40 Westminster Street
Providence, Rhode Island 02903-2596
Telephone: (401) 421-2800
Fax: (401) 421-2878
Incorporated: 1923 as Special Yarns Corporation
Sales: $11.58 billion (1999)
Stock Exchanges: New York
Ticker Symbol: TXT
NAIC: 336411 Aircraft Manufacturing; 336112 Light Truck & Utility Vehicle Manufacturing; 33636 Motor Vehicle Seating & Interior Trim Manufacturing; 336399 All Other Motor Vehicle Parts Manufacturing
Textron's Vision is to be: One of the World's Best Managed Companies; Excellent Managers of Shareholder Resources; A Multi-Industry Company with Global Leadership Positions in Each of Our Businesses.
1928: Raymond Little starts Special Yarns Corporation in Boston.
1952: Little starts Textron's cross-country buying spree.
1960: Bell Aircraft is acquired.
1963: Textron sells off its last textile holding.
1985: Textron acquires Avco for $3 billion.
1992: Cessna is bought, two years before aviation liability reform legislation enacted.
1999: Textron sees record profits; sells Avco Financial Services for $3 billion.
Textron Inc. has made so many changes in its corporate identity that any characterization of it is subject to revision on rather short notice. It has, however, consistently earned a profit for its stockholders. For that reason, many investors may not care what it does so long as it keeps generating a profit for them. Textron, involved in many industries, has limited its areas of investment since the 1970s. Through its Bell Helicopter and Cessna subsidiaries, Textron remains an important United States aerospace manufacturer.
Birth of a Conglomerate
The man behind the success of Textron, Royal Little, graduated from Harvard in 1919. He then sought practical business experience as an unpaid apprentice at a textile mill before working for the Franklin Rayon Yarn Dyeing Corporation. There, he recognized the drawbacks of producing a product in a business vulnerable to volatile market cycles. As far back as the 1920s, Little advocated diversification as a means to insulate a company from occasional slumps in certain lines of business. Specifically, Little advocated 'non-related' diversification, that is, simultaneous operation of totally unrelated businesses. The system had to be unrelated so that heavy losses in one business would not affect the profitability of related industries.
Little founded the Special Yarns Corporation in Boston, Massachusetts in 1928. With first year revenues of $75,000, these were modest beginnings for the world's first conglomerate. By World War II, the company had been renamed the Atlantic Rayon Corporation. The textile business boomed during the war, but by 1943, Little was already looking to the civilian market. At this time, the company changed its name to Textron. The name comes from 'textiles' and the '-tron' suffix of synthetic fabrics such as Lustron. (It is hard to imagine a global conglomerate named 'Señorita Creations,' but that was the advertising agency's first choice.)
Revenues reached $67.8 million in 1949. Neither Little nor his company, however, were in a position to implement a general diversification until 1952. Little later recalled in his book How to Lose $100,000,000 and Other Valuable Advice that a banker refused to back his acquisitions until he proved that he could run a textile business. Little successfully completed a hostile takeover of American Woolen in 1955 in what Fortune magazine called 'the stormiest merger yet.' Little's policy for successful takeover bids was to 'be sure to pick a company whose board of directors isn't smart enough' to fight back with a counter-takeover.
In 1956 Royal Little hired a Providence banker, Rupert Thompson, to oversee what he admitted were his irrepressible impulses to acquire more companies. Thompson made sure that Textron's acquisitions were 'balanced,' or sufficiently spread out so that a depression in any one market would not severely affect the company as a whole. Based on this strategy, Little and Thompson established what has (arguably) been declared the world's first conglomerate. Notable acquisitions in the 1950s included Homelite, Camcar, and CWC.
Airborne in the 1960s
Textron entered the aerospace industry in 1960 when it purchased the Bell Aircraft company. Bell was best known for its helicopters, but first gained wide recognition shortly after World War II when it built the XP-59 Airacomet, which was the first American jet aircraft. During the war, Bell was a major supplier of aircraft parts to the Army Air Corps. Its founder, Lawrence D. Bell, worked as an engineer for Glenn Martin and later for Donald Douglas. Under the protection of Textron's financial umbrella, the Bell division was able to invest more money into longer-term research and development of helicopters and their new specialty, rockets.
Royal Little retired from Textron in 1962 and relinquished his seat on the board of directors. Thompson maintained a strict policy toward Textron's various divisions. The company would sell a particular division at the first sign of adverse performance. Such was the case for Textron's last textile holding in 1963; Amerotron was sold when it 'failed to perform.'
Rupert Thompson was described as having combined Alfred Sloan's management strategy for General Motors and Little's strategy of growth through acquisition. Textron maintained a consistency for meeting production and financial targets, demanding a 20 percent return on equity after taxes for the company's various divisions. Thompson was the manager of a company that, perhaps, was better described as an asset portfolio, or 'management concept.'
Rupert Thompson left Textron in 1968 after he was diagnosed as having cancer. The man he appointed to take his place was the company's president, G. William Miller. The company Miller took over was a well-diversified manufacturer of tools, industrial machines, consumer goods, plastics, appliances and, of course, helicopters.
Only months after he assumed the leadership of Textron, Miller attempted a takeover of United Fruit. When the attempt was thwarted Textron returned to less ambitious acquisitions of small firms, particularly zipper and fastener manufacturers. By 1971 Textron was ready for another ambitious takeover, this time of the Kendall Company, which would have placed Textron in the healthcare business. The attempted takeover of Kendall failed when another company outbid Textron.
Miller's most ambitious takeover attempt came shortly afterward when he tried to engineer a 45 percent controlling interest in the larger but nearly bankrupt Lockheed Corporation. Lockheed resisted the bid and later brought pressure from Wall Street upon Miller to abandon the takeover.
Miller's attempt to enter into the oil and gas business was cut short when he left the company in 1977 to take a position with the Carter administration as Federal Reserve chairman, and then later as secretary of the Treasury. One of Miller's best qualities was his insightful recognition of the fact that the United States was rapidly transforming itself into a service-oriented economy. He brought Textron into financial services by acquiring insurance and other financial service companies.
A New Strategy for the 1970s
The man who replaced Miller was Joseph Collinson. Collinson's tenure was short-lived; he retired from the company in 1979. He was succeeded by Bob Straetz as chairman and Beverly Dolan as president. (Dolan had started E-Z-Go, the golf cart manufacturer, in his garage. He joined Textron when it bought the company in 1960.) The new men in charge were quicker to sell divisions that were performing poorly. One of the first to be sold was Polaris, the snowmobile manufacturer.
Straetz and Dolan later divested Textron of divisions not related to aerospace or technology. In effect, Textron was being reconverted into an operating company. They professed impatience with subsidiaries that did not 'perform' and promised to 'dump' them without a grace period. Straetz told Fortune magazine, 'Some of that concept of non-related diversification still exists, but we're trying to make Textron a more focused company.' The company operated principally around Bell Aerospace, which accounted for about one quarter of Textron's sales.
Bell's UH-1 Huey helicopter was used extensively during the American involvement in the Vietnam war. After Vietnam, Textron cultivated a strong market for Bell helicopters in Iran. This $875 million market was lost, however, with the fall of the Shah. From this turn of events, Straetz and Dolan learned the importance of maintaining a diverse group of customers. They tried next to establish a lucrative commercial market for Bell.
Bell produced a number of light helicopters, characterized by their dragonfly appearance. It competed with Boeing's Vertol and, particularly, with the Sikorsky division of United Technologies. Sikorsky manufactured larger, heavy-duty helicopters, but competed intensely with Bell in the medium-sized section of the market. Typical of many recent Pentagon contracts, Sikorsky and Bell were teamed to jointly develop a 'VTOL,' or vertical takeoff and landing airplane.
Bell was the division most responsible for Textron's identity as an aerospace company. That identity was preserved by the continuing success of Bell. Whereas Bell's products were of good quality, however, a unique management structure also must be credited for the general success of the division and its parent.
Unlike most other firms, an unusual amount of authority was vested with Textron's vice-presidents. A vice-president was thereby enabled to specialize in a certain area of the operation with the full authority of his office behind him. This also encouraged good communication within the top management echelon and allowed the president and chief executive officer to concentrate on more general matters, such as acquisitions and divestitures. Many American corporations have admitted to copying this style of management.
In 1984 Textron was the object of a hostile takeover bid by Chicago Pacific Corporation. It was the third unsolicited bid for Textron, which had become a target because of its large debt. Chicago Pacific was one-sixth the size of Textron. It had emerged from bankruptcy only months before the bid, selling all its railroad capital, including engines, track, and traffic rights. The company had a large amount of cash and was embarking on an acquisition program. Textron, however, mounted a defense that rather easily foiled the takeover bid.
Shortly thereafter, Dolan completed Textron's $3 billion acquisition of Avco. Avco was formerly the Aviation Corporation of the Americas, one of the three large aeronautic combines of the 1930s and the company that launched Pan Am and American Airlines. Over the years Avco gradually sold most of its aircraft interests until, by 1985, it was primarily a financial institution centered around the insurance business. (It did continue to manufacture sections of large military aircraft, however.) Avco already was threatened by a takeover from a smaller company when Textron, Avco's preferred suitor, made its own bid. With the success of the Avco acquisition, Dolan replaced Bob Straetz as chief executive officer.
In 1985 Textron surprised its stockholders by offering to sell its main operating division, Bell Aerospace. Upon closer inspection the stockholders voted in favor of the proposed sale, but it marked a serious change in Textron's stated intention to convert itself from a conglomerate into an operating company. The sale of Bell was intended to raise stockholders' return on equity and eliminate the corporate debt that made it an attractive takeover target.
The sale was postponed following an improvement in the company's financial position. Bell ultimately was retained and reorganized into two operating units: Bell Aerospace, which continued to handle the aeronautic business; and Textron Marine Systems, for marine projects.
Still Flying After the Cold War
By the late 1980s, the hounds of peace could be heard over the Steppes. The end of the Cold War hurt defense company stocks, and as one analyst explained in Forbes, conglomerates generally suffered according to their lowest common denominator. At the time, Textron's 32 operating companies made up three groups: aerospace, commercial products, and financial services. In the last category, the company's Paul Revere Insurance helped lift Textron's balance sheet. Still, aerospace, with 1988 sales of $3.6 billion, remained the largest division (the other two had sales of less than $2 billion each).
Textron had high hopes in the $25 billion V-22 tilt-rotor aircraft program. Developed by Bell and Boeing for the U.S. Marine Corps, the fusion of helicopter and fixed-wing aircraft was expensive to fly. Faced with few possible users in the United States, the company resorted to asking Japan and West Germany for funding for a civilian variant. Fortunately, the market for civilian helicopters was up, and Avco Corp., now the Aerostructures division, had entered the booming airliner market, making wings for Airbus. Textron's automotive businesses also were generally lucrative.
One strategic priority was regaining an overseas presence, lost with the sale of Ex-Cell-O Corp.'s machine tool businesses in the mid-1980s. In 1989, however, U.S. regulators blocked Textron's $250 million purchase of Avdel, a British manufacturer of industrial fasteners. Textron was able to make progress through a manufacturing venture in The Netherlands with Ford and a helicopter distribution arrangement in Japan (Mitsui). Textron had revenues of $7.4 billion in 1989.
Textron acquired Cessna Aircraft from General Dynamics for $605 million in early 1992. The company had made 6,500 small planes a year in its heyday, but this business had been crippled by an industrywide wave of airplane crash lawsuits. When Textron bought it, Cessna was devoted to manufacturing its popular line of Citation business jets. Legislation in 1994 to limit manufacturers' liability on planes more than 18 years old, however, made making single-engined, propeller-driven aircraft feasible again, and the company resumed production on the small trainers that made it famous. Cessna's revenues were $783 million in 1993.
Revenues reached $8.3 billion in 1992. Aerospace contributed more than a third of the company's profits, in spite of the reliance on military contracts. The financial segment accounted for 43 percent of income; commercial, 20 percent. James F. Hardymon became CEO in 1992 after joining Textron as president and chief operating officer three years earlier. (He had previously held those two positions at Emerson Electric.)
Textron bought Acustar, Chrysler's plastics operations, for $139 million in 1993. The same year, it sold the public a 16.7 percent stake in Paul Revere Insurance, the star of Textron's financial services portfolio. The unit suffered heavy disability claims in 1994, which led Hardymon to consider selling the remainder of the company. Homelite, a maker of lawn care equipment, was divested in 1994, as was piston aircraft engine manufacturer Lycoming. These sales took in $495 million. After several years, Textron finally was able to gain control of Avdel. In the mid-1990s, the fastener and automotive businesses were merged into Textron Fastening Systems and Textron Automotive Company, respectively. In late 1994, Bell did win a $2.5 billion contract to make just six V-22 aircraft for the U.S. military, although a V-22 crash soured the Pentagon on a full-scale production contract.
Hardymon retired in July 1998, succeeded by Lewis B. Campbell. Like his predecessor, Campbell had grown up in the rural South and studied engineering before working in sales, marketing, and management positions. Campbell formed his career at GM, rather than Emerson Electric, like Hardymon. He joined Textron in 1992 and became president and chief operating officer within two years. Campbell also became board chairman in February 1999.
By the late 1990s, more than 30 percent of Textron's revenues came from abroad. The company posted record results in 1999 as revenues increased 20 percent. Textron acquired 18 business and entered two joint ventures while selling Avco Financial Services for $2.9 billion. A fatal crash of a Marine V-22 Osprey in April 2000, however, raised doubts about the viability of the program.
Principal Subsidiaries: Bell Helicopter Textron; Cessna Aircraft Company; Textron Automotive Company; Textron Fastening Systems; Textron Industrial Products; Textron Turf Care and Specialty Products.
Principal Divisions: Aircraft; Automotive; Industrial; Finance.
Principal Competitors: General Electric Corporation; Learjet Inc.; United Technologies Corporation.
Banks, Howard, 'Being a Conglomerate Is Not All Bad,' Forbes, December 11, 1989, pp. 40-41.
Byrne, Harlan S., 'Lifting Off,' Barron's, March 27, 1995, pp. 17-18.
'Case Study in Diversification,' Forbes, June 7, 1993, p. 14.
Eisenhauer, Robert S., Textron--From the Beginning, Providence, R.I.: Textron Inc., 1979.
Little, Royal, How to Lose $100,000,000 and Other Valuable Advice, Boston: Little Brown, 1979.
Simon, Jane, 'With Its Second Billion-Dollar Buy, a Remodeled Textron Eludes Easy Definition,' New England Business, September 15, 1986, pp. 37-39.
Wrubel, Robert, 'Lost Innocence,' Financial World, August 11, 1987, pp. 20-22.
Zipser, Andy, 'Into the Wild Blue Yonder,' Barron's, August 15, 1994, p. 14.
------, 'The Text on Textron,' Barron's, June 14, 1993, pp. 32-33.
Source: International Directory of Company Histories, Vol. 34. St. James Press, 2000.