March 22, 1998

The Key To Survival The Money Man

Story By Hannelore Sudermann

Fear has never slowed Stanley Hiller.

He supervised the construction of one of the first helicopters ever built and then climbed aboard and taught himself to fly it.

He has taken on several failing multimillion-dollar companies and made the decisions necessary to save them.

And he wasn’t afraid to shut down a keyboard production plant in Cheney, sending hundreds of jobs to Mexico, because he believed that was the price of saving Key Tronic Corp. of Spokane.

The 72-year-old multimillionaire reaps revenues from the stocks and stock options of the businesses he’s saved. His Silicon Valley office wall is studded with plaques and nameplates, trophies of his successes: Converse, Fairchild Hiller Corp., Geneva Power Tools and York International.

Missing, though, is a placard for Key Tronic Corp., the keyboard manufacturer Hiller flew in to save in the early 1990s.

While other technology company stocks have soared, Key Tronic’s has dipped and dropped. Revenues suffered, improved and then dropped again.

Key Tronic is fighting against foreign companies to make a faster, better, cheaper product. In fact, even though Hiller managed to clean up the company and make it more efficient and profitable, it’s still fighting to survive.

Key Tronic’s nameplate won’t make it to Hiller’s wall until the company’s success is certain.

“We’re still waiting on that one,” he says.

Started in 1969

The firm, founded in Spokane by Lewis Zirkle in 1969, first made push-button electronic keyboards at a plant in the Spokane Industrial Park.

By its fifth year it was Spokane’s fastest-growing company and the world’s second-largest keyboard manufacturer. It had 300 workers.

When it peaked in 1984, Key Tronic’s revenues were $11 million and it employed more than 2,400 people.

But the market changed. Where Key Tronic could once sell keyboards for $50, the price dropped rapidly. Foreign competitors had more efficient production and cheaper labor.

The keyboards sold for $15 by the time Hiller came on the scene. After a failed attempt to produce a notebook computer and after the company lost $7.7 million in 1991, Zirkle was ready to step aside.

In 1992, when the stock price had dropped below $2, the board of directors came humbly to Hiller.

The wry investor and his team saw potential. “It fit a pattern for us,” he says. “It was a grand old company. It had a fine reputation. It was a leader in its industry.”

But when it came to surviving in a mature market, he recalls, “it was not particularly well-run.”

A life of risks

In 1944, an earnest teenager climbed aboard the first helicopter built west of New York state.

Stanley Hiller and a few others had built the awkward metal bird. “We had a junkyard welder, a naval architect and a wonderful old and experienced machinist,” Hiller says today. “None of us had ever seen a helicopter before.”

They thought they knew what they were doing, until the machine’s whirling blades sucked down the skylights in the Bay area garage where it sat.

For their own safety, and to protect the helicopter, Hiller and his troop moved the test flights to Memorial Stadium at the University of California, Berkeley. They anchored the helicopter, known as the XH-44, to several cars. With Hiller at the controls, and wearing nothing more protective than a T-shirt and slacks, he learned to fly it.

“We had no shocks, no helmets, no fire trucks standing around. We were just kids. We didn’t know any better.”

The day he finally flew without the anchors, Hiller’s friends and his girlfriend, Carolyn Balsdon, came to watch, or so he thought. “I used the stadium kind of like a racetrack. I looked up when I landed to see where my wife-to-be would be and she wasn’t there. She was hidden behind a row of seats.”

Hiller’s future risks, in the aircraft and in the business world, were scarier.

The XH-44 led to Hiller Aircraft Company, which built more than 3,000 aircraft, including the first vertical takeoff airplane, many more helicopters, flying platforms and flying cranes for commercial and military use. The company didn’t stick to one product, but kept inventing new ones.

Hiller was not an inventor, but a businessman, with a bird’s-eye perspective on what it takes to build a company and keep it aloft. When he finally sold his company to Fairchild Industries for $10 million, he took his talents to others.

Corporate rescue missions

Hiller’s new company, the Hiller Group, took on its first corporate customer, G.W. Murphy Co., in 1967.

Once he weaned the business from its unnecessary parts, he was left with Reed Tool Co., an oil drill maker. In one year, that company drew a profit and Hiller and two partners made a fortune.

He performed the same save on Bekins Moving Co. a decade later. In turning the company around in four years, Hiller made $1.25 million.

“You can’t help but learn a bit about the art and science of managing without the experience we’ve had of coming from a very small company to bigger companies,” he says. “There were a lot of troubled companies and you could make a business out of rebuilding and resuscitating them.”

Which is exactly what he did.

But he didn’t take money from the businesses he saved. Instead he accepted expenses and stock options. Only when the company succeeded did Hiller profit.

“We’re not liquidators. And we’re not people who would get into a hostile environment of trying to take over a company,” he says. “We will only get into something we’re asked into or that’s brought to our attention on a friendly basis.”

Hiller chose companies that were failing for similar reasons: The management of the maturing business wasn’t experienced enough to handle new competition or ready to adapt to changes in the marketplace.

“All companies pretty much, not totally, but pretty much fail for the same reason: The board of directors does not take the necessary action to change management,” he says.

Hiller has a checklist of signs he uses to diagnose an ailing business.

“When we drive into a company in trouble, our folks look at where the CEO’s car is parked. We look at whether it’s a foreign car or a U.S. car. Going up in the elevator, is there something that has been placed there by the chief executive officer?” he says. “You look for that kind of telltale sign.”

At G.W. Murphey, he found the owner had taken pains — and paid top dollar - to leave his name on plaques all over the company’s offices, including inside the elevator.

“It shouldn’t have been there,” he says. Now it hangs on Hiller’s trophy wall.

In Spokane

Key Tronic had more than 1,000 employees at plants in the Spokane Valley and Cheney in 1992. Production flow was inefficient. Products were limited and Key Tronic couldn’t compete with the Asian companies importing cheaper keyboards.

It could either change or die.

Key Tronic had to cut costs by moving production out of Spokane, where assembly workers were earning upwards of $6 an hour.

“We went in with a game plan,” Hiller says. “You have to go to lower-cost areas.”

In this case, the area was the border town of Ciudad Juarez in Mexico, where thousands of skilled Mexican workers would be willing to assemble Key Tronic’s boards for much less than their Spokane counterparts.

Hiller knew the move wouldn’t be popular. “It’s very tough on companies, on personnel within the companies and on the community as a whole,” he says. “But you have to be competitive or you’re not going to stay in business.”

He had his eye on the keyboard division of Honeywell Inc., which had plants in El Paso, Texas; Las Cruces, N.M., and Juarez. Key Tronic bought it in 1993 for about $33 million.

At the time of the Honeywell purchase, about a year after Hiller came in, Key Tronic’s stock soared above $12.

With his job apparently completed, Hiller resigned as Key Tronic’s president in 1995. Company profits had risen to $1.85 million and its stock to $18.50 a share.

Key Tronic’s profits today are more modest - at $322,000 - and its stock hovers at $4.

Even with cheaper labor and a more efficient production system, the company is struggling. The problem, Hiller says, is that the market for computer hardware proved more volatile than he imagined.

“Sometimes you don’t pick and choose as well as you should,” Hiller says. “But it was a great old company. It was a great leader.”

Still, he forecasts success.

Key Tronic is probably the last company Hiller will ever try to save. Now he is building and running the Hiller Aviation Museum in San Carlos, Calif., not far from the site of Hiller Aviation’s original hangars. He wants to display his vast aircraft collection.

He’ll probably never go again to Key Tronic’s production plant in Juarez, which is filling orders for customers that include Hewlett-Packard, Toshiba, Microsoft and Gateway.

The company, with its headquarters solidly in Spokane, is the only independent keyboard manufacturer left in the the United States. It has held onto its place as a world leader in keyboard manufacturing.

What Key Tronic hasn’t done yet is earn its place on Hiller’s wall of fame.

“Until we finish them, we don’t put them up,” he says. “But I’ve got a place for it right there.”

, DataTimes ILLUSTRATION: 3 Photos

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