Paris 2011: GKN set to harvest growth after investing in fallow years

Paris Air Show » 2011
June 19, 2011, 9:00 AM

When GKN Aerospace CEO Marcus Bryson gets bullish about market conditions it is probably worth paying attention. He was quick to identify the full extent of the downturn triggered by the global financial crisis and has generally erred more toward the “glass-half-empty” view than seeing the glass as being half full. But, at a briefing ahead of this week’s Paris Air Show, he was adamant that the industry is back in growth mode and that GKN has positioned itself well to tap the fruits of growing demand.

Last year, which Bryson described as having been “good but not exceptional,” GKN won new contracts that will lead to more than $1.5 billion in new business. The new work includes a contract to make fuel tanks for the General Atomics Predator UAV and Eurocopter’s EC 135 helicopter, as well as for various Boeing 787 components for Japan’s Fuji Heavy Industries.

Production ramp-up for GKN’s role in major new programs such as Airbus’s A400M military transport and the A350XWB airliner, as well as for the Lockheed Martin F-35 Joint Strike Fighter and the Boeing 787 widebody, are expected to bring in approximately $640 million in new revenues. In mid-April, GKN signed a new long-term production contract with Boeing. Running through 2020, the contract covers titanium structural wing-to-body and wing-to-nacelle fittings for the 787. These are manufactured at GKN’s plant in St. Louis, Missouri. Just over half of UK-based GKN Aerospace’s worldwide workforce is in the U.S. For the A350, GKN is providing inboard and outboard wing flaps, as well as cabin windows.

With airframers now looking to boost output fairly quickly there could be further opportunities for GKN to capitalize on the lack of preparedness of some rival suppliers, Bryson claimed. “As build rates grow, we will start to see some distress in the supply chain with some suppliers struggling to make the necessary investments,” he said, referring to the impact that diminished income and profitability has had in some sectors of the industry. “This is why Airbus is giving long advanced notice of production rates increasing.”

Back in January 2009, GKN Aerospace took a big leap forward in expanding its own production capacity when it acquired the former Airbus wing factory at Filton in the UK. At the height of the downturn, the investment might have seemed inauspicious, but output from the facility was a big factor in boosting annual revenues by almost 50 percent from around £1 billion in 2008 to £1.45 billion in 2010. While revenues were essentially flat between 2009 and 2010, profitability in GKN’s aerospace division last year represented a margin of 11.2 percent–above the 7.6 percent achieved group-wide.

The civil side of GKN’s business accounted for 53 percent of revenues last year and by 2014 this is expected to increase to 62 percent. Other drivers in this sector include increased output for both the A320 single-aisle family and its 737 rival from Boeing, as well as for the A380, A330 and Boeing 777. Further ahead, Bryson sees more opportunity in programs such as the new A320Neo and the 747-8 (for which GKN is contracted to develop thrust struts), as well as the Bombardier C Series (ailerons and winglets) and China’s Comac C919 airliners. GKN is continuing talks with the Chinese about a possible contribution to the C919.

Despite the anticipated reduction in the proportion of military business to overall sales and pressure on defense budgets, GKN still feels that this sector is largely positive for 2011 and going forward. In addition to its stake in the F-35 and A400M programs, GKN continues to generate ongoing earnings from programs such as the C-130J and C-17 military transport, as well as from Saudi Arabia’s F-15 fighters, the V-22 Osprey tiltrotor and Sikorsky’s Blackhawk family of helicopters.

The group is now focusing on opportunities with new generation U.S.-led programs, such as the CH-53K heavylift assault/transport helicopter, the KC-46A tanker, as well as various future unmanned combat air systems and the Armed Aerial Scout rotorcraft. Its corporate structure in the U.S. means that it is cleared to work on the Pentagon’s top-secret “black” programs. GKN also expects to grow its business with both BAE Systems and Northrop Grumman over the next three years.

Earlier this year, GKN added a new airframer to its client based when Honda Jet announced its selection to manufacture the entire composite fuselage for its new business jet. The first production units are due to be delivered to Honda’s U.S. factory in the spring of 2012.

Aerostructures account for fully 65 percent of GKN’s business, followed by 25 percent for propulsion systems. Specialty products, including fuel tanks and inflatable aircraft recovery floats, represent 10 percent of the business. Throughout these sectors, aftermarket work generates 15 percent of all revenues.

GKN’s work in aerostructures spans much more extensive sections of airframes. These include winglets, wing trailing and leading edges, vertical and horizontal tail planes, composite and metal fuselage structures, as well as fully integrated floor structures.

In the powerplant department, GKN makes both composite and metallic fan blades and cases (see box), as well as blisks (a blade/disk combination), diffusers, turbine casings, exhaust systems, fan inlet frame, inner core fairings, compressor cases, ducts and compressor and turbine vanes.

Following on from a joint venture started two years ago with Rolls-Royce to develop a new composite fan blade, GKN is extending this alliance to develop a composite fan case. The case is intended for possible use on future large turbofans and potentially could be applied to whatever powerplant is required for the new-generation single-aisle airliners envisioned by both Boeing and Airbus.

 “We are now building on our proven track record of growth and profit margin progression,” concluded Bryson. He pledged that the group would continue its high levels of investment in research and technology development (see box).

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