David Storch, CEO of AAR Corp., goes up against the goliaths of the aerospace business — Boeing, General Electric, United Technologies. But he’s not complaining.
His company serves commercial aviation, a volatile industry, with airline customers regularly going in and out of bankruptcy while others just fade away. Again, Storch has no complaints.
And he serves the defense business, where orders can be curtailed by governmental budget cutbacks and wars that end.
Among the lessons Storch has learned about the aviation industry during his 34-year tenure at Wood Dale-based AAR Corp. is that it doesn’t pay to whine, and that tomorrow will be different from today.
Storch also knows that AAR, which his father-in-law founded in the 1950s by selling surplus World War II aircraft parts, will adapt.
“He’s extremely entrepreneurial and is very good at analyzing what’s going on in the markets and how he can use that to the advantage of AAR and make the right strategic moves,” said Jim Goodwin, former CEO of United Airlines and a member of AAR’s board since 2002.
Storch, 60, joined AAR in 1979 and has been CEO since 1996. He has seen the company grow from sales of $90 million to $2.1 billion today, with 6,000 employees in 17 countries. Locally, it employs 440.
With the enviable stock ticker symbol AIR, its volatile stock price has nearly doubled during the past year. The company’s aircraft maintenance, repair and overhaul business is the largest in North America and third-largest in the world, according to Aviation Week.
Last year, Ernst & Young named Storch as Entrepreneur of the Year for the Midwest, and AAR has appeared on the Chicago Tribune’s Top Workplaces list. Locally, he has served on the boards of the Chicago Urban League and The Executives’ Club of Chicago, and he is a member of The Economic Club of Chicago.
Those who stand with Storch at AAR abide by simple rules. One might be summed up as, “no whining.”
When AAR struggled after the 9/11 terrorist attacks, he maintained compassion for those who suffered, but he grew weary of the tragedy being used as an explanation for business failures. He forbade his managers from using it as an excuse.
“I hate victims,” he said, meaning a victim mentality. “Stuff happens. It’s a tough world. … Let’s find the opportunity.”
Storch prizes perseverance as a trait in employees.
“I think you have to fight through adversity. And how you fight through adversity tells you a lot about somebody,” he said. “It might be a bit of Neanderthal thinking, but at the same time … I like that characteristic of going through a tough time.”
Another rule is to take calculated risks.
“I tell my people: ‘Don’t wait for me.’ If you wait for me, we limit our ability to grow this company,” Storch said. “If you’re right 100 percent of the time, it means you’re not taking enough risks. Calculate the odds and make a decision, and I’ll stand behind you.”
Those are a couple of the principles that have guided Storch during his career at AAR, where, as a young man, he took the struggling company in a new direction to supply engine parts for commercial airlines. He did it again after 9/11 as AAR diversified away from commercial airlines. And he continued in recent years to do it with strategic acquisitions of other companies.
Storch describes his guiding philosophy as innovation and execution.
“He’s built up a great lineup of different businesses,” said stock analyst Larry Solow of CJS Securities, who rates AAR stock as a “market outperform,” meaning “buy.”
“I think he’s done a good job.”
Lest you think Storch’s hard-charging competitiveness, honed as a college basketball point guard, hardened him, consider the AAR manager at a plant in Cadillac, Mich., who became sick, but local doctors couldn’t diagnose a problem.
Storch had him flown from Michigan to the highly regarded Mayo Clinic in Minnesota. There, the manager was diagnosed with lymphoma. He underwent chemotherapy and recovered. The man later met Storch’s children at a company function.
Storch haltingly recalls the moment.
“He told my kids: ‘Your dad saved my life,'” he said. “That, to me, is what it’s about.”
Or consider Cheryle Jackson, the 2010 U.S. Senate candidate who now works for Storch as vice president of government affairs and corporate development.
Jackson recently developed breast cancer and underwent a related operation.
“David called me on that day, after surgery, to check on me,” she said. “And the next day, and the next day. Every day, he called.
“That (type of) story isn’t unique to me.”
Storch was raised in a middle-class household in Westbury, N.Y., on Long Island. His parents were first-generation Americans, with their parents hailing from Eastern Europe.
He remembers always being very competitive, especially in athletics.
“I grew up in a very competitive environment, and I liked to win,” he said. “I always knew I would be successful in one way or another.”
Storch figured he would follow his father’s footsteps in practicing law.
But after struggling as a student during his first two years at Ithaca College in upstate New York, where he was point guard on the basketball team and spent more time on “basketball and beer” than studies, Storch took a year off after his sophomore year to travel across the country with two friends.
The trip was eye-opening in many ways. He had never traveled more than a few states away from New York.
“My world had been very narrow,” he said. “It really opened my eyes to the world out there.”
After he ran out of money, one of the odd jobs he picked up along the way was pumping gasoline at a service station in Los Angeles. In a nearby lot, a man was selling Christmas trees but grew frustrated at having so much inventory remaining as Dec. 25 approached.
Storch bought the trees from him at a deep discount and sold them for a profit.
It was a revelation for him, a firsthand introduction to the world of business.
“I made a nice little spread and realized: ‘Wow, this is pretty interesting,'” Storch said. “It was the first time I realized I could make money selling something … that kind of stuck with me.”
Upon his return to college, he turned serious about school and made the dean’s list in his final two years, eventually finishing his undergraduate work at Cornell University.
Soon after college, Storch moved to Chicago to sell advertising. There, he met his future wife, Leslie.
After Storch got married, his father-in-law, Ira Eichner, who founded AAR Corp., asked him to join the company.
Eichner started by selling war-surplus radios out of the back of his car to fledgling airlines in the early 1950s. The company was incorporated in 1955 and during the 1960s was named Allen Aircraft Radio — for Eichner’s middle name, Allen — and later shortened to AAR Corp.
Storch said he didn’t have trepidations about working for his father-in-law. “I thought it would be pretty interesting,” he said. “I thought aviation sounded pretty exciting.”
Shortly after Storch joined AAR, the nation was struggling in the wake of the early 1980s recession. So was AAR, which, at the time, was focused on the general aviation, or private plane, market. It registered its first quarterly loss in company history.
Though only age 27 at the time, Storch made the “brash” suggestion that AAR enter a completely new business — refurbishing aircraft engine parts and selling them to commercial airlines. He volunteered to run it, starting with $100,000 in credit.
The engine parts business soared on the wings of airline deregulation and the growth of startup air carriers. It moved from being a product line to becoming its own division, with Storch at the helm. The business hit sales of $100 million in 1989 as new airlines looked for engine parts that were less expensive than buying from the big manufacturers.
Success hinged on more than opportune timing, Storch said. He built the business on the concept of quality parts and delivering on time, every time.
That meant if his suppliers failed him — and they sometimes did — he would buy new, more expensive factory parts for his customer, taking a loss on the transaction so he could deliver on time and maintain the reputation of the company.
“I built the company around a customer-centric mentality, on the basis that if we deliver for the customer, good things will happen,” he said. “It was my idea of what needed to happen to be successful.”
And in aviation and other markets AAR competes in, quality is synonymous with safety.
The company carved a niche for selling new and refurbished aircraft parts among giants that sold only new ones — Boeing, GE, United Technologies, Northrop Grumman, Lockheed Martin, Airbus.
AAR and its overhauled parts can’t compete directly with the big manufacturers.
“If somebody wants a GE, fresh-off-the-press part, they can only go to GE, and I can’t compete with that,” Storch said. “But I can convince somebody that my part is just as good as their part, only it’s considerably less expensive.
“We have to win on giving our customer a little bit better service, reliability and an all-in better cost solution,” he said.
That worked for a while. Then, as it did with the entire aviation industry, 9/11 changed everything.
At the time, about 80 percent of AAR’s business was with commercial airlines, which were in a financial tailspin after the 2001 terrorist attacks. Airlines grounded planes, which no longer needed parts from AAR.
Quarterly revenues plummeted to about $143 million from $200 million.
“That really had a devastating impact on our company,” Storch said. “I took a position at that point in time that I needed to diversify the customer base and product mix.”
That involved moving AAR out of its “comfort zone” and Storch “rallying his team into a new direction,” Goodwin said. “He very astutely went about looking at how he could take AAR into a new era by diversifying.”
In recent years, about half of AAR’s business has been in commercial aviation. A large part of that is maintaining and repairing commercial airplanes for airlines, which have found it cheaper to outsource some of that work to AAR compared with operating their own facilities. For example, AAR completes maintenance and repair for Southwest Airlines’ Boeing 737s at a facility in Indianapolis.
The other half of AAR’s business comes from government defense contracts in the U.S. and around the world.
For example, AAR has an airlift operation, which Storch describes as “transportation in tough settings,” flying its own planes and helicopters largely in Afghanistan.
AAR doesn’t only provide services for airlines, defense departments and large equipment-makers, it also has plants that manufacture its own products, including aircraft cargo systems, shelters, containers and communications systems for military uses.
AAR today is so diverse, it doesn’t have a direct competitor, only competition within some lines of its business, said Solow, the analyst.
Through the years, Storch has concluded that he’s responsible for two primary things: the AAR portfolio of businesses and the corporate culture.
“The side of him that is so reflected in the culture of the company is that he really cares about employees,” said Jackson, who describes Storch’s management style as “not warm and fuzzy, but extremely genuine and sincere.”
She said he empowers employees to be innovative and suggest ideas. “The culture has to be one of trust and caring for people to stick their neck out with a new idea,” she said. That culture has allowed AAR to be “nimble enough to innovate and reinvent themselves. … You can really thrive in environments like this.”
Storch said he has four constituents: employees, customers, shareholders and communities in which AAR operates.
He sees those priorities as circular. He tries to create a good working environment where employees have all the tools they need “to delight my customers.”
“If I delight my customers, I can delight my shareholders. If I reward my shareholders, I can invest in my communities.” And the communities then provide him with fertile recruiting grounds.
“Creating a vibrant Chicago, which only gets created if you have a strong economic base, is helpful for me to recruit people to our company,” he said. “I think it’s part of our responsibility to make sure this city is vibrant.”
When it comes to short-term versus long-term thinking in business, Storch said he recognizes that AAR, as a publicly held company, must pay attention to the demands of shareholders for near-term results and for hitting quarterly profit numbers.
But his vision is for the long haul.
“I tell people I have a 25-year horizon,” Storch said. “If you don’t like it, either you’ve got to vote me out or you’ve got to go along for the ride.”
David Storch
CEO of AAR Corp.
Age: 60
Lives: Highland Park
Family: Leslie, wife of 35 years; children Julie, Samantha and Michael
Favorite music: Eclectic taste, from Frank Sinatra and Barbra Streisand to Jay-Z and Rihanna. “I could see Paul McCartney one day and Beyonce the next day and be really happy.”
Books: American history biographies. “I’m amazed at how many brilliant people came together at the same time,” he said.
Movie: “The Hangover,” but not the sequels. Fan of movies with Will Ferrell, Katherine Heigl and Jack Nicholson. Not ashamed to admit he likes romantic comedies.
Airplane model: Boeing 747-400. “It’s safe, reliable, comfortable; pilots are experienced in it.”
Influences: John F. Kennedy: “He represented change and youth and vitality.” Also Storch’s father and father-in-law.
National boards: National Air and Space Museum, The Wings Club, Kemper Corp., KapStone Paper and Packaging Corp.
