Thirteen years after Hamilton Standard merged with Sundstrand, the aerospace and industrial supplier continues to expand its reach and its technology. From formalising its presence on the Comac C919 last year to making plans to integrate a partial competitor in Goodrich this year, the $6.2 billion Hamilton Sundstrand division continues to drive earnings growth for parent company United Technologies.
Meanwhile, an accelerating industry trend toward more tightly-woven systems and more electric aircraft fits precisely with two of Hamilton Sundstrand's key capabilities. Mike Dumais, president of the Windsor Locks, Connecticut-based division, discussed Hamilton Sundstrand's future outlook, including how he plans to deal with US budget uncertainty, protect the division's technology in China and find opportunities to integrate Goodrich technology on its future aircraft products.
What is your view of the current market situation? People seemed more optimistic at the start of the year, but now there is more uncertainty. How do you see things?
I think we've been pretty fortunate because our OEM business in particularly has been ramping up with new programmes. So we're seeing very solid growth and it's driven by programmes like 787, but even the narrowbody programes as production rates have been coming up. We expect that to continue. If you can get away from the headlines month-to-month and you focus on the bigger picture, there really is demand for new aircraft models.
Clearly, the commercial side is ramping up like never before. But when you consider risks posed by things like US budget sequestration, especially on the defence budget, how big of a concern is that to you?
We want to watch it closely. But again I think it comes down to specific programme placements. Hamilton Sundstrand is fortunate. We have very nice placement on programmes such as JSF. And we believe that will continue because there really is no alternative to JSF in the long run. We also have placements on the P-8 programme, which is coming down the road. We're also pursuing placements on things like retrofits. We have a very good propeller solution, which is very efficient and upgrades the capability of the aircraft. Clearly, if there are major changes in budgets I'm sure we'll be affected, but those are very good programmes and we believe that most of those programmes will continue.
You mentioned earlier the ramp-up on the commercial side. From your perspective, how does the supplier prepare for that and keep up with that demand? Is it requiring major increases in productive capacity, and at what point do you reach your limit?
In some cases it does require increases. That's part of our long-term capital plan. We've really had a strategy over the last few years. We have been adding capacity, but those capacity additions have really been focused in low-cost areas. So we get the benefit of cost reduction but we also add capacity to our network so we can handle the ramp-up. We've acquired a factory in Poland and we're modernising that. That will help with the capacity going forward and give us some nice cost reduction focus. We've expanded some of our facilities in Singapore and Puerto Rico. Volume is a nice thing to have and we try to take advantage of that and expand our network in low-cost areas while getting both the cost benefit and having the capacity available [for the ramp-up].
But is it becoming a strain at all just to keep up? I realise it's a nice problem to have. But are there any signs that the system is asking for too much right now?
No, it all comes down to planning. We've learned many lessons from the ramp-up that occurred eight or nine years ago, and our customers also learned many lessons. There's a very robust process where each year we do capacity assessments on our factories and share these with our customers and show our ability to handle current volumes, but also scenarios where that volume may go up by 20-40%. Where necessary we add equipment and capacity. We work closely with our supply chain. We haven't seen any significant issues. We're much better prepared for this ramp-up than perhaps 10 years ago.
Boeing, for example, has expressed some concerns about how it has relied on sole-source suppliers in the past. It is now looking at expanding its use of dual sourcing. Is that something you've looked at among your suppliers?
We've looked at the critical commodities that may have been an issue in the past and made sure we have capacity lined up for those critical commodities - things like sand castings and bearings would be two examples. There are many cases where we have dual-sourced sand castings and bearings to ensure we have capacity. With the nature of our systems and the volume we produce, it's not practical to dual-source everything. You have to look at the risks and address the specific risks and we believe we've done that.
Last year, Hamilton Sundstrand made a huge move in the Chinese market and won a big placement on the Comac C919. How do you see the prospects for new entrants?
The prospects are good, particularly given the growth that is still expected in China. China will be a significant portion of the market for new aircraft. So we're excited about the opportunity there. It's going to be a very good programme. I just came back with some programme reviews we had with our partners. It looks like we're on track with the joint ventures we put in place. We've broken ground, standing up the new facilities. I think in China you always have to take a long-term view, so we take a long-term view. We've made investments. We anticipate they are going to be very successful.
What kind of discussions do you have with your Chinese partners about technology protections and intellectual property protections? Is that any more a concern with a programme like this especially, or have you gotten past those concerns?
We made it very clear that we need to comply with US export control law, so we put a technology control plan in place. Anything that leaves Hamilton Sundstrand is screened by many people to make sure it complies with that technology control plan. Our Chinese partners understand that, and they want to work with us. So we think those protections are in place, and our focus is now on executing the programme.
Regarding the future of your business, there's been so much done in recent years about integrating systems and subsystems and the OEM's pushing more and more of that responsibility down the supply chain. Are there still opportunities for you to integrate those systems?
There is still a lot of opportunity there. The distinction I would make is integration for integration sake doesn't necessarily make sense. But integration where there are specific opportunities to reduce weight, reduce volume, reduce cost, add functionality to the aircraft, they make a lot of sense, they add a lot of value and those opportunities are still in front of us. Will major aircraft companies outsource all the systems integration on the aircraft in the future? That may not be their strategy, but as a major systems provider we can find many opportunities to take our equipment and find the opportunity to integrate. We're working on that every day.
I realise the pending acquisition by Hamilton Sundstrand's parent of Goodrich is a sensitive topic, but I was wondering if you could provide any examples of the kinds of integration opportunities are available as Goodrich joins your company?
We believe the opportunity is tremendous. It really is a transformational acquisition for UTC. We've been spending a lot of time looking at the integration opportunities. But, taking a step back, as we get to work with the Goodrich people on the integration planning, it's clear that they are great people, they have great products and they have great technology. The products are very much complementary to the Hamilton Sundstrand products. But they all share common characteristics: they all have significant intellectual property, they all have high aftermarket content and they are all very well positioned for future growth. It does create a lot of good opportunities going forward. One example, when you look at some of their systems, like their braking systems, is one example, the opportunity as the aircraft and different systems become more electric, look for more integration with our electric systems capability. And, again, it improves the functionality of the system, reduces weight, improves volume, makes more efficient, and we're going to drive those kinds of opportunities so we can deliver more value to our customers.