The civil aerospace boom has helped to swell Avio's orderbook - and with its military business in good health, the engine maker is set for further growth
Italian aeroengine manufacturer Avio has seen its fair share of structural changes since it began life almost a century ago as part of the Fiat group. While the iconic Italian car manufacturer has long since moved on to worldwide production locations from its original home, Avio still occupies the site in Rivalta di Torino, just outside the northern Italian industrial centre of Turin, albeit in a form that would be unrecognisable to past generations of Fiat employees.
Avio's redeveloped Fiat factory is designed for lean manufacturing
The company ripped out everything but the walls when it refurbished the existing building, completing the work in 2004. And it shows, with a new light and airy factory covering 163,000m2 (1.75 million ft2) and a layout designed to facilitate lean manufacturing and eliminate wasted time and needless journeys for engine parts wherever possible. There is room for further growth at the site, which produces gearboxes and components and which totals 397,000m2, says Luigi Romano, head of commercial operations for Avio's aeroengine business.
And it seems likely this capacity will be needed as the company's orderbooks are bulging. As of June, Avio had an order backlog of €4.3 billion ($5.5 billion).
Even the crisis that has engulfed one of its major customers over the last few months is failing to dampen confidence at the manufacturer. In addition to being partnered with Rolls-Royce on the Trent 900 for the A380, Avio is part the International Aero Engines consortium producing the V2500 for the A320. Romano is phlegmatic: "I don't want to call it a crisis - I'd call it a difficult time, with major challenges," he says. "Avio is involved on nearly all Airbus programmes. Our products are definitively engaged on Airbus programmes, but I would make a distinction between the products we make for programmes that are selling well, like the A320 aircraft family, and programmes where we are talking about 'future volumes' like the A380 and A350."
The two-year delay to the A380 programme "will not have a major impact in the short- to medium-term because of the diversification of Avio programmes," he says. The impact of delays to the A380 during its production ramp-up phase is "negligible - from our point of view we are confident the volumes will arrive." Romano is less confident of Airbus's chances of resurrecting the A340 programme from the recent order slump. "The A340 is losing significant market share which it will never regain - but to the Boeing 777, so it doesn't create problems for Avio." Any fewer sales on the A340 are more than compensated for by the 777, he says.
Avio is a risk-sharing partner on the A340-500/600's R-R Trent 500, as well as the 777-200LR/300ER's General Electric GE90. This balance is key to the engine manufacturer's success, Romano says: "It is Avio's policy to diversify into markets with different products."
In common with much of the industry, Avio awaits a decision by Airbus on the launch of the A350 XWB. "We are all awaiting the final Airbus strategy and definition of the product line," Romano says. But 787 and 747-8 orders will more than compensate for these potentially missing volumes. "Boeing is taking the lead in a big way, but we expect a recovery from Airbus. Our only worry is producing everything they are asking for." Avio is a risk-sharing partner on the GEnx engine that is exclusive on the 747-8 and offered on the 787.
Romano is adamant that Airbus's "difficult moment will pass", and points out it involves programmes with lower volumes than the popular A320. Avio is "starting discussions" on the projected replacements for the A320 and the 737, "but it's early days", he says At Farnborough in July, the company signed an agreement with Pratt & Whitney to participate on a geared turbofan technology demonstration. "We expect to be present on the narrowbody replacements when they are launched," says Romano.
The growth in civil business since US investment firm Carlyle took over Avio in 2003 has been the driving force behind its strong position in the market, but its military orderbook is also healthy. Avio, as part of the GE/R-R team working on the F136 alternative engine for the Lockheed Martin F-35 Joint Strike Fighter (JSF), is relaxed about the next stage in funding, after US Congress intervened this year to reverse a Department of Defense decision to cancel the engine. "At the moment, we are not expecting any problems," he says. "Studies show that investing today in two engines can bring advantages tomorrow. We are expecting all the investment we were promised." Either way, he says, "we will go ahead: there is a flexible margin and we can make adjustments if there are reductions. The important thing is that the political will is there."
Avio is proud of its record on research and development, investing 12% of turnover - over €140 million - in 2004. The company says it is committed to researching ways to cut emissions and noise, in particular targeting improvements in combustors and turbines to help meet Advisory Council for Aeronautics Research in Europe goals of creating "green engines", cutting fuel consumption by 20% from today's levels within 15-20 years.
The company is involved in several technology demonstrator programmes. In particular, Romano sees a healthy general aviation market in years to come, and Avio is teamed with Snecma to develop its SMX technology demonstrator programme for the SilverCrest engine being proposed to power future large business jets. The programme is on course for engine core testing next year, says Romano.
Avio's main industrial focus is in its home country, with eight sites spread across the length of the Italian peninsula. But Avio has ambitious plans to double capacity at its facility in Poland by 2009, with an investment programme of up to €3 million in place. Avio Polska was set up from scratch in 2001, and its staff now numbers 230, but Avio is no stranger to acquiring existing businesses to capitalise on their technologies or to gain a footprint in a new market. Last year it snapped up 80% of high-tech machining specialist Philips Aerospace, creating DutchAero, and is on course to buy the remaining 20%. The deal was designed to give Avio access to the Netherlands market, as well as to the significant share of work on the JSF for which the former Philips Aerospace is responsible. Technologies being developed at DutchAero will be used on the F136 as well as other engines, says Romano.
Acquisition wish list
The company does not have an acquisition wish list, but Romano says: "We are open to opportunities - if interesting ones come along we will evaluate them, including developing and/or low-cost countries." Any purchases must add value and be consistent with Avio's growth strategy, he says, adding that outsourcing complex technologies to lower-cost locations is not easy.
Romano does not expect major changes to Avio's strategy in the wake of its recently agreed acquisition by European investment firm Cinven. "There should be continuity - I don't expect big changes," he says, adding that shifting ownership from one investment fund to another means the "mission" of the investor remains constant. "An investor buys the development plan, the market position, the range and diversity of products when it buys a company," he says. As a private equity investor Cinven is likely to pursue a similar strategy to that of previous majority owner Carlyle, growing the business before it exits. Avio's turnover has grown from just over €1.2 billion in 2003 to €1.3 billion in 2005.
Italian aerospace giant Finmeccanica is maintaining a 15% stake as part of the deal, compared with the 30% it previously owned. But Romano says a 15% stake in Avio is now more comparable in value to the 30% Finmeccanica bought in 2003.
The message from Avio and its new owners is "business as usual", with Avio on course for the €1.4 billion revenues and €275 million earnings it has forecast for 2006 and "in line with the five-year growth plan." Quite apart from Finmeccanica's continuing stake in the engine manufacturer, the companies are destined to work closely together, both with Avio as a supplier and as "complementary" player on a significant number of programmes, Romano says.
Source: Flight International