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Out of Bankruptcy, Amfuel SoarsLock Icon

8 min read

When 70-year-old Magnolia defense contractor Amfuel needed rescue from bankruptcy a little over a year ago, turnaround investors in Los Angeles swooped in like one of the military choppers the Arkansas manufacturer equips with bullet-resistant fuel tanks.

LB Advisors LLC bought American Fuel Cell & Coated Fabrics Co. out of Chapter 11 protection for $1.6 million in November 2018. Once a 500-employee operation, the maker of resilient aircraft fuel cells had dwindled to about 240 workers by the time of the bankruptcy in November 2017. The Texas-based ownership had moved to shut down the south Arkansas operation and shift all work to Wichita Falls, Texas.

Then came the turnaround firm, followed quickly by a turnaround.

In just a year under new ownership, Amfuel raised employment to 370, tripled production and restored workforce pride, officials say. The new owners also lined up $50 million for improvements and growth.

“Morale is up considerably, money has been put into infrastructure and upgraded equipment, and there’s been a complete change in how the employees are listened to,” said Vice President of Operations Faith Elliott, a south Arkansas native and one of many employees who stayed with the company from its pre-bankruptcy days.

Elliott said Amfuel’s teams feel renewed pride knowing that their products protect American service members; Magnolia Economic Development Executive Director Ellie Baker independently brought up the same theme.

“It isn’t often that Magnolia is thought of in terms of the defense industry, but Amfuel is a key player in keeping our military safe,” Baker told Arkansas Business. “The new ownership has been able to make tremendous strides in a very short period of time, and they started by putting value in their employees. It has made a great impact on our employment rate, and I do not see it slowing down anytime soon.”

‘$50 Million Invested’

Michael Accordino of LB Advisors, now Amfuel’s president, saw strong potential in the company despite its dire financial problems. The company is vertically integrated, he noted, and has few competitors in making aircraft fuel cells that can self-seal when struck by gunfire.

“We are one of two companies in the world who are able to do this for the Department of Defense,” Accordino said in a telephone interview. “So we’re a very critical company for national defense.”

Amfuel was just the kind of company LB Advisors looks for, Accordino said, one with operational issues undermining a solid business model. “It’s a robust business that just needed a lot of help in terms of manufacturing know-how, and leadership in restructuring aspects like business contracts, processes and procedures,” he said.

With help from the Pentagon, the city of Magnolia and its economic development office, the revitalized company has added 150,000 SF of manufacturing space, paying heed to the workers who actually make the fuel cells. Specialized equipment has poured in, including an autoclave, computerized numerical control machines, new boilers and compressors, and a state-of-the-art spray room housing robotic sprayers for coating the fuel tanks with protectants.

The upgrades coincide with growing demand expectations, Accordino said. Amfuel, he pointed out, is the only company contracted to supply the Department of Defense with fuel bladders for several helicopters, including Sikorsky’s CH-53K, flown by the Marine Corps, and the Bell H1.

“In totality, with the partnership with the DOD, the city of Magnolia and the new owners, there will be $50 million invested into Amfuel,” Accordino said. Amfuel acquired and refurbished a form shop facility on Field Road and is building a new spray room building at the main plant on Firestone Drive. That addition, helped along by a $150,000 grant from Magnolia Economic Development in October 2019, is scheduled to be finished this year.

The city, which owns the Field Road property, gave Amfuel a 99-year lease on the site in April, along with an option to purchase, Baker said. In October, Amfuel received another $200,000 from the city “to aid the purchase and renovation of 1706 N. Vine St.,” where Amfuel will install its fittings department, Baker said.

All this room awaits squadrons of new employees.

“At one time, Amfuel had as low as 65 workers,” Baker said. “Today it has 367 and has more than doubled its completion rates. They are now on target to be at 400 employees by the middle of 2021.”

‘Can’t Get a Degree in This’

Most of the new employees are on the manufacturing floor, said Elliott, the VP of operations, who has a degree in industrial engineering from Southern Arkansas University and a master’s in operations management from the University of Arkansas. “It’s all handmade fuel cells, not mechanical, and you really can’t train for this job until you get here. You can’t get a degree for this.”

The fuel tanks themselves range in size from small enough to equip a drone to something “like a humongous dinner table” large enough to hold 850 gallons of aviation fuel, Elliott said. Some of the tanks fly on C-130 transport planes out of Little Rock Air Force Base, she added.

The Defense Department granted millions to Amfuel for the additional spray rooms, Baker said, and Amfuel invested $250,000 in the Vine Street property. “They have renovated areas of their current location to have a better-quality work environment and to give back to employees.” One example: A new, spacious parking lot is connected to the main plant by a new footbridge.

LB Advisors co-founder Russell Belinsky is one of the new ownership’s investors, according to filings in U.S. Bankruptcy Court for the North District of Texas. The purchasing entities were LB Amfuel LLC and LB Amfuel Real Estate LLC, both chartered in Delaware.

In bankruptcy filings signed by former Amfuel CEO and President Leonard J. Annaloro, the company listed $11.3 million in total liabilities and $8.6 million in total assets. The documents called Amfuel “a leader in providing aviation fuel cells for over 70 years” and described its products as “flexible, rubberized fuel bladders that provide onboard fuel storage” in planes and helicopters. The company is “vertically integrated and makes all of its fabrics and cements,” it added.

The company came to LB Advisors’ attention through SSG Capital Advisors LLC of Conshohocken, Pennsylvania. SSG served as Amfuel’s exclusive investment banker on the sale out of bankruptcy, which closed in November 2018.

SSG officials found that Amfuel’s decision to move operations to Texas in 2016, and then its realization that the moving plan was a bad idea, left Amfuel in need of restructuring, according to a January 2019 SSG news release. Amfuel engaged SSG to pursue options, including a possible sale, in 2018.

“SSG brought us the deal, and as Amfuel’s banker, their job was to find buyers like ourselves,” Accordino told Arkansas Business. “We did diligence on Amfuel for about nine months while the company was in bankruptcy prior to closing the deal, which is an extremely long period of time.”

New Sense of Pride

Accordino, who once captained the men’s tennis team at Columbia University in New York, said strong product demand and improved teamwork should keep Amfuel growing for the foreseeable future. “Because the fuel cell industry has been so underserved for so long, there’s a ton of work to be done just on the fuel cell side,” he said. “In terms of new aircraft, we are the sole source for the CH-53K, and that’s a new program just starting production.”

The CH-53K, built for heavy lifting, will be the largest U.S. military helicopter and was tested extensively by the Marine Corps and Navy last year. In sea tests aboard the USS Wasp, the helicopter performed 364 ship landings and takeoffs in 2020, and the Marine Corps announced plans to buy 200 of the aircraft. More purchases are reportedly in the pipeline. According to Lockheed Martin, its manufacturer, the powerful craft was designed to let the Marines and international militaries “move troops and equipment from ship to shore, and to higher-altitude terrain, more quickly and effectively than ever before.”

“That program will keep us busy for decades to come,” Accordino said. “So the fuel cell side is No. 1. But No. 2 is the business of coated fabrics, which was once Amfuel’s base business. It uses the same technology and the same manufacturing know-how, but applied to other types of tanks besides aviation fuel cells.” Examples include multiuse storage containers designed for large-volume liquid transport of industrial chemicals, potable water and sewage, as well as for ground fuel storage.

“We are in the midst of rebuilding that business for the DOD as well as commercial applications,” Accordino said. “So if you put those two sides together, we should be substantially bigger than we are today, which is, you know, triple what we were when we came out of bankruptcy.”

Though Amfuel’s turnaround seems dramatic so far, Accordino said he senses that the new team is just getting started. “We’re thrilled the company is on the right trajectory and look forward to building it back to the greatness it once had, and to even greater heights.”

The workforce is definitely on board, Elliott said.

“Before we were bought out of bankruptcy, morale was low and the management team didn’t treat the people very well,” she said. “A lot of people had great ideas, but they were just told not to even voice their opinions. The new owners actually listen to the operators on the floor, and a lot of these people out here have been here for 20 or 30 years. They know how to build a fuel cell. They know when the material isn’t right.”

Workers felt an immediate change when Accordino and his team arrived, Elliott said. “When Michael got here, he first started having meetings with operators on the floor. People would write all their ideas down and we would try it, actually listening to employees and testing their ideas.” Workers feel more invested than ever, she added.

“When you build a fuel cell, there’s a sense of pride because we’re the only ones in the world that can build one for a CH-53K or a Bell H1. When you see those helicopters flying, you’re like, ‘I touched that, that’s my fuel cell.’ Our people are very proud of that.”

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