Having "critical mass" in its balanced military and commercial work split will buffer Rockwell Collins from declining US defence budgets on the horizon, says Clay Jones, chief executive of the Cedar Rapids-based avionics maker.
And while military work is expected to stabilise and rebound in five years, sooner for some foreign nations, a significant amount of new commercial work will fill the void. Jones notes that there are seven additional unannounced "wins" for Rockwell Collins' newest integrated avionics suite - Pro Line Fusion - bringing the total to 17 platforms spanning business aircraft, regional jets and military aircraft for the advanced avionics package.
"It has been a great cycle of eight years of growth that all of us have enjoyed," says Jones of military work in the aerospace business. "But we are beginning to experience the inevitable macro effects of the deficit in the USA and the wind-down of the wars in Afghanistan and Iraq. That's the reason we have a balanced business. Even though the defence business is winding down, we have a strong commercial business."
Though defence will eventually recover, Jones says "in the meantime, there will be growth in commercial markets and a lot of the developing countries will be fuel for that growth as they trade worldwide. If you look at the influence of things like fuel prices and new efficient airframes coming into the air transport sector, we're going to have a nice long ride."
Like many aerospace industry leaders, Jones is outspoken about across-the-board cuts, or sequestration, that the US aerospace industry could face in the near future. "I take pause with 'sequestration' and the weight that hangs over all of our heads in terms of what is going to be cut, how much will be cut, and if it's going to be cut," Jones says. "[The US] Congress decides in January 2013."
A key source of military and commercial work will come from outside the US during the expected decline and rebound of military spending. "While the projection is for US defence spending to decline over the next five years, other countries are growing their defence budgets by percentages in the high single digits," says Jones.
He adds that in some cases, growth is occurring because countries like Brazil are emerging on the world stage, and in other cases, such as the Middle East and South Korea, because they live in "very difficult neighbourhoods".
"We have been positioning ourselves to be able to serve those customers," he says.
The company won a contract last year from Embraer to supply Pro Line Fusion integrated avionics for the KC-390 transport aircraft.
For the commercial sector, Jones says the largest growth will be in the Asia-Pacific region, where economics and wealth are generating "a lot of demand for commercial aircraft and, in the long term, business jets".
Jones notes that the business aviation sector is recovering at a slower pace than previous cycles, "a result of the global economy not recovering very quickly".
"The role of business aviation will continue to grow and grow through this period," says Jones. "Most of my concern is in the next year or so as we see relatively weak recovery in business aviation dampening that growth."
Rockwell Collins is doing its part to increase its exposure to the types of high net worth individuals who might purchase business jets in the future, through sponsorship of daily air shows at the Experimental Aircraft Association's yearly AirVenture gathering and its marketing and technology arrangement with the Caterham F1 racing team, which will display the Rockwell Collins logo on its car.
"It's an area that we've underserved in years past," Jones says of the company's marketing efforts at certain enthusiast or sporting events. "There are customers we didn't touch or reach in our marketing efforts. AirVenture has owner-operators who fly business aircraft, aviation enthusiasts and aviation media. Our lack of presence did not allow us to touch end-customers. There's a great serendipity of people who enjoy F1 outside the US and these people tend to be connected to high net-worth individuals attracted to aviation. The efforts will strengthen our brand and get name recognition."
As business aviation grows, so does the technology on the flight deck. "Our view is to do anything we can do to provide decision support and situational awareness to improve the safety of the aircraft and accurate decision making for the pilot," says Jones. "For Fusion, almost everything we designed into that system solves one of those goals. The touch-screens in cockpit make it easier to re-plan routes; synthetic vision on the head-up display allows more heads-out time to look at the ground or other aircraft that could get you in trouble. What we're trying to do is bring data to the pilot to make easier decisions and more correct decisions."
Jones acknowledges the risks of being a leader in so many leading-edge integrated avionics platforms simultaneously with Pro Line Fusion. Gulfstream in March had pointed to a need to update the integrated avionics when explaining a delay in the certification and first deliveries of the Gulfstream G280 business jet certification. The G280 received provisional certification in March but has not yet been granted final certification by the US Federal Aviation Administration. The G280 will be the second platform Pro Line Fusion-equipped business jet to gain certification, following the Bombardier Global 5000 and 6000 certification in Europe and the US and first deliveries earlier this year.
"We learned that putting together these complex systems is very difficult," says Jones. "It's not unusual that this would happen. We like to try not to be the source of the delay, so we plan our development schedules in a disciplined way. If we do stumble along the way, we put every resource in to make it up."
Regarding competition from Garmin, a company that is increasingly reaching up into larger business jets with integrated avionics wins, Jones is observant but not threatened. "We've seen competitors come and go," says Jones. "Honeywell is viable, and will stay there. Garmin is moving up the food chain a little bit, and Thales is still very formidable. Those four are the people who will be in the market for a long time to come."