We Need Growth why major systems suppliers SAFRAN and Rockwell - - PowerPoint PPT Presentation

“We Need Growth”

…why major systems suppliers SAFRAN and Rockwell Collins would move into the interiors business Jeff Johnston CEO Desser Holdings, LLC The Aerospace & Defense Forum Orange County Chapter 3 August 2017

Introduction

• Major Systems suppliers Rockwell Collins and SAFRAN are

both moving into the Aircraft Interiors markets through the acquisition of B/E Aerospace and Zodiac Aerospace respectively.

• How do these acquisitions fit into their respective

portfolios?

• What are the underlying sources of value creation in these

businesses and how will they fit within their existing portfolios?

• What synergy opportunities do these acquisitions bring?
• What are the primary challenges that each will face with

respect to creating value from these acquisitions?

Revenue and Technical Synergies are very limited….

Cost synergies limited to HQ functions and possibly supplies….

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Typical Systems Supplier Delivery Skyline Schedule

Boeing 737 (42/mo) Boeing 787 (12/mo)

• Rates are set and well known in

advance

• Typically no variation from shipset

to shipset

• One competition and award lasting

many years, or even decades

• Very few Moments of Truth
• Relatively predictable

aftermarket revenue stream post delivery

• Very few opportunities to

grow  Predicable   Stable   Limiting 

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Interior Competitive Opportunities / Fleet (Moments of Truth)

• Supplier rates can vary significantly

month to month

• Awards are on end-customer fleet

basis

• Many competitions and awards

lasting only a few years

• MANY Moments of Truth
• Predictability on 18-48

months out

• High variation even within the

month for customer product configuration/supply chain  Complex   Dynamic   Opportunities 

1 2 3

Interior Competitive Opportunities / Fleet (Moments of Truth)

• Seat awards can often be split by class between suppliers
• Typically common IFE supplier due to systems architecture
• Galleys, Lavs, Monuments and other interior packages may

follow different business models

• Significant shipset value potential

Source: IATA Maintenance Cost Conference Miami 2015 (Amortized per AC typical fleet)

(Low End)

Typical Interior Shipset Value

How does it fit…

AW&ST: How does the acquisition of B/E remake Rockwell Collins? Ortberg (Rockwell Collins CEO): “…Interiors get retrofitted several times in the life of an airplane. We do not see that in avionics. So it gives us the ability to pivot a little bit to the aftermarket when we see soft patches in OEM production rates.” “…We can see where we will be leading in the next generation of smart cabin technology. We’ve got all the parts…” Credit Suisse (Regarding SAFRAN / Zodiac): “We think the group may be attracted by cabin interiors, as it is a critical element of the aircraft for the airline operators. It also operates along a slightly different cycle versus other equipment businesses, thanks to the retrofit business (particularly helpful in an environment where OE is slowing down). We believe that it is a fundamentally attractive growing market where airlines are likely to continue to invest their discretionary dollars. It is a less technology intensive business than engines, for instance, but many parts are critical for the proper functioning of the aircraft and for the airlines brand differentiation efforts.”

Can they realize value?

“Safran says it is confident of resolving Zodiac's industrial problems after visiting its plants, including a British factory blamed for the latest profit downgrade in April.” (Reuters June 15, 2017)

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Each block is one shipset….

• Each shipset may involve multiple cabin classes of product
• Each cabin class has variation by position
• Each customer has a unique configuration
• Products require high aesthetic quality

….neither OEM has any experience with this type of production and associated supply chain complexity

Summary

• The expansion by both SAFRAN and Rockwell Collins

into the interiors space provides them with significantly greater growth opportunities than their legacy systems businesses.

• There are relatively few revenue synergy opportunies

between the two legacy businesses and these new bolt-on acquisitions

• Cost synergies are limited to HQ functions and possibly

some site rationalization

• Value creation will likely come from two different areas
• New solutions for smart cabins for Rockwall Collins
• B/E Aerospace
• Significantly better execution by SAFRAN / Zodiac,

addressing root causes of industrial difficulties