OUTLET: Inside Business

By Reynolds Hutchins
reynolds.hutchins@insidebiz.com

Whizzing through the workshop, Jerry Miller is barely audible over the whirring machines at Fairlead Integrated.

Many of those machines, some with a million-dollar price tag, are a product of a recent large-scale investment and rebranding at Fairlead, which specializes in precision metal fabrication for the U.S. Navy, Boeing and Northrop Grumman, among others.

The name Fairlead may still be unfamiliar among defense contractors, but the name Miller is not.
It’s been nearly 30 years since Miller helped found Earl Industries, where he started in the ship repair industry after putting in 7-1/2 years as a Navy surface warfare officer.

At its peak, Earl ranked in the top 50 Navy contractors nationwide, hauling in ship repair contracts worth $160.3 million. By 2012, with roughly 1,200 employees, Earl was one of Portsmouth’s top 10 employers and taxpaying corporations.

Standing outside the Fairlead workshop, where the sounds of machines are a distant hum, Miller is looking over miles and miles of ventilation ducts destined for some Navy aircraft carrier.

Miller, though, is talking about mission modules, which aren’t even fabricated at this workshop, or even stored in that corner of the yard.

It’s a habit he has, being a step ahead, that’s garnered him a reputation in the industry.

Even as far back as 2007, Miller said he could sense the winds changing. It was before the market dropped, but fleets were already shrinking and competition was fierce in the ship repair industry.

In interviews with the press, Miller said he was banking on manufacturing and technology – not shipyards – to propel profit in the next quarter-century.

It’s been two years since Miller sold the ship repair operations at Earl to industry giant General Dynamics and now technology and manufacturing are all he does.

At Fairlead, Miller has retained the two divisions he’s confident will remain steady when defense budget talks start to churn industry waters.

With 200 employees, Fairlead is a great deal smaller than its predecessor.

“It may be a small business,” Miller says, “but it’s got big business experience.”

Here are his responses to questions about the company, the sale of Earl Industries and the future:

Fairlead is still producing the same parts and fabircations – ventilation, integrated electrical and control systems, mission modules – that it’s been crafting for three decades. Fairlead itself, however, is a new masthead for the company. So, what’s in a name?

A fairlead, you usually see it on the deck of a ship. It’s where you have a line go through it in order to control where that line is going to go so it doesn’t just go anywhere. So, the purpose of a fairlead is to ensure safe passage.

We feel like, for our customers, they present us with a problem, or something they need, and by having us do the work, we feel they have taken the least amount of risk and are ensuring safe passage for their problem, if you will.

We’ve invested in the last six months probably $5 million in the company through facilities as well as new equipment.

For two years, after I sold the ship repair operations to General Dynamics, the remaining divisions were called Miller IMG. So, I just thought it was a good time to kind of rebrand the company and try to come up with a name for it that took my name out of it.

One of the things I always wanted people to understand is that the company is a very talented group of people. We have a very strong team here and it’s not all about me. It’s about the team and what we do as a company. And that’s a different attitude than what I had the day I sold the company.

Earl Industries was a profitable company, well-known and well-respected. What changed your attitude? What compelled you to sell?

At the time, Metro Machine was another company at the bottom of the Berkley Bridge. They had a drydock, they had piers, but their shipyard was very congested. It was really hard to move around in there, there wasn’t much space. I had a lot of room over in my shipyard and I always felt like it would be a really good combination, the two of us.

So, I approached the owners of Metro Machine about 15 or 10 years ago about doing that and I could never get anywhere with them.

That’s when I heard rumors that General Dynamics was going to buy them. Now, GD had a lot of money – a lot more money than I had. So I went out and met with them and told them I thought the two should go together.

I told these guys that if you put these companies together and let me take over the team, it would just be a homerun.

General Dynamics did end up taking both Earl and Metro Machine. They even took you on, but not for long.

It was two months.

I owned my own company for 28 years and now I was working for a whole string of people – which I like, they’re very nice people and they treated me great – but I wasn’t used to that. They’d call me into meetings and tell me what to do.

After a while, I told them, “You don’t need me.”

My job at Earl was at my own company and to make the strategic decisions and how to spend money. Whereas, when you get bought by someone else, that’s exactly what they take over. It’s their money, so they’re the ones saying how you spend it. That was what I was best at – spending money. I didn’t have that flexibility anymore like I had.

I had the conversation, I told them that they really didn’t need me and they agreed. It was very amicable.

So you returned to what was left of Earl Industries, what was then called Miller IMG.

In the process of all this, they did a really nice favor for me. They said, “We don’t want these two parts of the company.” And these two parts of the company are what I have left. It’s Fairlead.

They bought the heavy-duty shipyard, the sand blasting, the painting. Bringing in the ships, fixing them, it’s good business, employs a lot of people. But, it’s a pretty stable, pretty routine business. We’ve been fixing ships since before the Revolutionary days.

These two parts of the company they didn’t buy – I like them. They are the parts where you can get the most creative. Between these two divisions, with the electrical, the structural and the manufacturing capabilities that we have, it’s a pretty unique combination for a small business.

What has it been like steering a workforce that is one-sixth the size of Earl Industries?

When I sold Earl Industries, we had about 1,200 people in the company. And, because of that, we were considered a large business in government contracting.

Now we’re at about 200 employees, so now I’m considered a small business.

It’s different, but it gives me some different opportunities that I might not have if I hadn’t sold the business. It’s a really exciting time for Fairlead. It may be a small business, but it’s got big business experience.

Many of Fairlead’s contracts as a smaller business stem from the relationships it built as the much-larger Earl Industries.

That’s true, but a lot of our contracts are very short-term. They’re contracts with little purchase orders. So, even though I’ve been building ventilation for Newport News Shipbuilding since 1996, we have no long-term contract with them. They trust our quality system. It’s a proven track record.

Again, that’s “Fairlead,” a safe passage for line. Newport News knows, based on our past performance and history, that if they want us to do these miles of ventilation duct or whatever it is, they’re going to get what they ordered on time, for the price they are going to pay.

Even before the Great Recession hit and Earl Industries was at the top of its game, you said you saw the hurdles the industry would have to face. You changed course and survived. Do you see hurdles today?

We certainly see them. I mean we saw a big slow- down just last year when they had the government shutdown and sequestration. I mean, everything trickles down.

So, we’re always out there looking for new things, always trying to expand the things that we have. You win some, you lose some. We don’t generally lose customers, but we sometimes lose programs.

They’ve already said they’re going to cut back the number of ships, so we get concerned about the number of things like mission modules. So, I’ve got guys here that are worried about that and at the same time I have other people that are just trying to figure out what the future holds. But in the meantime, we have work into next year.

Having done stuff for the last almost 30 years, I understand ups and downs in business and particularly working with the government. I’ve been through the entire cycle of the height of the Cold War, when I first got into the business, to the end of the Cold War and then the post-9/11 era, the first Iraq war and defense spending through the Bush years and then the Obama cutbacks.

So, I’ve been through it. It’s not anything that keeps me awake at night, but it’s something I’m always aware of and something I’m always thinking about.

You have some work that has always made up your base – ventilation and marine furniture. But, what new projects are going to keep Fairlead on the cutting edge and help it overcome the hurdles ahead?

We have a pretty significant contract that we’ve had for the last six or seven years making these mission modules for littoral combat ships, or LCS.

A module is a series of shipping containers that are full of gear. Some of them are workshops, some of them are filled with very precise gear that you would use for mine countermeasures or antisubmarine warfare or whatever use is needed.

So, the LCS, if you were to look up what the ship was about, it is a ship built to be very versatile. To make it capable of being in anti-submarine warfare, they have a module that they use. If they want to do mine countermeasures, they have a module that they use. If they’re going to be working with an aircraft carrier, there’s a module they’ll use.

That’s one big customer we have.

We also do a lot of what we call “military commercial-off-the-shelf:” taking technologies that are out there and making them suitable for military use.

I had another part of the company that used to be Earl Energy under Earl Industries that built power systems for expeditionary use.

So if you think about the Marines setting up a camp some place in Afghanistan, you got generators running all the time and the generators are sized to provide a certain amount of power. Most of the time you don’t need a lot. Most of the time it’s computers and coffee pots. But, the generators need to be big enough in case you have a lot. So, what happens is these generators run at an inefficient speed and power level. So they’re burning more gas than they need to, it’s not good for the generators and fuel is very expensive – particularly off in the far-flung regions of the world.

So we came up with a power system that has energy storage that you tie into these generators and so the batteries are carrying that load – the computers and the coffee pots and all of that – and the only time a generator comes on is when you need to charge the batteries or when you need all that power.

Adding these new technologies gives us greatly enhanced capabilities. And, honestly, I think with these new capabilities and some of the opportunities that are out there, I’m really excited to see what the future holds for us.