Paris Air Show

Collins Aerospace Identifies Future Market Opportunities

 - June 12, 2019, 7:00 AM

Collins Aerospace reckons it has many opportunities to continue expanding its business both in the near future and longer term. Now a company with 70,000 employees and annual revenues of $26 billion, Collins Aerospace was created in November when UTC Aerospace Systems merged with Rockwell Collins. 

CEO Kelly Ortberg told AIN that, while over the next four years the company will pursue a $500 million-plus “run rate” of cost synergies, “the more exciting part” of Collins Aerospace’s continuing evolution will be to identify and achieve the revenue synergies arising from the merger of the two big aerospace-industry suppliers.

“We are already prosecuting those” revenue synergies, said Ortberg, identifying three areas of opportunity Collins Aerospace will have to increase its revenue base in the near term and at least four areas which the company expects to offer major new-business opportunities further into the future. Each of its six major businesses—avionics, mission systems, aerostructures, mechanical systems, power and controls, and aircraft interiors—is now “of $3- to $5 billion size [in annual revenues] and all are of significant scale in the market. Each is [number] one or two in its market space.”

Highlighting that the business case for the UTAS-Rockwell Collins merger was predicated on achieving cost rather than revenue synergies, Ortberg said the merger preparatory work identified three major cost-efficiency categories the post-merger company could achieve. “We have committed to $500 million of run-rate synergies in year four” following the merger, he said. “My goal will be to improve that $500 million in year four” to achieve even greater reductions.

The first category is to reduce Collins Aerospace’s supply-chain costs, both for direct supply-chain spending—on third-party parts, which the company uses in its products—and on indirect items such as services, shipping costs, and air travel. Ortberg said Collins Aerospace will be able to leverage its purchasing power as a $26 billion (annual sales) company to reduce those costs.

Collins Aerospace’s Project 804
Collins Aerospace’s Project 804 consists of research to develop this demonstrator Dash 8 converted to hybrid electric/turboprop propulsion.

Second is the cost saving available from reducing the mutual UTAS-Rockwell Collins “footprint” of physical facilities. Collins Aerospace at present has “multiple similar facilities in proximity” in several areas because it was previously two separate companies. “We have more than 250 facilities in our supply chain and we’re finding ways to do that more efficiently,” said Ortberg. “We have a series of projects over the next three years” to rationalize the company’s physical footprint.

The third category of cost savings comes from “general overhead reduction,” said Ortberg. Already, “we have reduced our overhead workforce by more than 1,000 people,” by “elimination of the Rockwell Collins corporate office. We are well on track to creating the efficiency needed to make our business case.” The workforce reduction was achieved, in part, by a voluntary-retirement program introduced this year.

As part of this process, Ortberg is putting in place a new management structure “to drive delegation down through the organization,” producing more responsive and more informed commercial decision-making throughout the company. “I keep telling our people that we’re big, but we have to move like we’re small—quickly and nimbly,” he said.

More challenging for Ortberg than cost synergies are the substantial revenue synergies he reckons can be gained. In the near term, he said, one such opportunity lies in “cross-channel selling”—the merged company marketing legacy UTAS products to Rockwell Collins’ legacy customers and legacy Rockwell Collins products to UTAS legacy customers.

A second, related area of opportunity arises from the fact each of the two companies had specific markets in which either one had a strong presence and deep market knowledge, but the other did not. Now, each Rockwell Collins or legacy UTAS division can inform a sister Collins Aerospace business of a potential sales opportunity in a specific market, where otherwise the sister division might not know the opportunity existed.

For example, a legacy UTAS business might know in advance when a specific aircraft is due for a maintenance-shop visit to receive a modification or an upgrade. That forthcoming visit now presents a clear opportunity for a legacy Rockwell Collins business to offer the customer an avionics or cabin-interior upgrade, to be performed during the same visit—allowing the customer to use aircraft downtime efficiently.

Near-term, each legacy company’s aftermarket agreements offer a third important opportunity for revenue synergies. Both Rockwell Collins and UTAS had flight-hour agreements with many of their customers, covering specific product lines. Now it is often easy for Collins Aerospace to offer all those customers extended flight-hour service agreements, covering both the legacy UTAS and the legacy Rockwell Collins product lines. “Customers love that because it makes their lives easier and it offers them broader service opportunities,” said Ortberg.

Digital Connected Aircraft

Longer-term, in markets that don’t necessarily yet exist, major business opportunities will lie for Collins Aerospace in creating “the digital connected aircraft,” according to Ortberg. Such an aircraft could integrate avionics produced by the former Rockwell Collins business with air data systems manufactured by the former UTAS Rosemont business, improving data analytics, prognostics, and systems management.

Collins Aerospace expects also to find major long-term business opportunities as aircraft design continues to evolve toward more-electric aircraft, which, like the Boeing 787, will rely almost completely on electric power to operate their systems. Collins Aerospace is already the clear leader in this developing market because it provides the electrical power-generation and distribution systems for the 787, along with other electrical systems such as the 787’s environmental control system, and the F-35 Lightning II, Ortberg said.

Now, the company will use its newly established aircraft electrical-systems R&D center, The Grid, as “a development center for high-power distribution, higher electrification, and managing higher voltages on those aircraft,” he said. “It’s a big opportunity for us. It’s a ways out but we’re driving development” of the technology and market.

Project 804 is United Technologies Advanced Projects' cooperative endeavor with sister company Pratt & Whitney to create a hybrid-power demonstrator aircraft using a DeHavilland Dash 8 airframe. The hybrid system will provide electric power to boost the turboprop engines’ output when high power levels are required.

“An engine with electrical boost capability… can be made much smaller and more efficient, because you use the electrical power for takeoff and climb, when you need additional thrust,” said Ortberg. Collins Aerospace is showing a model of the Project 804 aircraft this week at the Paris Airshow and will eventually fly the full-scale demonstrator.

The company also believes “autonomous, intelligent” aviation controls and sensors will provide long-term business opportunities in two major areas. One will be in increasing the automation of classical aviation functions and tasks, for instance using new technologies to allow commercial aircraft to fly safely with fewer pilots, said Ortberg.

Opportunities might well also arise for Collins Aerospace in the fast-growing drone market. “It’s not a new market, but the unmanned platform still presents new opportunities for us”—more probably in civil rather than military aviation. “Big future opportunities” will exist in developing the autonomous controls and traffic-integration capabilities that will allow unmanned aircraft to fly routinely in civil airspace, he said.

Growth Opportunities

With civil aviation representing about 70 percent of its business today and military aerospace about 30 percent, Ortberg said both worlds offer substantial continuing growth opportunities for his company. Collins Aerospace products are so ubiquitous on all of the latest commercial aircraft and their engines—particularly the high-selling single-aisle jet airliner families—that the continuing strength of commercial aviation creates natural OEM and aftermarket business growth for the supplier.

Meanwhile, business aviation is recovering only slowly from its last downturn, but Collins Aerospace generally has a much higher content share on newer business aircraft models than it did 20 years ago, he said. Ortberg sees his company today as being “in as good a position as we’ve ever been in” during his 30 years in the aerospace industry.

As a result of the two most recent U.S. defense budgets, Collins Aerospace’s “military [business] has been very strong,” said Ortberg. “We’re expecting it to come down to more modest growth, but we’re generally under-served in that market” and the company is prioritizing deeper market penetration. One area of particular business-growth promise is “defense communications, particularly…providing a more secure GPS signal in a denied or jammed environment,” he said. “Assured precision navigation and timing is an important area we play in—we have a series of programs in that area.”

In military aerospace, “there are all sorts of new opportunities,” said Ortberg, identifying four: producing “finer-quality sensors; distributing information in the GPS-denied environment; distributing timing on the battlefield; and helping communications systems work in the GPS-denied environment.