(FORTUNE Magazine) – When Mike Coffee, his wife, Karen, and Chuck Leonard, an old Army buddy, welcomed in the year 2000 with a beach bonfire on a small island near Sarasota, Fla., they got there in two sleek 40-foot cabin cruisers built by Orlando's Regal Marine Industries. Neither Coffee nor Leonard could be called a rich yachtsman. Coffee is an independent executive recruiter, and Leonard is a Fort Wayne lawyer who litigates civil and criminal cases. Yet both recently spent well north of $200,000 for boats at the high end of Regal's line.

Building powerboats is a tough, cyclical business with little growth. But by focusing on the top of the market with good design and high quality, a few companies do a lot better than survive. One that stands out is Regal, a prosperous BMW of the business whose models range in retail price from $20,000 to more than $300,000. Regal is adept at building products that appeal to longtime boaters like Coffee and Leonard who want to move up to bigger toys.

For the past four years the private, family-run company's revenues have climbed 9% annually, far outpacing the rest of the powerboat industry, which grew a mere 2% over the entire period. Regal's sales are expected to hit a record $100 million in the fiscal year ending June 30. Exports are where the company is really churning up the waters. Foreign sales have vroomed ahead an average of 26% a year since 1993, and Regal will ship abroad a fifth of the 4,000 boats it expects to build this fiscal year. Its biggest problem isn't sales but how to expand: It's planning to put up another factory someplace other than labor-short Orlando.

All this success is just a case of a better mousetrap, claims Regal's founder and chairman, 70-year-old Paul Kuck (pronounced "cook"). "Most of our customers have come to us," he brags. And not without reason. The company has been a leader in designing boats that offer superb performance as well as good looks: Many models have a unique hull design that improves both speed and control. And Regal, which last year won certification under the international ISO 9002 quality-control criteria, takes special care turning out boats at its increasingly jammed multibuilding factory, which spreads over 28 acres near the Orlando airport and employs 539 production workers.

Regal is a niche player. It doesn't, for example, build boats for recreational fishing, a huge part of the market. But it is gaining share in an industry that has not quite recovered after hitting a reef when the U.S. economy slowed in the late '80s and then getting keel-hauled in 1991 and 1992, when a 10% luxury tax on boats costing more than $100,000 was in effect. Brunswick Corp., whose two boat divisions had combined sales of $1.5 billion last year, probably has about a fourth or more of the business. But the National Marine Manufacturers Association has more than 380 boat-building members, and hundreds, if not thousands, of other outfits are busily working away in small shops and garages reeking of fiberglass resin fumes.

That's just about the way Regal got started. For a decade after serving in the military, Kuck sold prefab metal buildings in the Midwest but became uneasy about the ethics of a new boss. He has high standards. He has served as secretary of the board of Prison Ministry International for the past ten years and is close to its founder, Chuck Colson, of Watergate notoriety. In 1969, with $65,000 in savings, Kuck quit the buildings company, packed up his family, and moved to Orlando.

"I was unconsciously incompetent to start a boat company," Kuck jokes today. Once in Florida, he somehow concluded that the boat-building business "was big enough for somebody to make a living." The sailing has hardly been smooth. When people stopped buying boats during the energy crisis in the early 1970s, Kuck had to cut back to four employees plus himself and his wife. In 1988 the company opened a 107,000-square-foot second plant in Tennessee--just in time for the market collapse. Once more, Kuck hunkered down in Orlando and eventually got rid of the Tennessee plant.

Salesmanship has played a part in Regal's latest resurgence. Kuck himself, who in 1998 handed over the CEO's job to his son Duane, 45, keeps very busy as a globe-trotting company rep. But without supe-rior product design and lofty manufacturing standards, Regal would be just another of the industry's also-rans.

Attention to design is best displayed in Regal's top-of-the-line Commodore 4160, a $314,000 update of the boats owned by Coffee and Leonard. Measuring more than 44 feet in length and powered by two inboard engines, the 4160 is designed to swaddle its occupants in luxury. It has room to sleep four (six if they are very good friends), two heads with showers, leather seating, and loads of electronics, including a high-end stereo system. The clean-lined contemporary styling in all Regal's boats is inspired in part by automotive design: The company sends people to the Detroit auto show every year.

Regal boats up to 30 feet long have an advanced feature that isn't visible when they are in the water: a proprietary stepped-hull design that enables them to attain greater speed with less horsepower. Long used in racing boats, hulls of this type are deeper in front and shallower in back, with a step in between somewhat like a riser on a flight of stairs. The step creates a pocket of mixed air and water on which the boat rides with less drag. Though stepped hulls are more efficient, they can also be tricky to handle. Regal has modified its design to take care of that. The hulls have a cross-section shaped like a deep V and a complex pattern of curved sections, ridges, and flat surfaces technically described as step pads, inverted strakes, reversed chines, and laminar flow interrupters.

With this so-called FasTrac hull, on which Regal holds a patent, boats get up on plane quicker and go faster. They can be controlled even at high speeds, carving through turns where more conventional designs might skid. They also behave well at low speeds, while unmodified stepped hulls wander. Regal says its 21-footer with a V-6 stern drive--the engine is inboard but the drive unit and propeller are outboard--can hit 56 miles an hour.

Regal hired an outside expert, Dave Livingston of Seattle, to develop the hull. A former co-owner of the Bayliner boat company, now a Brunswick brand, Livingston worked out the design with his son John. Over a five-month period, putting in long days and some weekends, the two went back and forth to Lake Washington, where they tried various approaches in an old boat on which they overlaid a stepped hull shape.

In producing its boats, Regal has stuck to a traditional approach with a strong emphasis on quality. It buys engines, instruments, pumps, and various parts and fittings but doesn't outsource much subassembly work--largely because its volume isn't big enough to interest others. So while no automaker, for example, would build its own seats these days, Regal devotes 30,000 square feet to the job and employs 70 people to shape padding and cut and stitch leather, vinyl, and fabrics for upholstery.

Regal makes hulls and decks in a process that hasn't changed much since fiberglass began replacing wood and metal decades ago. It starts with a "plug," a form in the exact shape of the part to be molded. For Regal's small boats, plugs are usually hand-built by laying up sheets of fiberglass on a core of some other material and soaking them with resin. For its bigger boats, Regal ships a CAD/CAM computer file to a supplier, where the shape is carved out of urethane with a computer-controlled five-axis router. Then it is covered by hand with fiberglass and resin and remilled to tolerances as tight as 0.002 inches.

After delivery to Regal, the plug is fine-sanded, polished, primed, and top-coated. By that stage, the company may have as much as $150,000 invested in a mating set of hull and deck plugs, so it sometimes saves money by designing more than one model using the same hull. In all, Regal uses 15 hull plugs for its 20 models. Plugs are used to make production molds. Workers smooth layers of fiberglass over them, putting down layer after layer with resin and rolling out air bubbles. After the gooey mess air-dries, a welded steel frame is bonded with more fiberglass and resin to the back of what is now the mold shell.

Production on the assembly lines begins by spraying a hull mold with colored gel coat, a polyester resin and color pigment compound that will be the ultimate exterior finish and color. (White is the hands-down favorite for yachts.) The next step is to build up a fiberglass shell by spraying in fiberglass and resin (a process called chopping, since the fibers are cut to short lengths in the process) and by hand-laying sheets of fiberglass wetted with resin. Finally, the hull is pulled from the mold and started down the line. Separate molds are used to form the deck as well as subassemblies such as engine covers and lockers.

Regal's assembly lines would raise eyebrows in Detroit, since boatbuilding is still largely painstaking handwork with tools no more sophisticated than power drills and electric screwdrivers. The company builds sport boats up to 30 feet in one building; sporty yachts are made in two others. Nowhere is line-speed blinding. Smaller boats move from one work station to another every couple of hours. Yachts, which take six weeks to build, can stay in the same spot on the line for days, with workers moving about like bees buzzing around a big sugar cube. (The buzz in this case is mostly rock music emanating from boom boxes.)

Regal is starting to bond some parts together rather than use screws or bolts. Pat Wiesner, director of engineering, says the day may come when a boat hull will be built of carbon-fiber composites laid up by machine, just as some aircraft fuselages and rocket parts are made in the aerospace industry. But the kind of capital investment that would require is a long way off for a plant that needs 15 different hull shapes to turn out 4,000 boats. Right now, Regal's bosses are far more concerned about pushing production from 14 boats a day to 16. To do much better than that, the boat builder is going to need that additional factory.

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