How Air Tractor Propelled Exports By Helping South American Farmers [ BY WILLIAM LOBDELL ]
Nearly two decades ago, Leland Snow, Air Tractor’s founder and a legendary innovator in agricultural aviation, sat down with his finance guy to talk about the company’s future.
He pointed out to David Ickert that selling crop-dusting planes in the United States was a seasonal business, and that Air Tractor’s revenues could increase dramatically with some serious international sales. (At that point, exporting represented only about 10 percent of the company’s revenue.) Plus, by opening markets in the Southern Hemisphere where summer starts Dec. 21, a steady stream of income could be generated throughout the year.
As Ickert recalls: “Leland said, ‘I’d like to see us do more in Central and South America, but I don’t know a thing about how to do it. That’s your job.’”
Ickert had zero export finance experience, but in a small Texas-based company where executives wore many hats, he understood he’d need to find a way to get the job done.
He did. And over the past 19 years, Air Tractor has evolved from a domestic-centric operation in rural Texas to a model for how a small American business with little international experience can thrive as an exporter.
Today, international sales make up more than 50 percent of Air Tractor’s revenue, which tops more than $75 million annually. The company’s work force has grown from 100 to 280 employees, an increase that can be mostly attributable to its exports. And Air Tractor planes—almost all financed with the help of a public-private partnership—can be found in more than 30 countries.
“With 95 percent of the world’s population residing outside the borders of the U.S., with a growing world population and with the resulting need to feed this growing population, exporting is key to Air Tractor’s future,” Ickert says.
Air Tractor’s foray into exporting reflects the company’s trailblazing DNA that was infused by the late Leland Snow, a groundbreaking pilot, engineer and entrepreneur who had the mind of an engineer and the heart of an adventurer.
At age 16, Snow—with the help of two buddies—bought his first airplane in 1946. And before he entered college, the big-dreaming Texan had rebuilt a badly damaged plane and then used it on weekends to make the 330-mile commute between Harlingen and Bryan-College Station, where he studied aeronautical engineering at Texas A&M.
“With typical youthful belief in my own immortality, I never called for en route reports or forecasts, preferring instead to operate on the theory that I’d find out what the weather was when I got there,” Snow wrote in an unpublished autobiography.
By his junior year in college, he obtained his commercial pilot’s license and worked in the summer spraying crops from the air—which immediately got his engineering mind thinking about how to improve the design of the poorly retrofitted crop dusters.
While still in college, he built a better crop duster, the precursor to a series of airplanes that propelled the success of two companies that Snow founded. He sold his first company, The Snow Aeronautical Company, to Rockwell-Standard in 1965 and watched helplessly as Rockwell closed the factory in Olney and moved operations to Georgia.
As soon as his non-compete agreement expired in 1972, Snow—who died two years ago while jogging at age 80—launched Air Tractor and again opened a factory in Olney. In 2008, with his company long since established as the world’s leading manufacturer of agricultural aircraft, Snow turned Air Tractor into an employee-owned company.
“Leland felt that Air Tractor employees helped make the company what it is, and the benefit of ownership would drive them to continue to build the business that he loved,” according to the company’s website.
And today, Air Tractor’s bullish future rests largely on its successful export strategy.
“Domestically, we are looking to make small gains,” company President Jim Hirsch says. “But our big future growth will be to continue to get our products in new countries throughout the world.”
It’s not like Air Tractor wasn’t exporting from the beginning. Snow’s superior products were always coveted around the world.
“Interestingly,” says Kristin Edwards, a daughter of Snow who works as the company’s vice president of sales, “I’ve looked back at early records in the late 1950s and ‘60s, and my dad was selling planes in Sweden and Central and South America. It was part of the early days of the company.”
But international sales were limited to those who could afford to buy one of Leland’s six-figure planes without financing.
Enter exporting finance novice David Ickert. Snow’s directive: Figure out a way to finance our planes for the international market. The crop dusters were big-ticket items, priced deep into the six-figures. Foreign customers simply couldn’t get loans for that kind of purchase in their country, so Ickert started cold calling U.S.-based banks.
“The biggest surprise I experienced was the lack of banks that would really talk to a small business like ours about export trade finance,” Ickert says. “I got a lot of doors shut in my face.”
Finally, Ickert got an appointment to see two Norwest (now Wells Fargo) bankers, and he flew to Minneapolis to see them.
“It was the greatest trip I’ve ever made,” says Ickert, who still works with the bankers. “They were willing to help us and be patient with us.”
Eventually, a deal was stuck. Air Tractor would do the legwork to get foreign customer loans guaranteed by the Import-Export Bank of the United States, a public export credit agency that assists in financing the export of U.S. goods and services to inter- national markets.
Then, because Air Tractor didn’t have the capital to finance the deals, it would turn the paperwork and guarantee over to the private bankers, who would make the loan.
“Without that financing, we would not make the sale,” Ickert says. “It’s that simple and that important.”
To make the arrangement work over the long haul, Air Tractor carefully vetted potential customers, looking over their financials and also visiting their operations to get a feel for their credit worthiness.
“We will travel to their country, see their business, get to know the customers to see if they are real,” Ickert says. “Do they look good? Are they running solid operations?”
Financing paperwork is complicated by foreign customers with informal accounting practices.
“Most of the small operators and farmers do not routinely prepare financial statements,” says Phil Jeske, Air Tractor’s finance manager. “They all know their sales, income and assets, but they don’t reduce it to written form. The first trip for a customer down the path of international financing is always the most difficult.
“Dealing with organizing the import paperwork, registrations for the central bank, preparing the financial package for the lender/exporter and waiting on financing approval can create a great deal of buyer fatigue. It is very important to manage the customer’s expectations regarding the length of time a transaction will take as well as the amount of information they will need to provide about their business.”
Returning customers were key to the company’s export strategy.
“Air Tractor takes a different view of our export finance program than most companies,” Jeske says. “We are looking for repeat sales that help both us and our customers. Our dealers always make site visits prior to the sales, and we personally make customer calls to every potential borrower as well. We want to help their business grow, but we also expect them to pay for what they purchase from us.”
To date, Air Tractor has arranged export financing for about 250 airplanes and has yet to have a default, something Ickert says was “very, very important to us. We take ownership of that financing so it works for all parties.”
Last year, the company was able to arrange 45 loans that averaged about $750,000 each.
Not that export financing is easy.
Take it from Jeske: “Export finance is basically commercial lending on steroids. You have the same ratios and analyses routinely used in commercial lending, but then you add different cultures, language barriers, 10-hour plane flights, export laws, letters of credit, export insurance and foreign attorneys into the mix, and it gets a bit complicated.
“Can anyone learn export finance? Absolutely. It’s not rocket science, but there is a pretty good learning curve. Working for a small business involved in export financing forces you to learn all aspects of the export process. At Air Tractor, we are the exporter, the lender, the loan servicer and the collection agent.”
Finding financing hasn’t been the only boost to Air Tractor’s exports. The worldwide trend from family farming operations to large agri-business operations that need heavy-duty equipment has created a demand for Air Tractor’s crop dusters.
John Mishler, who heads Air Tractor’s dealer operations in most of Central and South America, says, “Most of our sales are concentrated in Brazil and Argentina where soybeans, corn, rice, cotton and sugar cane are grown on a huge scale. Brazil will likely surpass the U.S. in soy bean production this year.”
The evolution toward global capitalism helped Air Tractor break into new markets such as Russia and other former Eastern Bloc countries.
“Some of these places just weren’t friendly to U.S. companies under Cold War doctrines,” Hirsch says. “The number of places we can go has greatly expanded.”
In identifying new markets, Air Tractor officials keep an eye on where large agricultural machinery is being sold internationally—who is buying tractors needed for major swaths of farmland—and also commission studies to gauge which countries are headed more quickly toward agri-business.
“We go to countries that need high output agricultural applications,” Hirsch says.
At first glance, shipping an airplane would appear to be an expensive proposition. But only three of the 92 Air Tractor planes sold internationally needed to be shipped via container ship.
Instead, Air Tractor uses ferry pilots to simply fly the planes to its customers. For instance, to deliver a crop duster to Primavera do Leste, Brazil, the pilot would airport hop from Olney, Texas, to Fort Pierce, Florida; San Juan, Puerto Rico; Boa Vista and then Cuiaba, Brazil; and finally landing in Primavera do Leste. The longest leg an Air Tractor plane can fly is 2,350 nautical miles, allowing aircraft bound for Pacific Rim countries to make it to Honolulu from the West Coast and then island hop.
Air Tractor sells its products through dealers, many of whom had been former customers. In the insular agri-business world, many already know about Air Tractor’s airplanes. But it’s the development of solid relationships that make the sale.
“We stay in contact with leads by phone, Skype, chat and e-mail,” says dealer Mishler. “But face to face meetings are very important. Sometimes after flying for 12 hours we get in a car and drive for six hours on roads filled with pot holes to get to a customer. We get to know our customers on a first-name basis and many times get to know their families. This is very important for doing business in Latin America. About 50 percent of our business is with repeat customers so we make sure to take good care of our customers after the sale.”
Besides working with the Import-Export Bank, Air Tractor takes advantage of other services provided by the U.S. government to help small businesses with their exporting efforts. For instance, the company has used the Department of Commerce’s Gold Key Matching Service when breaking into a new country. For a small fee, U.S. Commercial Service will put together for a company a list of pre-screened, potential local agents, distributors, sales representatives and business partners.
The company also stays active in the Small Business Exporters Association and the National Small Business Association.
“It’s important to talk to people who are engaged in the exporting business,” Ickert says. “A lot of people will fly in here to talk with us about how we are doing it, and we are more than happy to spend time to talk to anyone.
“If we can do it at Air Tractor in Olney, Texas [population 3,236], it can be done by any company in the United States.”