Woodward Governor enters the Farnborough air show with a long to-do list. In the last 12 months, the Colorado-based actuation and fuel controls supplier has picked up strategic placements on the CFM International and Pratt & Whitney engines that will power the next-generation of narrowbodies, as well as on the General Electric Passport 20 engine powering the Bombardier Global 7000 and 8000 large-cabin business jets. Woodward chief executive Tom Gendron's task is now to deliver on those contracts, while at the same time preparing for new commercial aircraft products amid a projected decline in defence revenues.
Do you think this show will reveal new trends that are of interest to you and other members of the supply chain, either through new product announcements or big orders that shift the market a bit?
I think we expect to see a lot more narrowbody orders coming through at the show, and maybe, as I sit back and think about it a little bit, [orders for] the 747-8. I think people have been waiting in the wings for the 747-8. Some of the performance data seems to be promising. Now the 787 is finally moving its way through some of its troubles, maybe some orders are coming there. We're not really anticipating any new product announcements. I think it will be more about continuation.
Presumably continuation wouldn't be such a bad thing for Woodward, after you won some major positions with the 737 Max and A320neo re-engining programmes in the last year?
Ten years ago we started working on the next-generation narrowbody programme. I listed it as a 'must-win' for the company. So we started investing heavily 10 years ago to ensure we'd have a position when they came out with a brand new aircraft, and 10 years ago we thought it would be a brand new aircraft. We think we actually have some of the best technology in the world - fuel systems, actuation, fuel nozzles. We secured a lot of business on the engines. We're still working on the airframe, where they're doing "mods". We have a significant position on CFM Leap. That was tied in with [placements on the General Electric small-thrust] Passport 20 engine. It was the biggest win in company history. But we also have a significant position on [Pratt & Whitney's] PurePower, on all three variants. Even in the last month we secured more content. The investment we made 10 years ago is going to pay off. Right now we're spending a lot of money! But in 2016-2017, we're going to have quite a ramp-up.
When that shift occurred, from clean-sheet to the re-engining plan, were you able to leave some technology on the shelf, or were you able to take all those things that you were planning for a clean-sheet and apply them for the re-engined aircraft?
I would say we applied almost everything we had and in conjunction with the engine OEMs concurred that the timeline for some of the technology will probably be on the next generation. Actually, we're still developing new technology, but it will be for the new centerline engines. This has a lot of new technology. I would say 80% of what we were working on. That other 20% is still in development.
Without getting too proprietary, is there any way to describe what we should be looking for with the next generation of technology?
We're working on more advances in fuel pumps, and more advancements in actuation systems for the engines. We have some really promising new technologies in the works, but it needs a little more time to ensure all the robustness and the reliability that we're known for. But it will be ready for the next generation. We put - at risk - a brand-new facility in Rockville, Illinois, and it went online last October. That whole investment the board approved in anticipation of winning these [new] programmes.
How much scope is there to win new placements on new applications, or is the focus now shifting to executing what you've got on your plate?
Right now our number-one priority is to execute on what we've got. But at the same time we're looking at the next large-engine platforms being discussed - whether it's the A350-1000 or the 777X. We intend to be on those aircraft. We're working to make sure we continue to advance those systems. But, without a doubt, to handle the volume increase on CFM and PurePower we're building a new facility and launching a new campus to support the production ramp-up.
It's not just the development. I've seen some projections where engine deliveries are almost doubling over the next several years, and they're already very high.
For about 10 years we were talking about winning the next-generation narrowbody. And then when we won it - I don't know if you saw the old movie Jeremiah Johnson, where a mountain man runs a bear through a cabin and tells Robert Redford: "We've got to skin it"? Well, we've got the bear, but now we have to skin it. The real work starts now. We laid out a huge capital investment to handle this volume.
How do you make sure you have the raw materials locked in and available to you as this demand starts increasing?
The raw materials are not as big a concern to us, because we don't have the exotic materials the engine builders do. We have some high-end materials, but the availability isn't as high a risk as what GE or Pratt & Whitney or Snecma have to deal with. Right now in our development programme we're trying to take early-supplier engagement to a new level, and that includes the materials suppliers. We're having them co-develop with us at a level we've never done before. And we're trying to lock people in with materials supply.
Managing a huge production ramp a nice problem to have. That is on the commercial side. On the defence side, is the concern more about shortage of demand with sequestration?
That's a tough one. You have to make your best estimate of what Congress will do, which is really hard. We're planning for a level that is not as bad as sequestration. We are expecting a downturn. We have a nice portfolio on the defence side, from long-existing applications such as the F-18, F-16, and every helicopter has our equipment on it. But we're also on new aircraft like the F-35, and the new tanker has our content on it. So we're projecting that part of our business is going to go down, but it's about 20% of our [aerospace] sales. We will be affected, but the commercial ramp-up we think is going to more than compensate.
It's been a few years since we've seen a big acquisition from Woodward on the commercial side, with MPC and HRT [in 2008 and 2009]. Does that mean you are happy with your portfolio, or could that change in the next few years?
What I would say is we do like our portfolio. But if something comes available that fits - our main focus is we do fuel control systems and we do motion control systems for aerospace. Something comes available in those areas we'll be active in it. But those are tough assets. We spent seven and 10 years, respectively, trying to get those two assets. We are looking and talking to people. If the right thing becomes available we will be a buyer. But I don't believe in just bulking up - adding acquisitions to bulk-up the top-line.
You mentioned earlier you have more content coming [from Pratt & Whitney]?
We have more coming. I hope it will be an announcement at the show. We have to have more approvals. But we have more content coming.