The current recovery of the industrial sector is finally beginning to pick up steam. One of the primary examples of that recovery is the aerospace segment, particularly the commercial airlines. During the turbulent economic conditions of the past few years, when oil prices skyrocketed and consumer spending was hampered by the recession, airlines were forced to cut spending and reinvesting in their fleets.
As these companies have become better-positioned financially as those challenges have subsided, the need to reinvest in aged equipment and airplanes is a very real trend. With newer and more efficient technologies having been neglected for so long, there is now significant pent up demand to play catch-up.
As a rising tide lifts all boats, the industry’s recovery should also benefit suppliers and manufacturers like M Line Holdings, Inc. (MLHC), which owns two very distinctive businesses that are very capable of capitalizing on this remarkable opportunity.
Equities.com spoke with Anthony Anish, Director, Secretary and General Manager of M Line Holdings, to learn more about the company’s key holdings and their growth prospects.
EQ: Can you provide us with a brief overview of M Line Holdings and the focus of its subsidiaries?
Anish: M Line Holdings is a public company listed on OTCQB with two subsidiaries. M Line Holdings itself is just a holding company and doesn’t do anything other than hold the stock and manage the audit and SEC filings, and any other legal-related activities related to the group.
The two operating subsidiaries are Precision Aerospace and Technologies, Inc. and E.M. Tool Company, Inc., which does business as Elite Machine Tool Company.
Precision Aerospace and Technologies manufactures precision metal parts primarily for the aerospace industry, but also for medical and other industries as well. The aerospace industry is about 90 percent of its business, primarily commercial aerospace, of which we specialize in two areas. One area is the interiors of the aircraft, including parts for the galley, and the lavatory. We also manufacture parts that are used for TV arms that we assemble that are used in business class, first class and the crew quarters on planes. Our largest customer is Panasonic Avionics, who we manufacture these arms for. We have been doing business with Panasonic for over 20 years.
In addition to that, we manufacture critical aircraft parts as well. for the interior and the exterior of the plane. We are currently manufacturing parts for the engine nacelles for a variety of different planes, including the Airbus A320neo. We are also building critical aircraft parts for the Boeing 787, primarily in the cockpit area of the plane,.
We don’t just manufacture parts; we also assemble the parts. So the complete assemblies are sold to customers. Precision also manufactures parts for medical devices and other industries
EQ: And E.M. Tool Company?
Anish: E.M. Tool Company, or Elite Machine Tool Company, is our other subsidiary. Elite buys, refurbishes, and sells pre-owned CNC equipment. That is a major part of this business. It concentrates and specializes in one particular line of equipment, which is called Mori Seiki.
Mori Seiki is a Japanese manufactured, computer numerically controlled machine. It is regarded as the “Rolls Royce” of the industry. They also look to buy and refurbish other high-end Japanese manufactured machines. In addition to theses machines, we do full-service work on equipment and full machine rebuilds. Also, to increase our business, we are in the process of finalizing two dealerships on the West Coast for new equipment that is manufactured in South Korea and Taiwan.
The claim to fame that Elitehas, as a company, is its knowledge of the Mori Seiki equipment. Throughout the country, if anyone has a Mori Seiki machine to sell, they will contact our company. If they don’t contact our company, and contact another machine reseller, the machine reseller will contact us. The reason is because we have the experience, not only in relation to the value of these machines, but also to refurbish and rebuild them, and do whatever service needs to be done. We have more experience in that than probably anybody in the country.
EQ: Can you elaborate on CNC machines and what they are used for?
Anish: CNC machines are numerically controlled machines. These machines are used by companies such as Precision Aerospace to manufacture precision metal parts of varying sizes. It could be as small as a nut or bolt, to as large as huge structures for planes. Basically, once these machines are set up and the computer runs the program, it directs the cutting tool to cut per the program.
EQ: As you stated, the aerospace market is a big part of your business and M Line believes that there will be significant growth coming from that industry due to numerous trends. Can you discuss these trends and how M Line is positioned to benefit from that growth?
Anish: Yes. The aerospace market in general, whether it’s manufacturing parts or selling equipment, is growing significantly. Over the last four or five years, the industry has really been hit by the economy. We saw companies that struggled due to the bad economy, like American Airlines and so on, that just didn’t have the money to either buy new planes or refurbish planes.
However, with the cost of fuel getting so high, they have no choice now but to get rid of the older equipment that they have and buy the more fuel-efficient planes. The largest cost on a plane is the fuel that it uses, so if you can save due to the lower cost of fuel due to weight savings on the more fuel efficient planes and engines, it’s very significant for the airline. The current orders for aircraft are greater than it has ever been in history, in particular the A320neo, which Precision Aerospace is making parts for. It has the largest quantity of back orders of any commercial plane being built. The 787 has huge backorders, and the A320neo has a massive backorder, and although it hasn’t actually flown yet. It’s still in preproduction. We are expecting an enormous amount of business from the A320neo, but in general, all of the companies that have been in the aerospace business, and particularly in the manufacturing business, are growing. So we expect to grow significantly because we are very good at what we do.
EQ: Shifting to E.M. Tool and selling refurbished high-end equipment. Can you talk about the value proposition that it provides your customers? How is the demand?
Anish: The biggest problem at the moment with buying new equipment is the wait to get that new equipment. The Japanese market was severely hit by the Tsunami and the economy, and consequently, many of the companies that used to carry inventory just don’t make machines for inventory anymore. First of all, they were damaged by the weak economy and then by the tsunami.So if you wish to buy a new Mori Seiki today, you will wait between 120-180 days for that machine to be delivered. The problem is you’re buying equipment for orders you have now, and you need the machine quickly. So if you can buy a very good condition, pre-owned machine that has been fully refurbished and is brought to manufacturer specs, and can do that job, and on top of that, not only can you save money on the machine, but you can buy it today and have it delivered in a few days, then it absolutely makes sense. That’s really the key to what we are doing right now. People need the equipment right away and in order to get it, they can’t get new in a timely manner, so they buy pre-owned.
EQ: The company’s expansion strategy includes acquisitions through Precision Aerospace as well as new locations for Elite Machine. Can you discuss this two-pronged approach?
Anish: Precision is currently in a 50,000-square foot facility, utilizing about 32,000 square feet. We have room for expansion and obviously all of the fixed overheads are already covered. We would like to fill the remaining 18,000 square feet of space, preferably with an acquisition of another machine tool shop or possibly an aerospace repair station that brings different customers to us.
Because Precision concentrates primarily on commercial aerospace, it may be good to find an acquisition that has a more heavy concentration of defense work. We have two or three companies that we have targeted, and we know that as soon as we are ready, we will start talking with them.
As far as Elite is concerned, it really needs more representation throughout the U.S. Although it currently sells throughout the U.S. from its head quarters in Anaheim, CA, it would enhance its business to have operations in the Midwest and the East Coast. Our plan is to add at least one of those two locations in the next three months. Again, we already have the target in mind, so we would like to complete this first expansion by July or August.
EQ: And would you like to discuss Mediatronics and how it plays into this?
Anish: Mediatronics is an interesting acquisition that we made. Mediatronics has designed and written the software for a Ford Sync-like product that can be used in all kinds of different vehicles. Their specialization right now is a design for the boat industry, particularly speed boats. It’s a waterproof system that allows you to have radio, satellite radio, internet connection, Bluetooth, voice activation, and basically all the things that you get from a very sophisticated navigation system in your car.
Of course, the system on the boat will also have fish finders and navigation. So having written the basic software for this, and they anticipate having their first product complete in the next 45 days, they can basically take the base of what they developed already and use it on different products.
At the moment, they are looking at niche markets like the boats and over-the-road trucks. They are working with major resellers and are contracting with them to develop the product, and then receiving a royalty for the software. The connection with us is that we would like to take this a step further and look at the possibilities of using this in the aerospace industry.
We believe that we can get the appropriate approval for this product and market it to probably the smaller single-engine planes and small jets, as opposed to going after the passenger aircraft. We believe that there is a market there that we can definitely penetrate. Also, on a more longer-term synergy, we can also manufacture some of the metal parts in Precision’s facility.
So there are connections there. We also have an option from Mediatronics to acquire up to 97 percent of the company at a time that’s right for us.
EQ: Right, and you currently hold about 19 percent of Mediatronic. Looking at your forecasts, the company expects to increases revenue to $30 million in 2015, which is essentially tripling current revenue levels and EBITDA is supposed to grow at a faster clip. In addition to what you have discussed, what are some of the other major initiatives and objectives to help you get there in the coming years?
Anish: We expect both companies to increase revenue significantly.
Elite’s ability to grow is limited by the amount of inventory that it can carry, and that limitation comes back to money and available cash.
As for Precision, it has the customers that can increase in business enormously, but again, when you are dealing with the likes of UTC Aerospace, Panasonic, and Rockwell Collins, they want to be sure that Precision has the financial wherewithal to be able to meet the orders that they can potentially give us.
So really our growth depends on available cash. The beauty is that we have just signed an agreement for a $10 million line of credit with TCA Global Credit Master Fund L.P., and our initial draw-down was $1.7 million. We have another $8-plus million available for growth. The size of this line of credit is almost unheard of for a company that has a market cap of approximately $2 million. So our limitation isn’t us being able to bring the business in the door, but rather the financial strength to manage that increase in business.
I believe that we have now set in motion, by signing the agreement with TCA the ability to raise the funds that we need for that kind of growth.
EQ: Can you tell us about your background, as well as other key members of the management?
Anish: There are three board members currently for M Line Holdings. In addition we have the two Presidents that manage the other two companies.
The team of M Line Holdings is made up of George Colin, Jitu Banker, and myself.
George has been in business for many years as a consultant and has great overall business knowledge. He is our CEO, though not a full-time CEO, but he is available for us at anytime that we need him. He attends all the Board meetings, and he and I talk at a minimum of once a day. He is totally conversed with everything that is going on.
Jitu is the CFO, and he has managed the cash from the beginning when we became involved here. He is tremendous at managing cash, managing the accounting team, and making sure that the 10-Ks and 10-Q gets finished and filed timely, and in addition he looks at the overall financial structure of the company.
As for myself, I fill in all the other areas and those mentioned above as well. I deal with the SEC issues, finish the the 10- Qs and K filings, am involved in cash flow, and involved with both managers of the two wholly owned subsidiaries and with Mediatronics management. I manage all the marketing and everything else that we do. So as managing Director I manage the company in all areas that need to be done.
Our two presidents for Elite and Precisionare Larry Consalvi and Bart Webb.
Larry leads Elite Machine Tool and has been in the business for 30 years plus. He originally worked for Mori Seiki many years ago, and for their U.S. representative. He has enormous experience working with CNC equipment, and his knowledge of Mori Seiki is second to none in the country, as well as his ability to buy at the right prices and have the knowledgeofwhat needs to be doneto the machine. Larry manages his team of sales and repair personnel while still dealing with numerous customers throughout the country.. Larry was there at the beginning of M Line Holdings in 2002 and he has been there through this whole process leading up to today
Bart Webb leads Precision, and has been in the aerospace business for over 20 years and came to us from his own company, which he sold to a large Korean company. He brings a wealth of experience as well. He has managed more than one company, including his own, and his overall knowledge of business and the direction the business should go, is really helping us find the customers that we want to deal with to position us for large profits and have the most potential for growth. So he is really a great addition to the team. He has been with us for 2 years.
EQ: Do you have any final takeaways or comments for readers and investors when looking at M Line?
Anish: As a small, Bulletin Board-type company, it is very hard to get investors excited. Also, the business we are in is not necessarily an exciting business. However, we are a manufacturer in the U.S., in a market where manufacturing is being lost to foreign companies. We are trying to expand that manufacturing capability here in the U.S.
Furthermore, we look at what we have and where we can be, and we believe there is tremendous value to an investor, particularly looking at the market cap of the company today. It is, in our opinion, so undervalued that we believe this is a very good investment at this point in time, and we think that we will continue to grow. We expect the aerospace business to continue to grow for the next seven to ten years and we intend to continue to grow as the industry grows.
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