fuel storage, transportation, refueling and maintenance services to U.S. military bases throughout the world. Due to its reputation as one of the most trustworthy and reliable aviation services contractors, Maytag Aircraft had been entrusted to provide fueling services at the Blue Angels flying team base in Pensacola, Florida, and the Top Gun fighter-pilot training base in Fallon, Nevada.

Early History

Mercury Air Group, Inc. was founded by three of the original pilots of the "Flying Tigers," the legendary American Volunteer Group that fought against the Japanese during World War II. Even before the Japanese attack on Pearl Harbor in December 1941, and America's formal declaration of war against Japan, a group of adventurous pilots under the leadership of Claire Chennault formed a volunteer group to defend China from the Japanese. The "Flying Tigers," as the American Volunteer Group became known, was renowned for its fearlessness and courage under fire. The Flying Tigers fought the Japanese over an extensive front ranging from Rangoon, Burma, to Kweilin, China, and flew dangerous missions deep into enemy territory. It has been documented that the Flying Tigers actually prevented an entire Japanese division from invading a Chinese city in the southwest region of the country. As the war continued, the Flying Tigers heaped one victory upon another until, when World War II came to a close, the American group of volunteers had assured a place for themselves in the history of aerial combat.

After the war had ended, 12 members of the Flying Tigers pooled their resources and established the Flying Tigers Airline. This airline, mostly transporting cargo and passengers to remote destinations in the South Pacific and Asia, was immediately successful due to its association with the legendary World War II fighter pilot group. As the airline grew, with more and more passengers, and more cargo routes to Asia, the company established itself as a genuine competitor to the other nascent commercial airline companies such as Pan Am and Trans World Airlines.

Throughout the late 1940s and early 1950s, Flying Tigers Airline continued to focus on the transportation of both passengers and cargo. As the airline industry grew, however, a few of the men associated with the airline recognized that aviation support services, such as providing fuel and fueling services for commercial aircraft, could lead to huge revenues. Three of these men, Robert J. "Catfish" Raine, Robert P. Hedman, and Thomas C. Haywood, Jr., proposed the idea that the airline expand its operations to include aviation services. Unfortunately, the men were turned down by their colleagues.

Undeterred by the refusal of their World War II chums, Raine, Hedman, and Haywood broke away from Flying Tigers Airline and formed their own company, Mercury Services, in 1956. With an initial investment of $80,000, and a fleet of 4 fuel trucks and one maintenance truck, the three men launched their business by attracting larger airlines to contract their services. By the end of the decade, Mercury Services had contracted a number of the airlines flying back and forth to Asia, as well as a growing client list of domestic airlines, to provide fueling and maintenance services. As Mercury Services grew, it garnered contracts for ground handling services, such as baggage loading and unloading, for Los Angeles International Airport. By the end of the decade, the company was growing slowly but steadily, and revenues were beginning to increase.

For the entire decade of the 1960s, Mercury Services provided fuel, fueling, and maintenance services, and ground handling services for a growing list of client airlines, mostly in the western region of the United States, particularly California. Not interested in expanding the company's operations, the three owners were content to procure contracts for Mercury's firmly established core businesses. Not surprisingly, the company continued to increase its revenues. By 1969, Mercury Services reported an annual sales volume of just under $2 million.

Transition and Expansion

Mercury Services was purchased in 1972 for approximately $750,000 by Seymour Kahn, the owner of an electrical manufacturing business on the West Coast. Kahn, a graduate of City College of New York and 47 years old at the time of the acquisition, recognized the need for expanding Mercury's operations to meet the burgeoning need of increased commercial and cargo aviation traffic. Kahn assumed control of the company from the three famous Flying Tigers as quickly as he could, and immediately initiated a comprehensive strategy to cut costs, increase profitability, eliminate redundant aviation services, and meet the needs of domestic and international commercial airline companies.

One of the most important moves Kahn made was to refocus the company's operations. He discontinued the company's contracts to clean domestic airline passenger cabins, and reduced Mercury's baggage handling services at Los Angeles International Airport. Instead, Kahn arranged for Mercury to concentrate on aircraft refueling at the airport, and many others along the coast of California. In addition, Kahn implemented Mercury's cargo handling operations, flying cargo from Asia to Los Angeles, and then arranging for its transportation by ship, rail, or air to the American East Coast, Europe, and South America. By the end of the 1970s, Mercury Services had changed its name to Mercury Air Group, Inc., and had increased its revenues to approximately $50 million annually.

During the 1980s, Kahn was diligent and unwavering in pursuing his strategy to build Mercury into one of the preeminent aviation service companies in the United States. Under Kahn's direction, Mercury Air Group was one of the first firms in the country to establish and operate a mechanized cargo-handling operation at LAX. Kahn also significantly expanded the company's aviation fuel services, especially at LAX where it developed into the largest independent provider of fuel and fueling services during the mid-1980s. By employing the latest computer technology, Mercury Air Group was able to monitor the flow of oil around the globe in order to get the best price per barrel on all petroleum products. This innovative system enabled the company to achieve an extremely high volume of sales, and ultimately resulted in partnerships with major oil companies and independent refiners. As a result, contracts for fuel and fueling services with the major airlines came fast and furious, including such well-known commercial and cargo airline companies as American, Aeroflot, Continental, Delta, Egypt Air, El Al Israel, Avianca, Federal Express, Burlington Air Express, DHL Airways, and many more.

Yet the most important decision Kahn made during the 1980s was to purchase Maytag Aircraft Corporation. With headquarters in Colorado Springs, Colorado, Maytag Aircraft was one of the premier contractors to the United States government and its military airbases throughout the world. Maytag Aircraft provided aviation fuel storage, transport, refueling, and maintenance services to American military bases in Okinawa, Colorado, and the Island of Crete in the Mediterranean, just to name a few. Besides providing support services to the Blue Angels flying team and the Air Force's Top Gun training facility, Maytag also provided ground handling services, air terminal operations, and base maintenance at military facilities both domestic and foreign. Having never defaulted on a government contract, the company had become widely known as one of the most reliable firms in the aviation services industry. With the acquisition of Maytag, and the continued expansion of its aviation services throughout the United States, Mercury Air Group reached approximately $70 million in revenue by the end of fiscal 1989.

The 1990s and Beyond

In the early 1990s, the company formed two subsidiaries, Mercury Air Cargo, Inc., which incorporated the wide variety of air cargo services it was already providing to major airlines around the world, and Hermes Aviation, Inc., an air cargo booking agency. As soon as it had been created and formally established operations, Mercury Air Cargo began to handle enormous amounts of domestic and international cargo for airlines by arranging space brokerage and logistical services for all types of air shipments, from flowers to 50-ton generators. Its list of clients soon included British Airways, Delta, Finnair, Virgin Atlantic, South African Airways, Swissair, Japan Airlines, Iberia Airlines, United, Aeromexico, and a host of other domestic and international carriers.

Perhaps even more importantly, however, was the formation of Hermes Aviation, Inc., the company's general cargo sales and marketing agent. International airline companies that only scheduled a few flights per week into Los Angeles soon discovered that, since they were already purchasing fuel from Mercury, they could reduce their operating expenses even more if they contracted Hermes Aviation to load, unload, and warehouse their cargo. Hermes bought large blocks of cargo space from the airline companies and then resold it to freight forwarders at a rate less than normally paid. This kind of outsourcing helped major airlines to significantly reduce their costs. In addition, the logistics experts at Hermes Aviation were in the forefront of arranging innovative sea-air shipments to Europe and South America. Cargo arriving by sea container at the port of Los Angeles was taken to the airport and repacked for cargo planes destined for Europe and South America. The greater availability of cargo space from California enabled Hermes to charge lower rates for shippers that did not require immediate delivery by air. All of this activity helped Kahn to achieve his goal of $100 million in revenues by the end of fiscal 1994.

During the early and mid-1990s, the company also expanded into what was dubbed "fixed air-base operation centers." This division of Mercury provided a full range of services to passenger and cargo airlines, including fuel sales, full ground support with heavy maintenance done on planes such as Boeing's 747-400s, hangar rentals, aircraft parking and tie down, catering, and weather reporting. Located near an airport's principal runways, the company soon established fixed air-base operation centers at Los Angeles International, Dallas, Atlanta, Ontario, Reno, and Santa Barbara airports.

In 1995, Mercury Air Group was included in the annual ranking by Forbes as one of America's top 200 small firms. Based on a five-year growth rate, sales, market share, and profitability, Mercury Air Group was ranked as the 115th best small company and the only aviation services firm included in the listing. The ranking was well justified. In 1996, Mercury Air Group reported total sales of $225 million, a 23 percent increase over the previous year.

By the end of fiscal 1996, the company was providing aviation fuel services to over 100 airlines around the globe, and had become the largest independent fuel and fueling services provider at Los Angeles International Airport. The company's Mercury Air Cargo subsidiary acquired two air cargo firms to increase its presence at airports in Montreal and Toronto, Canada, as well as at airports in the Miami, Florida area. At the same time, the company received approval to build a new 170,000-square-foot warehouse at LAX, which would give Mercury Air the largest air cargo capacity at the airport.

In 1996, Maytag Aircraft Corporation won a major contract with Yokota Air Base in Japan to expand its military housing maintenance. The company was also involved in refueling operations at NSA Souda Bay, Crete, which provided military aircraft the ability to fly missions over Bosnia and northern Iraq. The company's fixed base air centers continued to expand their services, with major ground handling contracts awarded to the Reno, Nevada fixed base center, and record-breaking fuel sales at LAX. In August 1996, Mercury Air Group purchased the assets of five fixed base operations centers from Raytheon Aircraft Services, Inc. for $8.25 million, and came closer to its goal of creating a chain of fixed base centers across the United States.

Mercury Air Group is still headed by Seymour Kahn, whose goal is to double the company's sales figure to over $400 million by the end of the decade. As the demand for outsourcing airline ground services continues to increase at airports around the world, Kahn's goal is not unrealistic.

Principal Subsidiaries: Mercury Air Cargo, Inc.; Hermes Aviation, Inc.; Maytag Aircraft Corporation; Excel Cargo, Inc.

Mercury Air Group, Inc. History

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