The Disruptively Changing Aerospace Landscape Jeff Johnston Desser Holdings, LLC August 2018 A&D Forum
Customer Value Creation Desser Holding Company, LLC • What is our business? • Who is our customer? • What do they consider value? » Peter Drucker Can the answers to these questions deliver the Growth Rates that you want? • Do we need to redefine our business? • Do we need to expand our customer pool? • Do we have what it takes to deliver value to them? • If not, how do we acquire what’s needed to compete? 1 A&D Forum
ATR Fleet Desser Holding Company, LLC 2 A&D Forum
MRO Market Desser Holding Company, LLC 3 A&D Forum
Growth Thought Process Map Capabilities Matrix & Revenue Analysis What Markets Do We Play In? What are their respective Growth Rates? • 2018 - 2025 • Which Markets Should we Target? (Why?) What Customers? What Platforms? What Products? What are we Doing and Why are we Doing it?
Growth Matrix Desser Holding Company, LLC New Products Existing Update/ Refresh Enter Regional Markets Existing Products New Customers Supply Regional Keep Battling for Share! Jets Existing 5 A&D Forum
Airframe OEMs on the move…. Desser Holding Company, LLC Airbus’ majority stake in C Series partnership with Bombardier and Investissement Québec comes into effect The closing of the previously announced C Series transaction between Airbus SAS, a wholly-owned subsidiary of Airbus SE (EPA: AIR), Bombardier Inc. (TSX: BBD.B) and Investissement Québec came into effect on July 1, 2018. Airbus now owns a 50.01% majority stake in C Series Aircraft Limited Partnership, while Bombardier and Investissement Québec own approximately 34% and 16% respectively. CSALP’s head office, primary assembly line and related functions are based in Mirabel, Québec. Boeing to take over $4.75 billion Embraer unit, targeting Airbus-Bombardier Brad Haynes, Tim Hepher SAO PAULO/PARIS (Reuters) - Boeing Co (BA.N) struck a deal for a controlling stake in the commercial aircraft arm of Brazilian planemaker Embraer SA (EMBR3.SA) under a new $4.75 billion joint venture, the firms said on Thursday, reshaping a global passenger jet duopoly. The new company, encompassing Embraer’s airliner business, thrusts Boeing into the lower end of the market, giving stiffer competition to the CSeries jets designed by Canada’s Bombardier Inc (BBDb.TO) and backed by European rival Airbus SE (AIR.PA). 6 A&D Forum
Growth Strategy & The Value Stream Partner with Key Attack Key Supplier Customers Positions Suppliers Customers Core Business Parts Systems Design & Airline MRO & Production & Integration & Certification Customers Aftermarket Assembly OEM Prod/Cert • Expand A/M Services • Acquire for coverage and Expand Supply synergies Chain Participation
Boeing Vertical Integration Desser Holding Company, LLC Boeing Takes Another Step Toward Vertical Integration: Should Suppliers Panic? The aerospace giant is moving into some of the most lucrative parts of the aftermarket. That's bad news for suppliers. Lou Whiteman (TMFeldoubleu) Jan 19, 2018 at 9:18AM Boeing (NYSE:BA) has fired another shot in its ongoing power struggle against United Technologies (NYSE:UTX) and other suppliers. On Jan. 16, it announced an in-house alternative to a key part of the commercial aircraft supply chain. Investors in Boeing and its suppliers should be watching closely. Take a seat Boeing is forming a joint venture with Adient (NYSE:ADNT), the auto parts business spun out of Johnson Controls in 2016, to develop and manufacture seats for commercial aircraft. Boeing said that the JV is a response to delays in seat production and capacity constraints from current suppliers Rockwell Collins and Zodiac Aerospace, and cited forecasts that the aircraft-seating market would grow from $4.5 billion in 2017 to $6 billion by 2026. 8 A&D Forum
Desser Holding Company, LLC Boeing's Vertical Leap: Where Will It Squeeze Suppliers Next? Jeremy Bogaisky- Forbes Aircraft parts manufacturers got a rude welcome back to work Monday with the announcement that Boeing is going into business with France’s Safran to make auxiliary power units. It’s one of the more surprising developments yet in Boeing’s drive to shake up its supply chain, which has featured heavy pressure on suppliers to reduce costs, as well as moves to in-source production of such disparate elements as seats, wings and avionics components. What could Boeing take in-house next? “It’s bigger than what many people realize,” says Kevin Michaels, managing director of the consulting firm AeroDynamic Advisory. “They’re reinventing the supply chain, and there’s a lot more vertical integration to come.” Michaels says the company is essentially working its way through the aircraft, assessing each component by three parameters: Is it strategic technology that Boeing should take control of? Is Boeing getting good value on it from suppliers? Would making it in- house provide an opportunity for higher-margin aftermarket service revenue? 9 A&D Forum
Desser Holding Company, LLC Is Vertical Integration The Next Big Thing In Aerospace? • Published on May 18, 2016 • Kevin Michaels AeroDynamic Aerospace supply chain strategies are prone to ebb and flow. The post-World War II era, characterized by vertical integration and insourcing, gave way to outsourcing and partnering in the 1990s and 2000s as companies pursued market access, business simplification and labor arbitrage. So it is interesting that five leading companies now appear to be embracing vertical integration. Why are they doing it, and is this the start of a larger trend? Just one decade after famously spinning off its Wichita operations (now Spirit AeroSystems) and pursuing an uber Tier-1 787 supply chain strategy, Boeing is now busy insourcing for future aircraft models. Composite wing production, outsourced on the 787, will be done in-house for the 777-X, courtesy of a $1 billion wing factory in Everett, Washington. Boeing is recapturing control of nacelle and pylon design lost through the Wichita divestiture through a new Propulsion Systems Division based in North Charleston, South Carolina. In 2017, it will open a new composites manufacturing center in St Louis. It is also taking a greater role in aircraft systems integration; flight controls, landing gear and interiors are recent examples. Boeing has several motivations for vertical integration: access to more “profit pools,” greater control of intellectual property and, above all, avoiding the massive delays and cost overruns from its flawed 787 supply chain approach. 10 A&D Forum
ATR MRO Market Growth Desser Holding Company, LLC 11 A&D Forum
Airframe OEMs Desser Holding Company, LLC Aircraft titans Airbus and Boeing set to aggressively expand in parts and repairs Singapore — Major aircraft manufacturers Airbus and Boeing, having built their global success on transcontinental airliners, are now eyeing the lucrative if less glamorous parts and repairs side of the aviation sector. While booming demand for air travel has caused the world’s top aircraft makers to ramp up production, it is the multibillion-dollar after-sales service market that is taking an increasing amount of their attention. The aircraft titans are aggressively expanding their presence in the sector, which is dominated by maintenance, repair and overhaul of aircraft but also covers other services, from training to parts supply. The European and US firms have long done some business in after-sales support but they are now moving to win greater market share and take on other players such as Germany’s Lufthansa Technik and the US-based AAR. "The services market is more lucrative than actual aircraft sales because it has more potential and it covers many different spectrums," said Shukor Yusof, an analyst with aviation research firm Endau Analytics. Business Day 12 A&D Forum
Market Five Forces Desser Holding Company, LLC Key (+) Positive Force (Good) New Entrants: (+/-) Neutral Force • New Materials (-) Negative Force (Bad) • Digitization New Entrants Customers: (-) • Vertical Integration • Expanding A/M Competitors: (-) (-) • Regional Presence Customers Suppliers Competitors (OEMs/ • Cost Airlines) • Speed / TAT (-) Substitutes Substitutes: • DER Repairs PMA Parts The Need to Create Real Differentiated Value has Never Been Greater! 13 A&D Forum
Growth Opportunity Pipeline Process Prioritized Pursuit List Idea Generation 1. Customers 2. Suppliers 3. Staff N Others • Products • Customers • Acquisition Targets Do Not Resource/Pursue No capability Low Success Probability Poor ROE/ROI (Size) No bandwidth (defer) Focus and Prioritize to Win….or Die!
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