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AO Eyewear, Inc.
Massachusetts Company Reshores Work with Help of $1.5 Million Bond for New Equipment
AO Eyewear's goal for its Original Pilots aviator sunglasses is to be completely Made in the USA by making all of their own components with newly purchased machinery instead of using a Chinese supplier.
Photo courtesy of AO Eyewear.
When Alan McKinley, CEO of AO Eyewear, Inc., met with his Chinese component supplier in late 2012, the supplier said they would alleviate some labor issues they were having—which had caused shipment delays—by investing in new equipment.
"What they showed me were pictures of equipment that I had back in the late '90s that I got rid of for scrap metal," McKinley said.
That's when he decided to reshore the work back to the U.S. and do the component manufacturing himself, as the company had been doing in the early to mid -1990s.
"I turned around and I started thinking about the program and realized very quickly that the reshoring effort was something that could work for AO Eyewear," McKinley recalled. "So I contacted the chamber of commerce to see if there were any state agencies out there that could help me."
AO Eyewear, based in Southbridge, Mass., was put in touch with a statewide agency in 2012, MassDevelopment, which works with businesses, nonprofits, financial institutions, and communities to stimulate economic growth across the state. This past April, MassDevelopment issued a $1.5 million tax-exempt bond on behalf of AO Eyewear to use for the purchase of new manufacturing equipment.
The bond, financed by Southbridge Savings Bank, is tax-exempt to the investor (bank), so the bank doesn't have to pay federal income tax on the loan, making it a desirable investment, explained MassDevelopment Vice President of Banking, Bob Seega.
"The bank passes that tax benefit back to the borrower in the form of a lower interest rate," Seega said, explaining the benefit for AO Eyewear.
AO Eyewear manufactures Original Pilots, aviator sunglasses worn by members of the U.S. military, and will use the bond money to purchase new equipment for its 12,000 square foot Southbridge facility, including a fully-automatic, rim-forming machine, an ultrasonic cleaning system, self-contained frame-washing stations, and two fully automatic frame induction soldering lines.
In 1998, AO Eyewear went offshore to manufacture the frames because it was cheaper and because McKinley was losing workers due to retirements and no longer had the talent to keep the equipment running.
"We did the plating work here in the U.S., but the rough manufacturing—the soldering of frames and the metal forming of the eyeglass frames—was all done overseas," McKinley said. However, the business environment has changed in China and they are no longer able to offer cheap labor, McKinley explained. His Chinese vendor was also not getting deliveries to him on time and they have not been able to keep up with AO Eyewear's growth.
"Quality was never an issue," McKinley said of his Chinese supplier. "It's just that the quantity of the product that has been available from them has always been a problem. And our business has been growing and growing over the years, and their business is actually shrinking because they're having labor issues and government issues and they're facing a lot of problems that they're finding difficult to resolve," McKinley said.
Now McKinley's goal is for AO Eyewear's products to be "100 percent Made in the U.S.A.," he said, due to the investment in the new equipment that was paid for by the bond.
"Bringing manufacturing back to the United States is an important part of AO Eyewear's long-term business model," he said. "MassDevelopment and Southbridge Savings Bank have been key factors in the financing aspect of the plan. We are proud to be a part of the reshoring initiative and look forward to hiring more people as our business grows."
MassDevelopment was particularly interested in securing financing for AO Eyewear because the company said the new equipment would enable doubling the company's workforce from about 15 employees to about 30 employees.
"The fact that they're a manufacturing company got our attention right away," MassDevelopment's Seega said, adding that one of the agency's goals in to create job development in the state. "What we strive for is public purpose," Seega said. "And job creation is certainly a big part of that."
MassDevelopment works only with smaller manufacturing companies like AO Eyewear because bigger manufacturers have access to investments through capital markets. Although MassDevelopment is not part of the state budget and charges fees for its service, the tax-exempt bond repays those fees quickly.
"The difference in interest rate between a commercial loan and a tax-exempt bond will repay those fees—that's the benefit. The difference can be between one and one and a half percent," Seega explained.
And because McKinley exports about 30 percent of his sales, he qualified for an export loan guarantee from MassDevelopment, combining the guarantee with the bond to mitigate some of the risk. MassDevlopment is now standing behind $375,000 of that $1.5 million bond.
"As a result, the bank was willing to loan more money than they otherwise would and Mr. McKinley was able to get one-hundred percent financing for the equipment, which is not easy to do all the time. Most of the time, there has to be some down payment by the borrower," Seega said.
AO Eyewear (www.aoeyewear.com), formerly the metal frame division of American Optical Corporation, assembles, packages, and distributes sunglasses to military and civilian optical customers worldwide. The company is a preferred vendor with the U.S. Army, U.S. Air Force Exchange Service, and the U.S. Navy Exchange and Command.
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