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'MR. PATIENT MONEY' STEPS IN AGAIN

This Saturday, Magellan Aerospace will face a crucial deadline when $165-million in loans come due. Luckily, the struggling aircraft parts maker has the backing of its chairman and biggest believer, Murray Edwards

TRANSPORTATION REPORTER

00:00 EDT Tuesday, May 20, 2008

Just days before Magellan Aerospace Corp. could be sent reeling by its bankers, investors appear to have one major weapon on their side - the legendary patience of the company's chairman, Murray Edwards.

The Calgary financier, who is Magellan's largest shareholder, is poised to renew his loan guarantees at the Canadian aerospace company, relying on the soaring value of his energy investments as collateral to support the struggling aircraft parts maker.

A banking syndicate's $165-million in loans to Magellan are due Saturday, making investors nervous about whether the loan will be called. If bankers ask for their money back, Magellan would be forced to sell assets, restrict its capital spending and scramble to refinance at higher interest rates, analysts warn.

But in an interview, Mr. Edwards said he is taking the long-term view on Magellan, optimistic that the manufacturer will be able to stage a slow but steady comeback.

"I've been called Mr. Patient Money because I have the patience to work through challenging circumstances," the billionaire said.

Mississauga-based Magellan is keeping in close contact with its bankers, as Saturday's loan renewal deadline approaches, Mr. Edwards said. "Our bankers have been very supportive, and they've indicated that the May 24th deadline will not be a problem."

Mr. Edwards first pledged his own collateral to guarantee the loan facility in 2005 from four banks: Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Royal Bank of Canada and Pennsylvania-based Sovereign Bank. The value of his collateral, including a portion of his energy stocks, has soared over the past three years - calming the nerves of the lenders, said an aviation industry insider.

Besides his loan guarantees, Mr. Edwards has provided his own loans totalling $65-million to embattled Magellan, including a $15-million bridge loan that's due July 31.

"I've learned in life that loyalty is an important thing," he said. "People will work hard and work with you, as long as you're loyal and appreciative of them. That's the lesson I've learned. I've been fortunate to have a lot of dedicated management. The least that I can provide back to them is support and loyalty."

While the value of Mr. Edwards' Magellan shares fell $157-million over the past 11 years, the rest of his investment portfolio has skyrocketed. His Canadian Natural Resources Ltd. shares, for instance, are now worth $1.1-billion, compared with $92-million in 1997.

Estimates by The Globe and Mail, based on public filings, show that the value of his public and private investments now total nearly $2.3-billion, or five times more than they were worth in 1997, when Magellan was his second-largest holding.

A decade ago, his Magellan stake was worth more than his Canadian Natural shares, but the oil and gas producer is now his No. 1 holding. Mr. Edwards' 27.8-per-cent interest in Magellan is currently worth $30-million - one of his smaller holdings.

He is philosophical about the dramatic change in fortunes in his energy and aerospace investments.

"The resource sector has done well over the last decade. But I've always used aerospace as a little bit of diversification away from my resource investments. Maybe, at some point in time, it will be diversification that works out," said Mr. Edwards, who became Magellan's chairman soon after he first invested in the company in 1995.

"Things go through cycles and clearly, right now, the resource-based economy is creating strengths in Western Canada. Governments in Eastern Canada are having to refocus and adjust some of their [manufacturing] policies to make sure they're competitive on a global basis. Things that worked a decade ago don't work today."

Mr. Edwards serves on the federal Competition Policy Review Panel, formed by the Harper government last summer. The panel is finalizing its recommendations for producing a more competitive Canadian economy.

Magellan chief executive officer James Butyniec said the aircraft parts maker plans to stage a turnaround by focusing on higher-value work in-house, outsourcing more labour-intensive work and also by opening a lower-cost production site in India by the end of 2008. Magellan currently employs 3,500 people in Canada, the United States and Britain.

Magellan has posted annual losses in each of the past six years, hurt by the Sept. 11, 2001, terrorist attacks, the rising loonie and lower profit margins as parts suppliers get squeezed by plane manufacturers such as Europe's Airbus SAS and Chicago-based Boeing Co.

But Mr. Edwards is buoyed by Magellan's financial results released earlier this month, showing a first-quarter profit of $2.1-million, compared with a $1.7-million loss in the same period of 2007.

"Based on the results of the first quarter, there appears to be a light at the end of the tunnel. I just hope that light is clear skies and not a train coming at us with another challenge," Mr. Edwards said.

"We need to have relative stability of the currency. We need the Canadian currency to hopefully move down to 95 cents [U.S.] for Canadian manufacturing to be competitive in the global marketplace. If the currency does not show stability - if it continues to appreciate - then we again will have another set of challenges and have to be patient."

CIBC World Markets Inc. analyst Chris Murray cautions that Magellan needs to improve its balance sheet, pointing out that it breached certain financial covenants on the ratio of assets to liabilities, but the manufacturer's bankers recently granted a waiver in order to keep operations going.

Magellan vice-chairman Richard Neill acknowledges that there isn't any quick fix. "The message we have been telling the Street is that it will not be an overnight recovery," he said.

Mr. Edwards is also urging patience, saying Magellan is on the mend despite the rising loonie, which has driven up labour and manufacturing costs.

"There are lots of positives, if you look at the macro trend of the industry. There have been record orders for Boeing and Airbus. It takes a period of time for the new programs to work into the supplier base," he said.

"In many ways, we have more opportunities to get involved with the next platform of growth. In the case of Boeing, it's the 787, and in the case of Airbus, the A380 and A350. Magellan can participate from the grassroots. We're going to have dramatically more revenue per plane because they're new programs."

MURRAY EDWARDS BILLIONAIRE PORTFOLIO SNAPSHOT

Publicly traded holdings

Calgary billionaire Murray Edwards holds a wide range of investments. According to estimates by The Globe and Mail, his interests in publicly traded investments are worth $2.2-billion. Here's the breakdown:

ENERGY

Canadian Natural Resources Ltd., $1.1-billion

Ensign Energy Services Inc., $563-million

Penn West Energy Trust,

$353-million*

AVIATION

Magellan Aerospace Corp.,

$30-million

WestJet Airlines Ltd.,

$64-million*

FINANCE

Jovian Capital Corp., $23-million

MINING

Imperial Metals Corp.,

$109-million

*Estimates, based on past holdings

Private holdings

Mr. Edwards also has large stakes in private holdings from ski resorts to oil paintings. Those assets boost his net worth close to $2.3-billion, industry experts say.

SPORTS AND LEISURE

Calgary Flames (chairman)**

Resorts of the Canadian Rockies (majority owner)

FINANCE

FirstEnergy Capital (co-founder)

Edco Financial Holdings Ltd. (president)

ART

Collector of Canadian and French Impressionist art

**His 17-per-cent stake in the Flames is estimated to be worth $30-million.

Brent Jang

© The Globe and Mail


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