The marriage lasted 23 years. The divorce was unexpected and full of bitterness and recriminations.
For all those years, the Avemco Insurance Co., which writes insurance on private planes and general aviation facilities, was the official insurer for the Aircraft Owners and Pilots Association (AOPA). But the relationship went far deeper than that.
Avemco and the AOPA once had their offices in the Air Rights Building in Bethesda. Avemco wanted to find a less competitive labor market and get closer to its flying constituency. AOPA, which has 265,000 members, wanted to be close to an airport. So they decided to move together.
In 1982, they bought 15 acres at the Frederick, Md., airport, built similar buildings next door to each other and settled down to corporate bliss. At that time, AOPA and its members contributed about 50 percent of Avemco's premiums.
Avemco helped AOPA by guaranteeing 50 percent of a $4.8 million loan AOPA used to build its building. Supposedly, AOPA could not cancel its business arrangement with Avemco as long as that loan guarantee was in force.
But cancel it did. Three weeks ago, AOPA told Avemco it was all over, as of Aug. 31. The breakup came as a surprise, shocking friends, investors and securities analysts and sending Avemco stock into a nosedive -- down $5.63, or 14.5 percent, in two trading days. It was a strange fate for a stock that rose 96 percent in 1985.
After so many years of marriage, what went wrong?
Avemco President William P. Condon blamed James G. Leach, one of his former executives, for alienating the affections of AOPA. In a $20 million lawsuit Avemco filed against Leach, Avemco charged that Leach "secretly negotiated an agreement" to become president of AOPA's insurance division and claimed he could obtain insurance services for AOPA on more favorable terms than it was getting from Avemco.
Leach, in his legal response, denied the allegations but noted " . . . it was common knowledge in the insurance industry . . . that AOPA was dissatisfied with its relationship with the Avemco Group."
John L. Baker, president of AOPA, called the lawsuit "vindictive and unconscionable" and said AOPA made the decision to break with Avemco long before Leach was hired. Over time, he said, AOPA and Avemco "were moving in different directions," making it difficult to agree on a new contract. The breakup, he added, "has been a real trauma for all of us."
Although he did not name the firms, Baker said AOPA is likely to wind up doing business with more than one insurance company.
Until Leach switched from Avemco to AOPA, Leach was head of an Avemco subsidiary called National Aviation Underwriters Inc. (NAU). Avemco acquired NAU, a St. Louis-area company, about a year ago. Leach, its president, stayed with his company and became the second-highest-paid executive at Avemco, although apparently he had no formal employment contract with Avemco.
Condon, sounding bitter about Leach's move to AOPA, said he believed, "If you're paying someone, they owe you 100 percent. . . . They owe you their allegiance." Because of his pending lawsuit, Leach was not available to discuss his case.
Avemco and AOPA, Condon claimed, had agreed on a new five-year contract last October and even sent the documents to Maryland insurance officials for review. AOPA officials later refused to sign the contracts, Condon said. Baker denied AOPA officials ever had agreed to any new contract.
In any event, on Dec. 2, Leach walked into Condon's office to tell him he was moving to AOPA.
How much damage has Avemco suffered?
Like any good pilot, Condon has been trying to assure stockholders and members of the investment community that the turbulence won't last long.
What's involved, said Condon, is $2.5 million in group accident insurance and $25 million in individual policies. Together they represent about 27 percent of Avemco's $103 million of gross premiums. The policies will not all expire at once, Condon noted, and thus Avemco plans to solicit renewals vigorously from AOPA members.
"We don't anticipate any adverse impact on earnings in 1986," Condon said.
As Avemco's business has grown, policies written for AOPA members have become a shrinking part of Avemco's business, Condon noted. Even at the 27 percent level, that's still a hefty piece of change. But Condon says he is prepared to live without it.
Avemco scored a 28 percent increase in net earnings in 1985 on a 25 percent increase in revenue. Net earnings grew from $5.9 million in 1984 to $7.5 million in 1985. Revenue moved up from $47.7 million to $59.4 million.
The break with AOPA brought a quick sell order from Charles T. Akre Jr., the research director at Johnston, Lemon & Co. of Washington, a regional brokerage house. Akre said he felt that while the economic impact of the AOPA breach was uncertain, "the psychological impact was significant." Akre said he is still a fan of the company but because of the uncertainty, he would not buy Avemco stock at this time.
On the other hand, the Tiger fund of New York saw the drop in price as a buying opportunity. Tiger and its companion funds, operated by Julian H. Robertson Jr., owned 64,200 Avemco shares prior to Feb. 18. When the price fell, they went into the market and in one week bought another 98,500 shares, bringing their total to 162,700 shares, 5.4 percent of Avemco's stock.
William G. Bollinger, an investment manager at Tiger, said he thought the AOPA incident was "a lucky break" because his fund was able to pick up big blocks of stock that otherwise would not have been available.
Analyst David Anthony at Smith Barney said his firm had not changed its earnings estimates for Avemco. One of the reasons, he said, was that it felt the AOPA business segment was becoming "less and less critical" to Avemco. Anthony estimated 1986 earnings at $3 a share, which would be an 18 percent increase over the $2.54 earned in 1985. He estimated $3.55 a share for 1987.
Analyst Ira Zuckerman of Swergold-Chefitz thought the loss of AOPA business might prove to be a drag on Avemco's earnings and could slow Avemco's growth. The event, he thought, might put the company "under a cloud for a year or two."
At Geico Corp., which owns 33.3 percent of Avemco stock, officials seemed unperturbed and, taking the long view, thought that Avemco would recover.
Avemco stock closed Friday at $34.75. After reaching an all-time high of $39.13 during the first week in January, the stock cruised along in the $38 range until the announcement about AOPA. After falling $5.63 to $33.13 in two trading days, the stock has been selling mostly in the $33 to $34 range.
Condon, who has spent 25 years at Avemco, said he was disappointed by the split with AOPA. "I certainly didn't want to put down in my book of memories that I had presided over the termination of that relationship," he said. Then, trying to look on the brighter side, he added, "It's a setback and a loss, but it will demonstrate our resiliency and ability to bounce back."
Charles Allmon's Growth Stock Outlook Trust opened on the New York Stock Exchange Thursday at $10 a share. The offering went far beyond the 6 million shares designated on the preliminary prospectus to 14.375 million shares, or $143.750 million, before commissions. The shares of the closed-end fund closed Friday at $10.50. . . . Spa Lady Corp., of Annandale, the chain of fitness centers, is expected to go public in the near future.
Columbia First Federal Savings & Loan, whose recent stock offering was highly successful, is talking to Merrill Lynch, its investment banker, about a possible secondary offering. . . . Allied Capital has split its stock 3-for-2, effective Feb. 28, boosting its outstanding shares to 2.6 million. . . . Moody's Investor Service has assigned a B-2 rating to the proposed $150 million issue of senior debentures of Dart Drug Stores. Moody's said the rating reflects the high leverage of the Dart Drug operation but recognizes the company's strong market position.