Mike Pollack GLOBAL SENIOR EXECUTIVE SALES & MARKETING | - - PowerPoint PPT Presentation

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Mike Pollack GLOBAL SENIOR EXECUTIVE SALES & MARKETING | - - PowerPoint PPT Presentation

Feb 24, 2023 134 likes •525 views

Mike Pollack GLOBAL SENIOR EXECUTIVE SALES & MARKETING | BUSINESS DEVELOPMENT | SUPPLY CHAIN LinkedIn Profile 0 The Aerospace Industry Supply Chain Consolidation: Trends, and Consequences Global A&D Market Channel Dynamics

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Mike Pollack GLOBAL SENIOR EXECUTIVE SALES & MARKETING | BUSINESS DEVELOPMENT | SUPPLY CHAIN

LinkedIn Profile

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The Aerospace Industry Supply Chain Consolidation: Trends, and Consequences

  • Global A&D Market
  • Channel Dynamics
  • Major Players
  • Supply Chain Personal Case Histories
  • Summary Points

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A&D Global Market

  • The commercial aircraft order backlog is at its peak of more than 14,000—with about

39,000 aircraft expected to be produced globally over the next 20 years.

  • Geopolitical tensions are continuing to intensify and demand for military equipment is on

the uptick, driving defense spending across the globe.

  • Changes in the international trade agreements likely to disrupt the global supply chain

and increase costs.

  • M&A activity to remain strong as pressure on suppliers to reduce costs and increase

production rates continues.

  • Though A&D industry growth is primarily led by the United States, other regions

including China, France, India, Japan, the Middle East, and the UK, will be contributing to the industry’s performance in the near term

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Commercial OEM Market

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RPK Growth

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Strong Firm Order Backlog

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Global A&D Spending Growth

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Growing Global Middle Class

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Growth in Emerging Countries

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Growth in Emerging Countries

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Growth in Emerging Markets

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Global Demand

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Global Fleet Growth

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Better, more fuel efficient aircraft are lasting longer Growing global fleet drives aftermarket / MRO growth

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A&D Channel to Market

Tier 3

Components / Detailed parts

Tier 2

Sub-assemblies

Tier 1

Major assemblies, purchase parts & sub-assemblies

OEM

OEM’s Design, Final Assembly and Test Tier 1 - Major assembly Tier 2 - Structures and sub-assembly Tier 3 - Components / detail parts

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808% 579% 371% 567% 1,100% 259% 2,050% 283% 1,062% 2,492% 134% (500%)

  • 500%

1,000% 1,500% 2,000% 2,500% 3,000% Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 NYSE:BA ENXTPA:AIR NYSE:UTX NYSE:RTN NYSE: LMT LSE:MGGT NYSE:TDG NYSE:ETN ENXTPA:SAF NasdaqGS:WWD ^SPX

Stock Prices vs S&P 500

A&D Sector Strength

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15

  • 5%

10% 15% 20%

  • 100

200 300 $ 400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM 6/19

Boeing Airbus UTC Lockheed Martin Raytheon Airbus & Boeing UTC, Lockheed Martin, Raytheon (5%)

  • 5%

10% 15% 20%

  • 15

30 45 $ 60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM 6/19

Eaton Safran Eaton Safran

Revenue and Operating Margins Over Time

▪ OEM’s – Revenue growth reflective of growth in the industry – Operating margins lower than Tiers 1 / 2 / 3 suppliers ▪ Tier 2+ Suppliers – Potential to acquire Tier 3 and other suppliers to maintain high margins – TransDigm is executing on a successful M&A strategy to drive outsized revenue growth and maintain superior margins ▪ Large Tier 1 Suppliers – Tier 1 Suppliers also have the ability to acquire smaller companies but are less efficient than their smaller counterparts (TransDigm, Woodward, Meggitt etc.) Margins improve further down the channel

Sources: Capital IQ.

  • 20%

40% 60% 80%

  • 3

6 9 $ 12

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM 6/19

Meggitt TransDigm Woodward Meggitt TransDigm Woodward

OEM’s Large Tier 1 Suppliers Tier 2+ Suppliers

($ in billions)

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Revenue and Acquisitions Over Time

TransDigm has been exceptionally acquisitive in the last decade, comprising most of the acquisitions (by count) among its respective peers. These companies have access to tens of thousands of smaller, privately held companies to continue to industry consolidation and revenue / margin improvement

  • 1

2 3 4 5 6 7 8

  • 2

4 6 8 10 $ 12 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Woodward, Inc. Meggitt PLC TransDigm Group Incorporated Total Acq. Count TransDigm Acq. Count ($ in billions)

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Case #1: Reducing Price Volatility and Assuring Demand for Helicopter Blades through Improved Supply Chain Relationships

23

Relationship Drivers: Erosion shields (leading edge) for helicopter blades Titanium pricing was volatile creating pricing instabilities across the supply chain Lawyers assessed anti-trust concerns / FTC rulings Cross functional participation across the supply chain including the U.S. Army Supply chain; Result: 5 year contract from the US Army at a fixed price with 2 option years.

Key Points: Leverage Value up and down the channel to market Focus on core competencies Long term LTA can stabilize volume / level load production / reduce risk for all Listen for Real Need and Create Win-Win opportunities

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Case #2: Leverage strong performance credibility

24

Relationship Drivers: Established credibility with key customer as key supplier of 737 Spoilers Lean / 6σ program consistent with Boeing’s Boeing had compelling need / failing supplier – single point failure Leveraged existing supply chain for BOM on 777 Tail Cone / 787 Windows & Wing Box Key Points: We are in the Problem Solving business Internalize Lean / 6σ – Learn it and live it - the language of industry People like to work with people they like and trust

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Case #3: Developing Corporate Relationships to Leverage Spend Across Multi-Site Suppliers

Relationship Drivers: 10% of Suppliers represent 90% of Spend / Top 25 Suppliers represent half of Spend 10 Supplier Business Units represent 90% of demand at key suppliers Long term supply agreements reduce risk for all players in the Supply Chain Supplier Conformance to UTC Governance on all key terms and conditions Drive Lean / 6σ to reduce risk on supply base cost / quality / delivery Key Points: Pool economies of scale whenever possible; Leverage Spend Pareto Principle – 80:20 Rule Lean / 6σ strengthens relationships / reduce risk through improved cost / quality / delivery

` Transactional Purchasing & Planning Supplier Development Product Value Streams / Commodities Execution

UTC Divisions (P&W, Collins, Otis, Carrier) UTC Corporate Ops

Strategies Negotiations

PROACTIVE

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Case #4: Leveraging Customer Relationships

Relationship Drivers: UTC Strong position on industry recognized growth program Customer’s willingness to support supply base initiatives – E2 Platform Conference 80% of spend with 20% of suppliers – focused initiative Suppliers desire to participate in long term growth opportunities Economies of scale spend on multiple programs across platform to reduce cost on both new and existing business Key Points: Pool economies of scale whenever possible; Leverage Spend Pareto Principle – 80:20 Rule Lean / 6σ strengthens relationships

Capacity: 88 – 130 (2-class) Range: 1,400nm – 1,800nm

Fire Protection Engine Air Data Electric Systems Evac Slides Wheels & Brakes APU

Awards to UTC

Engine Controls Nacelle

Forecast: 1,980 aircraft First Flight 2016 / First Deliveries 2018

>$.5B annually of new business opportunity for UTC’s supply base >$8M UTC Content per E2 Aircraft

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Summary Points

  • Robust A&D growth expected to continue
  • OEM demand will remain strong
  • Aftermarket becomes increasingly more important
  • Battle over IP ownership
  • Supply chain consolidation / rationalization continues
  • Need to leverage value up and down the channel

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BACK UP

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Stock Prices vs S&P 500

B O E I N G ( N Y S E : B A ) A I R B U S ( E N X T P A : A I R ) 808% 134% (200%)

  • 200%

400% 600% 800% 1,000% Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Boeing S&P 500 580% 101% (100%) 100% 300% 500% 700% Jul-00 Jul-03 Jul-06 Jul-09 Jul-12 Jul-15 Jul-18 Airbus S&P 500 U N I T E D T E C H N O L O G I E S C O R P O R A T I O N ( N Y S E : U T X ) R A Y T H E O N ( N Y S E : R T N ) 371% 134% (100%) 100% 300% 500% Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 UTC S&P 500 567% 137% (100%) 100% 300% 500% 700% May-01 May-04 May-07 May-10 May-13 May-16 May-19 Raytheon S&P 500

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Stock Prices vs S&P 500

L O C K H E E D M A R T I N ( N Y S E : L M T ) M E G G I T T ( L S E : M G G T ) T R A N S D I G M ( N Y S E : T D G ) E A T O N ( N Y S E : E T N ) 1,100% 134% (100%) 100% 300% 500% 700% 900% 1,100% 1,300% Sep-99 Sep-03 Sep-07 Sep-11 Sep-15 Sep-19 Lockheed Martin S&P 500 259% 134% (100%) 100% 300% Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Meggitt S&P 500 2,050% 127% (100%) 300% 700% 1,100% 1,500% 1,900% 2,300% Mar-06 Mar-10 Mar-14 Mar-18 TransDigm S&P 500 283% 134% (100%) 100% 300% 500% Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Eaton S&P 500

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Stock Prices vs S&P 500

S A F R A N ( E N X T P A : S A F ) W O O D W A R D ( N A S D A Q G S : W W D ) 936% 138% (100%) 100% 300% 500% 700% 900% 1,100% Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Safran S&P 500 2,688% 138% (100%) 500% 1,100% 1,700% 2,300% 2,900% Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Woodward S&P 500

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Gross Margin Trends

B O E I N G ( N Y S E : B A ) A I R B U S ( E N X T P A : A I R ) U N I T E D T E C H N O L O G I E S C O R P O R A T I O N ( N Y S E : U T X ) R A Y T H E O N ( N Y S E : R T N )

  • 5.0%

10.0% 15.0% 20.0% 25.0%

  • 20,000

40,000 60,000 80,000 100,000 $ 120,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

  • 5.0%

10.0% 15.0% 20.0% 25.0%

  • 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 $ 90,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019 22.0% 23.0% 24.0% 25.0% 26.0% 27.0% 28.0% 29.0% 30.0%

  • 10,000

20,000 30,000 40,000 50,000 60,000 70,000 $ 80,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

  • 5.0%

10.0% 15.0% 20.0% 25.0% 30.0%

  • 5,000

10,000 15,000 20,000 25,000 $ 30,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

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Gross Margin Trends

L O C K H E E D M A R T I N ( N Y S E : L M T ) M E G G I T T ( L S E : M G G T ) T R A N S D I G M ( N Y S E : T D G ) E A T O N ( N Y S E : E T N )

  • 2.0%

4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

  • 10,000

20,000 30,000 40,000 50,000 60,000 $ 70,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

  • 5.0%

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

  • 500

1,000 1,500 2,000 2,500 $ 3,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

  • 10.0%

20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

  • 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 $ 4,500

  • 5.0%

10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

  • 5,000

10,000 15,000 20,000 $ 25,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

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Gross Margin Trends

S A F R A N ( E N X T P A : S A F ) W O O D W A R D ( N A S D A Q G S : W W D )

  • 10.0%

20.0% 30.0% 40.0% 50.0% 60.0%

  • 5,000

10,000 15,000 20,000 25,000 $ 30,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

  • 5.0%

10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

  • 500

1,000 1,500 2,000 2,500 $ 3,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

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EBITDA Trends

B O E I N G ( N Y S E : B A ) A I R B U S ( E N X T P A : A I R ) U N I T E D T E C H N O L O G I E S C O R P O R A T I O N ( N Y S E : U T X ) R A Y T H E O N ( N Y S E : R T N )

  • 2.0%

4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

  • 20,000

40,000 60,000 80,000 100,000 $ 120,000 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 LTM22019

  • 2.0%

4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

  • 10,000

20,000 30,000 40,000 50,000 60,000 70,000 80,000 $ 90,000 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 LTM22019

  • 5.0%

10.0% 15.0% 20.0% 25.0%

  • 10,000

20,000 30,000 40,000 50,000 60,000 70,000 $ 80,000 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 LTM22019

  • 2.0%

4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

  • 5,000

10,000 15,000 20,000 25,000 $ 30,000 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 LTM22019

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EBITDA Trends

L O C K H E E D M A R T I N ( N Y S E : L M T ) M E G G I T T ( L S E : M G G T ) T R A N S D I G M ( N Y S E : T D G ) E A T O N ( N Y S E : E T N )

  • 2.0%

4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

  • 10,000

20,000 30,000 40,000 50,000 60,000 $ 70,000 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 LTM22019

  • 5.0%

10.0% 15.0% 20.0% 25.0% 30.0%

  • 500

1,000 1,500 2,000 2,500 $ 3,000 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 LTM22019 36.0% 38.0% 40.0% 42.0% 44.0% 46.0% 48.0% 50.0%

  • 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 $ 4,500

  • 2.0%

4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

  • 5,000

10,000 15,000 20,000 $ 25,000 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 LTM22019

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EBITDA Trends

S A F R A N ( E N X T P A : S A F ) W O O D W A R D ( N A S D A Q G S : W W D )

  • 5.0%

10.0% 15.0% 20.0% 25.0%

  • 5,000

10,000 15,000 20,000 25,000 $ 30,000 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 LTM22019

  • 2.0%

4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

  • 500

1,000 1,500 2,000 2,500 $ 3,000 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 LTM22019