Woodward's chief executive Tom Gendron tells Flight Daily News how the aircraft energy control systems and components manufacturer exploited the industry downturn to swoop on acquisition targets HR Textron and MPC Products
How do you read sentiment at the show?
Based on some of the conversations I've had with peer companies and our customers I think it's probably going to be a little less attendance than Farnborough last year. A lot of companies are scaling back, which everyone can understand.
Actually this year we've upped our participation. Over the past seven months we've acquired two companies in the aerospace and defence market and putting it all together at Woodward we're going to have a bigger presence than we've ever had, to highlight the new Woodward.
We were able to combine quickly after we acquired MPC in autumn last year, and then with the acquisition of HR Textron we've just added that to it. So we're going to have a little bit of a larger display and more people than we have had in the past.
What strategies has Woodward adopted to weather the downturn?
One of our strategies was to forecast this downturn a few years ago, just looking at the economic indicators. We did not anticipate the financial markets, but as a company we were prepared for a downturn. We were looking at acquisitions, but they were very difficult to come by and very expensive.
We cleaned up our balance sheet and went into this downturn net-debt free, with the intention that we were going to make acquisitions and we were public about that. As we thought, a couple came up that I don't think otherwise would have done, so we were opportunistic on that.
I do believe there is going to be more consolidation, at the tier one and tier two levels, maybe not at the major OEM level, but down where we play I think there's going to be more consolidation. We're not debt free anymore. But we were able to go in with that really strong balance sheet and even in this economic climate we were able to borrow a substantial amount at very, very good rates.
Do you think the airliner manufacturers will manage to deliver all of their outstanding backlogs in the face of the financial crisis?
We've been monitoring that, and I think the aircraft will be delivered if they get the financing, but that financing is uncertain and it's a little hard to say. I think it's looking better today than even three months ago, but it's a big issue and it's a little hard to predict. We can monitor traffic and airlines putting in new routes pretty effectively, but it's difficult to say whether the financing will be there or not.
We've got a pretty good balance in our business: commercial aviation and a pretty large aftermarket to support our installed fleet, and that actually seems to be stabilising. The defence side for us is doing well, but the business jets are down without a doubt and we've got that factored in so in total our outlook's not too bad if the financing holds.
Are you seeing signs of recovery in the business aviation market?
My feeling is no. The history of business aviation correlates to corporate profits and it lags corporate profits, and at least here in the USA we've had the great benefit of our Congress screwing up the market.
I think it's going to be a while. First we have to get the profits recovering and then we've got to get companies a bit more confident in saying: "Okay, I am going to use business aircraft for productivity purposes." I think it's going to be a few years before it recovers. The high end of the market is not crashing like the low end, but it's still down a little bit.
Is the fall off in utilisation of airliners impacting on your aftermarket business?
A little. As we track the installed base the largest number of aircraft that were parked were the MD-80s and DC-9s and some 737 Classics. Although we don't have a huge exposure on those old Douglas aircraft, we do have a big exposure on 737 Classics, but they haven't been parked nearly as much. Nor have the regional airliners been as much as we thought. It looks like it's stabilised and is holding pretty well.
Has the delay to plans by Airbus and Boeing to launch new 150-seat aircraft families caused you to refocus your R&D spending?
We are spending a sizeable amount of our R&D budget preparing for those competitions, and we have been for the last four years. We're continuing to do that because they are critical competitions. In the meantime we have very good content on those aircraft, so as long as they keep producing them, that's a good thing. We just want to make sure when the competition occurs that we win. For Woodward as long as Airbus and Boeing keep producing their existing narrowbodies we're in good shape. It's not a bad thing for us. We're looking at those investments, we're continuing them and just making sure that as we take maturing technology that it's lining up with these new schedules.
R&DAre you cutting back on R&D spending?
You'll see in our numbers that we have not been cutting R&D, even though the market is under some pressure. For the most part I think we're pretty much holding up our R&D spend.
How is your military business performing?
With the two acquisitions we've made, our exposure to military went up substantially. Combined, the two acquisitions had about 60% sales to the military, so that upped Woodward's exposure to military quite a bit. Right now our military sales are up year on year so it is a positive to us. For aerospace sales we're probably now approaching 35% military.
What are your objectives for Paris?
The main objective for this show is to get the primes and the OEMs to understand what Woodward is trying to do with the acquisitions, how we've positioned our company, the strength of the combined company of Woodward traditional with the MPC and HR Textron acquisitions and what we can bring to them.
So we're lining up a lot of meetings with customers, we're going to be sitting down with them explaining what the business looks like, where it's going and our thoughts on how we're adding more value to them. My team has got me round the clock meeting with folks, which is great as that's what we wanted to do! What we're trying to accomplish here is that in one week we'll hit key execs at all of our customers. That's pretty hard to do anywhere else. We've got a pretty good line-up and I think we're going to get value out of it for that purpose.
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Source: Flight Daily News