Walbar: An engine of growth and operational efficiency
Walbar is a long-established manufacturing and engineering company, founded at Tempe, Arizona in 1951. Though it’s not a household name, it is well known amongst engine manufacturers worldwide: Walbar’s components can be found in the hot section of turbine engines around the world. Its main products include blades, vanes and related components used in aircraft and industrial turbine engines. The company was acquired in 1986 by Coltec Industries, and later, in 1999 by Goodrich. In the following year, they started a plan to relocate their labor-intensive manufacturing from several US locations to the port city of Guaymas in Sonora, Mexico. Later, in 2012, Goodrich was taken over by United Technologies Aerospace Systems (UTAS).
By 2016, Walbar had been struggling and was losing its competitiveness, as an under-managed division of a multi-billion-dollar industrial conglomerate. It was then that Tim Grein partnered with Cornerstone Capital Holdings to acquire Walbar, LLC. It represented a great opportunity to get deeply involved with a troubled company that was either too small or too tarnished to catch the interest of conventional private equity firms or strategic buyers. The deal was closed in September 2016 and Mr. Grein assumed the role of President, assembling a small team of industry professionals to get the transformation started. For a supplier to an aero engine OEMs like Rolls Royce and Pratt & Whitney, Walbar was under performing: quality and delivery performance were faltering, and a climate of mistrust had grown between Walbar and its customers. It was difficult to understand, Grein recalls, how such an adversarial relationship had developed. “When your customer is an adversary it is impossible to get the kind of collaboration that is required to improve things,” he says.
One problem, he found, was that there was a disconnect between the customer-facing commercial group and the plant where the parts were made. Faunna Bartlett, Vice President of Sales and Contracts stated, “before Walbar was independent, the team was bidding for all available work, sometimes at prices that did not reflect the company's costs.” The first change, therefore, was to align the sales effort and the plant. Nothing can be signed off until it has passed the scrutiny of engineering, operations and supply chain in collaboration with sales. “From that point forward, when we win new work everybody understands what it involves and is ready to execute on it.”
One thing that worried the new owners was the leadership of the company, which was a complete unknown. “When we walked into Walbar two years ago, we had not previously had the chance to meet the Senior Management Team, and we were not sure what we would find.” Apart from himself, Mr. Grein teamed up with two associates, James Dickson, as VP of Operations, and Faunna Bartlett, as VP of Contracts and IT, both of whom helped to initiate the operational improvements, commercial strategy and customer relationships. Much to the relief of everyone involved, the team quickly meshed and proved to be highly capable and motivated to help drive the company’s transformation. “The Senior Management Team remains nearly unchanged, and I am proud to say that as soon as we engaged them in decision making and strategy development they proved super solid, capable and extremely dedicated to Walbar’s success.”
Radical change is often difficult, but in this case, it was met with huge relief at the Mexico plant – at last, they were being heard. It produced the expected results: within six months the business was speaking the same language of profitability and cost, and working side-by-side to drive toward world class operational excellence. James Dickson, VP of Operations, observed “the Team was desperate for collaboration and focus. As soon as we set clear objectives and started communicating, we began to see immediate change and transformation in nearly every aspect of the operation.”
The current scope of work was another challenge that needed to be addressed. “I think part of being successful in the aerospace world is focusing on what you're good at and avoiding distractions outside of your core competencies,” asserts Mr. Grein. “We quickly highlighted a few groups of parts that were either priced incorrectly or deemed to be not our core competency and we engaged our customers to make some changes. The customers could see our quality and delivery improvements and they started to work with us to help us get out of those loss-making parts.” While it was a long road, by the end of 2018, Walbar will have exited all of these, with the full cooperation of the OEMs.
Walbar Engine Components
The transition away from UTAS was abrupt and a complete surprise to the entire workforce. On the first morning of the new ownership, his presentation to the workforce set the stage for the level of employee engagement that had been achieved. “It seemed like the Senior Management team and employees were not communicated how the business was doing. We started by making a commitment on three things: firstly that our people come first and that we would not implement any change that would compromise employee health, safety or happiness; secondly that Quality was of paramount concern and that every employee needed to recognize that our products are critical to the safe operation of airplanes; and thirdly that we all needed to understand that Walbar acts as a direct extension to our customers’ assembly lines so on-time delivery is vital. We committed to the employees that we would make no changes for short term benefits if they would compromise these three Key Principles.”
With these principles establishing some basic ground rules, Mr. Grein openly shared information about the company’s recent financial performance, preceding Cornerstone’s acquisition. The company had recorded significant losses and declining sales for the previous four years. “But then, I went on to explain why I remained optimistic about being able to fix things as a team. If we focused on three simple things, we would quickly return to profitability: (1) operational expense control, (2) improvements in productivity and efficiency, and (3) scrap reduction. As a real-time example I showed them that if all we did was eliminate our scrap ($3.6mm worth of castings were wasted), we would return to profitability.” Before this message was conveyed, it seemed like the blame had been placed on poor contract pricing. But a new level of awareness and accountability spread throughout the enterprise as a whole, with spectacular results: in the first nine months scrap rates were cut by 50% while nearly every other operating metric similarly improved.
As the team reflects on the journey of the first two years, it became clear that changes in operational management and employee engagement were the key factors in the transformation, however, technology played its part too. Within the first three months of ownership, they invested in and implemented QC-CALC, a software program that statistically tracks process capability in real time. The plant operates more than 25 coordinate measuring machines (CMMs) that make critical measurements on the components. This quickly gave better visibility into the areas where process improvement was needed. James Dickson said, “We also invested in new machines to created dedicated flow lines. We found that certain machines did not have enough volume to be dedicated to a particular “family” of parts and we were doing too many changeovers, which introduced unnecessary variation in our processes. By adding select extra machining capability we could reorient some of our flowlines to create permanent setups. As soon as we did that and could show positive performance improvements, our customers responded by giving us more volume.” It’s a virtuous cycle, he says: with greater volumes, it’s easier to justify dedicated flowlines and permanent setups.
The machinery at the Guaymas factory is a combination of legacy and modern equipment, resulting from the previous ownership’s relocation of unwanted equipment and programs that they no longer wanted to keep in the USA. Nonetheless, most of the equipment can be very effective if used for the optimal work statement. For example, with more than thirty (30) five-axis Huffman grinding machines, managed with careful process control, Walbar is very effective at producing state-of-the art high pressure nozzle guide vanes (NGVs) and seal segments for large commercial aerospace applications. And during the last two years, Walbar has invested heavily in new machinery to expand its capabilities, including the purchase of multiple Blohm grinders that are currently being used to manufacture extremely high-volume turbine blades for a leading commercial engine.
The company’s performance improvements emboldened Cornerstone Capital to support an aggressive plant expansion. In September, exactly two years after becoming an independent company, Walbar held its grand opening of a 35,000 sq. ft facility that will initially be dedicated to Walbar’s non-aerospace products, such as turbocharger assemblies for the locomotive industry. This bold expansion represents a 50% increase in manufacturing space and makes space for further manufacturing flow optimization and aerospace growth.
Mr. Grein and the Walbar team continue to look forward, seeking ways to continue the transformation that is in process. At this time, they are beginning to implement a software program to help manage real-time operating performance at the machine-level. This is a move to create a digital and visual factory that will help to identify unutilized capacity while creating an engagement tool to give operators a channel for communicating inefficiencies throughout the facility. They are in the early stages of this implementation, but are optimistic about the possibilities it will create
Walbar’s current customer base is very internationally diverse, with 85% of its customers located outside of the USA. While the original attraction for these customers was the low-cost location, these customers are increasingly viewing Walbar as a leading manufacturer able to compete, from a quality and delivery perspective, against any manufacturer in the world for similar components. “With our capabilities, combined with a competitive cost structure in Mexico, the opportunities for Walbar are tremendous,” says Mr. Grein. In fact, he fully supports the aspiration of Walbar’s Senior Management Team, expressed six months after the transformation started: that Walbar will grow to become one of the largest independent engine component manufacturers in the world.
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One characteristic that differentiates Walbar from its competitors is that Walbar intentionally does compete with its OEM customers for aerospace components in the aftermarket. Many competitors that make parts for the engine OEMs also seek to sell higher-margin products on the PMA (parts manufacturer approval) market Walbar avoids that potential conflict of interest. “We solely look for OEM partnerships on engine components, and our customers really appreciate that. I think the fact that we are not a competitor in the aftermarket positions us to start growing with other leading engine OEMs.” Currently, as an example, Walbar does not have any business with GE Aviation, nor Safran, whom together account for more than 65% of the market for large commercial aero engines – a clear opportunity for growth.
Another benefit of gaining customer trust and cooperation is demonstrated in Walbar’s supply chain transformation. When Walbar became independent in 2016, approximately 90% of all external processing, notably coating work, was done in the USA or elsewhere since no suppliers in Mexico were qualified. However, Ellison Surface Technologies had already made significant investments in Sonora and had both the capability and the capacity required, and they were eager to support an ambitious plan. “You can’t switch suppliers for a critical operation, such as coatings, without the support of your customers. But after we had started to develop good rapport with them, the customers saw the potential benefits of both cost and cycle times reductions and we started a process to complete the qualification process. By December 2017, we transitioned our highest volume blades into Ellison and the relationship has been a resounding success for all parties.” Parts that previously had to be shipped to Connecticut could now be trucked 400 yards across the industrial park to Ellison. With volumes in the order of 50,000 – 90,000 blades/year now being processed in 2-3 days rather than three weeks. Now, as the end of 2018 approaches. It successfully transitioned more than 85% of Walbar’s coating requirements to remain within Mexico.
Since Walbar has reestablished itself as a high-performing company, the business fundamentals are all in favor of the company driven by unprecedented demand for new engines and airplanes. “There is a widely held consensus that there will be significant capacity constraints for turbine engine components. Two years ago, we set out to position Walbar to be prepared for this opportunity. Today, with our quality and delivery performance exceeding customer expectations, we are ready to capitalize on these opportunities.”