Paris Air Show

Esterline buys into integration

 - June 17, 2007, 8:35 AM

Esterline Corporation’s $335 million acquisition of Canada’s CMC Aerospace three months ago has in no small part played a role in the company’s record stock performance of late, and for good reason, according to Esterline CEO Bob Cremin.   
“I think that’s the market’s favorable reaction to CMC joining with Esterline,” said Cremin. “With CMC our current run rate is, the analysts are saying, in the vicinity of about $1.25 billion a year.”

The combination adds one of the aerospace industry’s leading cockpit integrators to Esterline’s portfolio of more than 35 business units, instantly giving it a level of engineering expertise that might otherwise taken years to accumulate. Esterline has long made its presence felt in aerospace power distribution and materials. Now it appears better prepared to enter the arena of the industry’s leading Tier One systems integrators.

“The really attractive thing about CMC is it helps us keep moving in the direction of offering more complex solutions–systems capability, brainware and offering more applications engineering, because we think that’s a huge differentiator when you can offer that service to customers,” said Cremin. “These people [at CMC] have the capability to update an entire cockpit, and [as] a case in point, we’ll do from scratch the T-6 military trainer cockpit as a prime. So this is a major step up for us in terms of capability.”

Already a Tier One supplier of the cockpit overhead panel system in the Boeing 787, Esterline now employs 9,500 people around the world, including 1,200 at CMC. Of course, the introduction of “critical mass” accounts for another important byproduct of the deal, said Cremin. “For instance, on the new Chinese regional jet, the ARJ21, we think we can open some good doors for CMC,” added Cremin. “We’ve been in China for over 10 years; we are the primary material supplier to them. On the Russian regional jet, the Superjet 100, we’re Tier One as well with the primary power distribution system. So this is where we can work hand in hand.”

Meanwhile, Esterline will inherit five systems integration labs from CMC, a formidable complement to its focused R&D labs staffed with PhDs in such disciplines as optics, stealth materials and countermeasure flares.

Cremin explained that when Esterline expressed interest in CMC more than five years ago, it operated as part of GEC Marconi, parts of which Esterline didn’t want. “The timing is right,” said Cremin. “There’s a big trend going on where our customers, the OEMs, Boeing and Airbus, don’t want to do as much as they had in the past. While we’re noted for making a lot of components and that type of thing, our customers are saying you’ve got to go to the next step, you’ve got to be an integrator, you’ve got to do systems, you’ve got to do more software. At the same time, CMC became available.”

Here in Paris, CMC chief executive Jean-Pierre Mortreaux expects to announce a raft of new business–no doubt more good news for Esterline’s shareholders. For CMC, the merger means the backing of an aerospace power with the resources to which it didn’t necessarily have access in the past.