May 21, 2020 | International, Aerospace, Naval, Land, C4ISR, Security
Michael Bruno May 20, 2020
If you like the cadre of big aerospace and defense companies now, you are going to love them later. Among the major trends the novel coronavirus is expected to catalyze within aerospace and defense (A&D) manufacturing is that the big will get bigger by gobbling up others or taking back more work.
In the next few years, vertical integration should pick up momentum, according to several executives and consultants. After decades of OEMs, primes and top-tier companies outsourcing major work on their programs, many see the pendulum swinging back to bringing more of it in-house.
“We've already seen signs of more vertical integration coming through the industry and potentially where some of that could be accelerated as we work through the crisis,” says one advisor.
Boeing started this a few years ago as it insourced avionics and other niche segments. Major consolidation picked up last year with the mergers of Raytheon and United Technologies Corp. and L3 Technologies and Harris Corp. Now, whether it be protecting profits or securing supply, the reasons to own more of the work are burgeoning as industry is refashioned in the COVID-19 crisis.
For starters, aerospace suppliers are facing diminished economies of scale but a greater share of fixed-cost in production, with a likely loss in profitability and competitiveness, say Roland Berger advisors Robert Thomson and Manfred Hader. So-called organic top-line increases, through insourcing and acquisition of additional work packages, are possible but only to a limited degree. A fixed-cost reduction likewise is only feasible up to a certain level due to equipment and overhead structures. So consolidation is an important lever to consider.
Part and parcel to that will be the financial distress into which suppliers in Tier 2 and below fall—and the opportunity to roll them up.
Top CEOs are watching. Speaking May 13 to an investor conference, Honeywell International Chairman, CEO and President Darius Adamczyk cited an inflection point. “For a couple of years now, I've been talking about how it is a seller's market, not a buyer's market,” he told Goldman Sachs. “But that calculus may change in the second half of the year, and I think it could become a bit more of a buyer's market, and the valuations may be better and different. That's something that we want to partake in.”
Feeding the phenomenon could be a desire to bring supply closer to home, both for reliability and geopolitical reasons. Suppliers overseas once were revered for their low-cost footprint, but suddenly they are seen as vulnerable to pandemics, economic stress and global trade wars. In turn, consultants expect industry leaders to take another look at favoring local regions.
Even in the defense realm, which for now is considered safer during this downturn, there is talk of larger firms becoming even more powerful. “Large pure-plays should come through the pandemic relatively unscathed but may be looking at lower spending growth outlooks,” Capital Alpha Partners Managing Director Byron Callan noted May 13. “Mergers and acquisitions may thus be more important in delivering growth—even though it's not organic growth—in 2021-25.”
So where to look for vertical integration and consolidation from the top? Clues are already emerging, according to advisor presentations. First, look at niches where top suppliers already are prevalent—environmental and flight-control systems, landing gear, electrical power and interiors—and others where they are not there yet, including maintenance, repair and overhaul, logistics, aerostructures and engines.
Next, look at the supply base from the perspective of a top supplier. Who is distressed or drawing down credit lines? What revenue mix do certain potential targets have—e.g., commercial vs. defense, products vs. services or aging vs. next-generation platforms?
Finally, consider where the new nucleus of consolidation will be. Will more “super Tier 1s” such as Raytheon Technologies emerge, or will conglomeration occur among Tier 2 and 3 providers? The first would allow rationalization of capacity for detailed part production from Tier 1 to 3, for instance, with the super Tier 1s able to secure through-value-chain control and prevent subtier supplier failure, according to Roland Berger. The latter likely would be opportunistically driven rather than following any overarching industry logic.
For smaller suppliers, the questions are more concise, as one consultant says. Do you want to be a buyer, a seller or risk it as is? A simpler question, for sure, but no less difficult to answer.
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July 30, 2019 | International, Naval
By Mass Communication Specialist 3rd Class Sean Elliott, USS Gerald R. Ford Public Affairs NEWPORT NEWS, Va. (NNS) -- Sailors assigned to the Ford-class aircraft carrier USS Gerald R. Ford (CVN 78) develop and implement their leadership skills during Sailor 360 training sessions, physical training and community relations projects, designed to strengthen and enrich its enlisted leaders. Sailor 360 was created to provide the tools to develop Sailors into effective leaders. Ford's version of Sailor 360 is the program expanding to include more ranks in a continued effort in developing the backbone of the Navy. “Sailor 360 is a program to help guide future leaders,” said Master-at-Arms 1st Class Eric Soto, from San Antonio. “Its goal is to engage Sailors and prepare us to take on future leadership roles.” Ford's Sailor 360 co-lead, Chief Hospital Corpsman Marlene Koza, from Norfolk, agrees it is never too early to train and mentor the Navy's future deckplate leaders. “Mentoring Sailors earlier gives them skills to lead Sailors of their divisions competently,” said Koza. “An effective leader makes sure all of the information is broken down and understood by their team, in other words helping them see the bigger picture, before leading the team towards a goal.” Sailor 360 is team-building based, involving the development and sharing of ideas, community outreach, and training among shipmates. The program requires a large commitment and Soto says the payoff is greater, and molds them into better leaders. “[As opposed to previous programs], Sailor 360 is going to create a better, well-rounded leader of tomorrow,” said Soto. “It's going to bring the same leadership skills, but is going to fill in the gaps previous programs may have missed.” During the trainings and events, Sailors can count on being involved and engaged. “Attendees can expect to have a family environment, and be held accountable to share ideas,” said Aviation Ordnanceman 1st Class Richard Mabe, from Matthews, Virginia. “Be ready to interact and come together for the common goal.” As first class petty officers train to improve their leadership skills, Koza added that it's important to keep in mind the continual group progress towards individual leadership goals. “I conduct interviews for the leadership positions within Sailor 360 to find the best Sailors that will embrace that role and have a positive effect for the program and command,” said Koza." Sailors hold their commitment to the program and developing themselves for many reasons, but a few reasons continually rise above the rest. “I'm committed to becoming a better Sailor and leader for Sailors to look up to,” said Soto. “With the help of our mentors and shipmates this program is helping everyone maintain a constant attitude of building each other up.” Future plans to implement the program to all ranks are in the works. “For the time being, first class petty officers are encouraged to join, but in the near future the program will open to include second class petty officers,” said Koza. Sailor 360 helps all Sailors in their professional and personal lives. Forming a stronger Navy and developing Sailors into better people and leaders. Gerald R. Ford is a first-in-class aircraft carrier and the first new aircraft carrier designed in more than 40 years. Ford is currently undergoing its post-shakedown availability at Huntington Ingalls Industries-Newport News Shipbuilding. https://www.navy.mil/submit/display.asp?story_id=110387&utm_source=phplist3055&utm_medium=email&utm_content=HTML&utm_campaign=Feature+Stories
October 11, 2018 | International, Naval
By: Tom Kington ROME – Italian firms Leonardo and Fincantieri have announced tighter cooperation on naval systems work to help them build better ships and get ready for an expected Italo-French team-up in warship construction. The two firms said they would relaunch Orizzonte Sistemi Navali, an existing joint venture between them, to develop naval combat systems. Leonardo, which holds 49 percent of the joint venture, has long supplied radars, guns and systems to ships built by shipyard Fincantieri, which holds a majority 51 percent stake. OSN was created in 2002 to integrate the work of the two firms on Italy's Horizon frigates, Cavour carrier and FREMM frigates, but was not used for the more recent construction of Italy's new PPA frigates. In its new form, OSN will “assume responsibility for the development of the combat systems and the definition of subsystem requirements and individual components' architecture, including the Combat Management System (CMS),” in new vessels, the firms said in a statement. “Fincantieri will act as prime contractor, the single interface to customers and hold responsibility for the warship as a whole (Whole Warship Design Authority), therefore in charge, on behalf of OSN, of the architecture of the ship system concerning both the platform and the combat system. Leonardo will be the preferred partner for the Combat Management System and the equipment and systems of the ship,” the statement reads. An Italian industrial source said the deal was designed to make systems integration more central to shipbuilding by the two firms. “Until now a lot of work on integration took place during the ship building process. Now, integration should happen earlier in the process,” the source said. Full article: https://www.defensenews.com/global/europe/2018/10/10/italian-shipbuilders-tout-systems-engineering-chops-ahead-of-french-merger-talks