Tolo Is Sticking to Its Guns

IRVINE — The trough from which 100,000 Southland defense contractors once fed is a lot emptier these days, and the number of feeders jostling for position has shrunk as well.

But Tolo Inc. in Irvine decided to stick with the rough-and-tumble world of defense contracting, which accounts for half its sales. And the gamble appears to be paying off.

The company, which designs and manufactures a variety of metal and exotic composite parts for aircraft, satellite and radar systems and other defense and industrial applications, is projecting explosive growth in its defense and aerospace business, and is planning to expand its payroll.

Chief executive John G. Terranova expects Tolo’s gross annual sales to soar from $11 million in 1995 to more than $73 million by 1999.

As with many defense companies, the road has not been an easy one. From 1990 through 1995, Tolo saw its annual revenue drop by 50% as shrinking defense budgets slashed the amount of work available.

“We had several big contracts canceled while we were working on them,” Terranova said. The company also laid off half its workers during that period, shrinking to about 110 employees before climbing back up to the present level of 180.

But the Tolo company never considered getting out of defense. “It is what we do and we knew that there was work there if we could identify the right niches and fit ourselves into them,” he said.

A large chunk of the company’s anticipated growth is expected to come from defense work, which Terranova said could be bringing in 65% of Tolo’s revenue by the end of the decade.

One big project is a new approach to making an old-fashioned piece of weaponry. Tolo has a Defense Department contract to develop a low-cost method of making bomb casings from cast iron. Terranova, who formerly ran a company that made bomb and missile bodies, said revenue from that one product line could hit $25 million by 1999.

“This is one of those niches,” Terranova said. “The Defense Department will always be in the market for bombs. And for fighters and satellites.”

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The secret of succeeding in defense, he said, is learning a lot of new tricks and figuring out how to do old ones even better. For Tolo, that means getting on the Internet to market itself electronically. It has meant spending $1.5 million to develop new manufacturing and marketing techniques and it has meant strengthening itself as a defense subcontractor by expanding its capabilities.

One early reward is that Tolo, which moved from Santa Ana to Irvine last year, is adding 25,000 square feet to its factory and 40 new people to its payroll to help meet the demands of a $24.8-million contract to build auxiliary power units for the Air Force’s in-flight refueling tankers.

It is a key contract for Tolo because the company is not just building parts but designing, engineering, manufacturing and supplying spare parts. “It is generally unheard of for a small company like us to control an entire contract,” Terranova said.

But that’s the future of the business.

Terranova said Tolo could not have handled the Air Force job five years ago “because we were just a build-to-print” company--meaning it took the prime contractor’s blueprints and did exactly what was called for.

But by establishing an in-house engineering services unit several years ago, the company added an important new capability: It now can help clients design or customize products to suit their specific needs.

That makes it more valuable to prime contractors like Rockwell International Corp., that are forming long-term relationships with subcontractors. They are looking for suppliers that can do a variety of jobs.

Using such a supplier is less costly than dealing with scores of constantly changing low bidders, said Walt Cowling, manager of major subcontracts at Rockwell’s Autonetics and Missile Systems division in Anaheim. He said his unit has cut the number of subcontractors it deals with by 60% in the past decade.

Even with its new capabilities, Terranova felt that Tolo still was missing something: “We’d been a me-too company, and our business was only regional.”

To grow without the expense of adding a big in-house marketing staff, Terranova retained a specialist in marketing smaller manufacturing and engineering companies to prime contractors like Lockheed Martin, McDonnell Douglas and various U.S. government agencies.

In the year that the marketing specialist has spread Tolo’s name, Terranova said, “we are getting flooded with inquiries from around the country . . . and are picking up some new business from the new niches we’ve started working in.”

In the good old days, Tolo relied largely on word of mouth. That got customers, but it also meant that as the privately owned company expanded its capabilities over the 40 years since Chairman James J. Lockshaw started Tolo as an aerospace tooling maker, few of its customers ever knew all of what it could do.

“We were the sheet metal fabricator to Hughes Aircraft, and to one division of McDonnell Douglas we were a machine tool maker, while another division thought of us as a composites company,” Terranova said. “They didn’t know that in many cases, we can do everything they needed right here. We can take the place of three or four suppliers.”

Now, with a home page about to debut on the World Wide Web and a sales representative aggressively marketing Tolo as an integrated, do-it-all company, Tolo is getting bigger and more complex orders from old customers and is getting into industries it has never before served.

The company has spent about $1.5 million on new manufacturing, research and design equipment in the past two years preparing for its expanded role, said Terranova.

A lot of that went into development of the company’s proprietary “grid-lock” manufacturing technique that has added more gloss to a company determined to become a gem in its industry.

The process, which involves making complex parts out of a few interlocking pieces, enables Tolo to cut manufacturing costs and reduce the weight of many items while improving product quality. Prime contractors would be happy with just lower costs or lighter products or higher quality, but Terranova said that offering all three should make Tolo irresistible. For instance, Tolo recently took away another company’s contract to supply jet engine parts for Rohr Inc. by showing Rohr it could produce the parts for half the cost with its new system.

Tolo also won McDonnell Douglas’ Premier Annual Supplier’s Award for developing a rack for the avionics equipment on the MD-11 commercial airliner. The racks, which Tolo designed, engineered, tested and is building, are 110 pounds lighter and $58,000 cheaper to make than the ones they replace, Terranova said.

“There was nothing magic about it,” said Terranova. “We just looked at it, analyzed it and figured out how to make it using the most modern techniques and materials.”

McDonnell Douglas won’t say how much the avionics racks weighed or cost before Tolo came up with its new version, but credits the subcontractor’s contribution with cutting 13 days from the time it takes to make an MD-11, as well as trimming $58,000 from production costs.

“That makes our customers happier and it makes us more competitive in the airline marketplace,” said McDonnell Douglas Aircraft spokesman Don Hanson, “and that’s what you have to do to survive.”

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Divisional Sales Comparison

Irvine-based Tolo Inc. has hitched its fortunes to the defense industry. It is projecting huge total sales growth. Last year’s total sales and 1996-99 projections, in millions:

1995: $11.0

1996: $17.3

1997: $24.9

1998: $46.0

1999: $73.3

Diversified Sales

Tolo also plans to diversify its sales, which last year were almost completely from two divisions. Here’s a breakdown of 1995 sales, compared with a 1999 projection:

1995 Sales

Aerospace: 80%

Pulsco: 19%

All others: 1%

1999 Projection

Bombs: 34%

Aerospace: 30%

Grid-Lock: 25%

Engineering Services: 7%

Pulsco: 4%

Division Description

* Engineering Services: Product design, engineering studies

* Grid-Lock: Proprietary manufacturing system

* Pulsco: Aircraft and industrial noise control

* Aerospace: Auxiliary power systems and parts

* Bombs: Cast iron bomb casings

Source: Tolo Inc.; Researched by JANICE L. JONES / Los Angeles Times