[Rhodes22-list] Boat Business (Hard Times)

[BenCittadino]

My friends.....Sad story in today's NY Times:


The New York Times

October 10, 2009
Debt Trips Up Hinckley, Venerable Yacht Maker
By GERALDINE FABRIKANT

SOUTHWEST HARBOR, Me. — David Rockefeller Sr. ordered a new boat last year,
a $3 million 55-foot powerboat.

Mr. Rockefeller, now 94 years old, may not have needed a new boat. It was,
after all, the sixth he has bought from Hinckley Yachts in Southwest Harbor.
But Hinckley Yachts and its workers certainly needed the order — and
providing them with work was part of Mr. Rockefeller’s motivation, his
spokesman said.

Hinckley — which has been making boats since 1928 and is known for
classically designed, beautifully constructed sailboats as well as sleek,
easy-to-maneuver powerboats — is under financial pressure. It has
significantly reduced its work force — from about 625 employees at its peak
in mid-2008 to 305 at the end of August. The layoffs, in turn, have affected
Southwest Harbor businesses, some locals say.

Like other yacht makers, Hinckley lost substantial business when the economy
turned sour. But Hinckley’s problems can also be traced to its sale to one,
and then another, private equity firm over the last dozen years. With each
sale, it took on more debt, which became onerous when business slowed. And
the culture also shifted from a family-owned business to one controlled by
outsiders.

Beginning early this decade, near the peak of demand, private equity buyers
poured money into yachting, convinced — wrongly, it turned out — that the
business could weather any economic storms because its wealthy clients would
continue to buy. Several other boat makers have run into problems, including
Ferretti of Italy and the MasterCraft Boat Company of Vonore, Tenn.

Hinckley may well survive this downturn, thanks to a strong brand name
nurtured over decades of Hinckley family ownership and a loyal clientele,
some of whom spend their summers near Bar Harbor.

James P. McManus, who was hired as Hinckley’s chief executive two years ago
by Monitor Clipper Partners, the private equity firm that now controls the
company, declined to comment on Hinckley’s finances.

In the meantime, some of Hinckley’s critics say, the constant pressure on
the bottom line by the new owners has left some employees feeling that
management misunderstands the customers and the employees. “If they had not
had that debt, we could have weathered this,” said Ruth Brunetti, who,
during a 20-year career at the company, was chief financial officer,
treasurer and contracts negotiator. She was dismissed in July. “We have
suffered from a double impact: the economic downturn and corporate greed.”

Some companies are still profitable. Sabre Yachts, a boat maker owned by the
entrepreneur Daniel Zilkha, “will be profitable despite a substantial drop
in sales, because it carries no debt,” Mr. Zilkha said.

Because Hinckley is privately held, it does not release details about its
profits and losses. But according to people close to the company, Hinckley’s
revenue in 2008 was roughly $100 million and taxable income was about $4
million. But this year, for the first time since the mid-1990s, it will have
a taxable loss of about $4 million, they said. Several people close to the
company estimate that revenue this year could fall to $50 million to $75
million.

Buyers certainly pulled back — unwilling or unable to pay $900,000 to $4
million for Hinckley’s sailboats or $400,000 to $3 million for its
powerboats. In the spring, only three boats were under construction at
Hinckley’s main manufacturing plant in Trenton, Me., including Mr.
Rockefeller’s. In an interview, Mr. McManus said he was optimistic about the
company’s future. He said orders had begun to return, and he planned to
bring back 85 employees this month. Buyers are not the only customers in
retreat. Hinckley also services and stores boats, and a boat restoration can
cost as much as $150,000. “But now people are not spending for that work,”
said one former Hinckley employee who did not want to be identified as
talking about the company.

“One customer with a 92-foot sailboat was going to spend $2 million to refit
it, but he canceled that order,” this person said. “That would have kept
somewhere near 25 people busy for six to eight months.”

Bob Hinckley — the grandson of the founder, Benjamin Hinckley — who ran the
company with his partner, Shepard McKenney, from 1982 until it was sold in
1997, has fond memories. “I worked there as a kid,” he recalled. “We always
built a high-quality product,” he went on. “We used wild teak, not
plantation teak even though it costs two to three times as much. We used a
great deal of varnish. It took us about 10 months to build a 50-foot
sailboat.”

Mr. Hinckley was running the company in the early 1990s, when the government
levied a 10 percent luxury tax on yachts and orders fell. “It was brutal,”
Mr. Hinckley recalled. “Wealthy people don’t like to be taxed on their
hobby.”

Still management shared the pain with employees. “We cut our own salaries in
half and asked employees to take a 10 percent pay cut across the board,” Mr.
Hinckley said. Guy Dunbar, a former production manager who now owns Dunbar
Real Estate in Southwest Harbor, recalled that “after a year, they paid us
the difference.”

Meanwhile, Mr. Hinckley went overseas and sold boats to Germans and Japanese
for whom the luxury tax was not an issue. “We never leveraged up the
company,” Mr. Hinckley said. “We paid down loans. When we sold the company,
it had just $1 million in debt.” Bain Willard Companies, a Boston-based
private equity firm, was the first buyer, 12 years ago. It paid about $20
million, equal to about one year in sales, putting down about 25 percent in
cash and borrowing the rest, according to several people with knowledge of
the negotiations.

And Bain Willard had the wind at its back. Hinckley had introduced the
“picnic” boat not long before — a luxurious powerboat that combined the look
of a New England lobster boat with a water jet propulsion system, instead of
a propeller, that allowed the boat to maneuver in shallow water. It had been
an instant hit.

Bain Willard expanded Hinckley, opening service centers in Florida,
Maryland, Rhode Island and other places. In those boom times, the strategy
paid off. In 2001, it sold about 51 percent of Hinckley to Monitor Clipper
of Boston for an estimated $40 million in debt and equity. Bain Willard
executives could not be reached for comment, and Monitor Clipper declined to
comment.

But after Sept. 11, 2001, and the start of war in Iraq, boat buyers became
nervous and growth stalled. In 2005, Hinckley sold its real estate across
the country, raising enough money to pay down much of its debt, according to
a person with knowledge of the company’s finances. It leased back the land,
replacing interest payments with rent payments. Its revenue recovered in
2006 and 2007 before the economy weakened.

The company has begun to monitor its cash flows aggressively. “We have
always watched over receivables,” Ms. Brunetti said. But this went further,
she said.

One owner, who has had a number of Hinckleys, said he had a lien on his
boats for several thousand dollars in storage fees after doing business with
Hinckley for years. And a former employee said: “If a customer was 30 days
behind on payments, we had to call. It was just not the way we had done
business.”

But Mr. McManus countered that asking customers to pay what they owed was
simply good business and that relations with clients were good. Still, in a
business that deals with the superwealthy, that aggressiveness can
antagonize important customers, several former employees said.

In Ms. Brunetti’s opinion, “Today, people are worried about doing business
with Hinckley because of the monetary situation and their reputation for how
they treat their customers,” she said. “That has taken a toll.”

Hinckley’s problems have also taken a toll on its hometown.

Leslie McEachern, the owner of McEachern & Hutchins, a hardware business his
family has owned for six decades, said: “Hinckley was a good business in the
area. They employed a lot of people. Unemployed people don’t spend money,
and all the businesses around here are feeling it.”

Ms. Brunetti said: “What upsets me is that this is a small town. Lots of
people who really loved the company got hurt.”

Copyright 2009 The New York Times Company

BenC
S/V Susan Kay
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