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Tuesday, May 1, 2001

One-on-One with Thales' Francois Lureau

Reorganized and renamed, Thales now claims it can offer the air transport market solutions ‘end-to-end.’ We talked with the man making that claim, the CEO of Thales Aerospace.

David Jensen

The year 2000 brought fundamental change to Thomson-CSF, now called Thales. First, there was the acquisition in June of Racal Electronics Plc, the UK manufacturer of a wide array of aerospace electronic systems. Then there was Thomson-CSF’s reorganization into three main divisions: Aerospace, Defense and Information Technology and Services. And finally there was the name change to Thales, after the ancient Greek mathematician and philosopher.

Last year also appears to have been a profitable one for Thales. The company’s recently released balance sheet shows its sales grew by 25%, from 6.89 billion euros ($6.27 billion) in 1999 to 8.58 billion euros ($7.8 billion) in 2000. Much of that growth, of course, resulted from the company’s acquisitions, however, it also can claim 8% organic growth.

Thales Aerospace delivered 1.55 billion euros ($1.41 billion) to the bottom line, a 12% increase over 1999 figures. Both its percentage of growth and its share of income for Thales is below those of Thales Defense and Thales Information Technology & Services. The division reported that while sales in avionics and air traffic control (ATC) equipment reached "double digit" growth, the simulation and training business declined from the previous year. Those three areas make up Thales Aerospace. Thales Aerospace Avionics was formerly Sextant Avionique, and Thales Air Traffic Management was formerly Airsys ATM.

The man in charge of the three segments of Thales Aerospace is Francois Lureau. In addition to being CEO of the division, he is chairman and CEO of Thales Avionics. With Michel Mathieu, managing director of Thales ATM, Lureau recently granted an interview to Avionics Magazine. We started with the name change.

Avionics Magazine: First, let’s discuss the new name, Thales.

Lureau: Yes, well, we ran into a dilemma of how to convey the idea to people that this is a new company. We want a company name that distinguishes us from Thomson-CSF and from Racal.

There are two main differences compared to the past: One, we are multinational, with operations in about 30 countries. At Thales, 50% of the people are not French. And even more, when you look at the 65,000 that we have now, 80% of them were not in Thomson-CSF 10 years ago. So, for them, Thomson-CSF doesn’t mean anything–and that’s not just the Racal people, but for some people in France, as well, because we bought businesses and developed businesses.

Second, we had the image of Thomson-CSF being defense and French–and possibly, for some people, government-owned. Today, Thales is 50% defense and 50% civil. The French government has just a 34% share of the company. The other shareholders are Alcatel with 25% and Dassault Aviation 5%, and remaining shares are owned by Thales employees and the public.

Avionics Magazine: Was the renaming a lengthy process?

Lureau: It was a very professional process. We used three companies to find a new name. We looked for a name that is easy to pronounce in many languages, yet would have European flavor. We wanted to keep it simple. We started with a list of 1,000 names and then we down-selected to 100 and the review committee put it to 10 and then five and two. It went quickly; it took us six weeks.

Avionics Magazine: More than a new name change, the old Thomson-CSF also has become structurally more streamlined.

Lureau: As you are aware, Thomson-CSF made a large acquisition last year. Our acquisition of Racal was completed in June 2000. Obviously, Thomson-CSF became much larger and different in terms of what it is doing–and much more international, as well. So our chairman decided that he had to simplify the company structure. That process was started last year.

Thomson-CSF was presented as three business areas: one is Defense; one is Aerospace; and we have a new group called Information Technology and Services.

I am in charge of the Aerospace business area. It’s like being the CEO of a company within a larger company. My group includes training and simulation–not only for aerospace but for other commercial applications, though the base is aerospace–in-flight entertainment, avionics, and the last one is air traffic management.

Avionics Magazine: How would you weigh your prominence in the Thales organization vis-à-vis the other two divisions?

Lureau: Let me give a biased answer. We think aerospace has two virtues: it is a growing market [and] it really is two markets–military and commercial. That’s why I think aerospace is very central to Thales.

Avionics Magazine: Do you see much synergy within the new Aerospace group?

Lureau: Yes. This business group is attempting to address all the needs of the air transport market. And, of course, there is more and more integration, as you know, between avionics and air traffic control when you’re looking at the plans for future airspace use.

We set up seven years ago a unit called Thomfans. Now it is fully part of the aerospace business arena. It would be our marketing spearhead, so to speak, because they [Thomfans] have a group of 20 or 30 top-level system engineers at work to fully understand all the market implications of air transport.

Avionics Magazine: So you feel you offer a gate-to-gate solution?

Lureau: We would say end-to-end solution. I think "gate" is pretty restrictive. We do have in our portfolio all the businesses that are necessary to claim that we have, indeed, end-to-end solutions.

Avionics Magazine: You feel, then, that you can provide pretty much everything to the air transport market?

Lureau: Yes, but we are not necessarily at the top for every single link in the chain. But when you talk of an end-to-end solution, you do it in partnership, to bring the very best solution. We’re not going to force our customers to systems that they don’t want.

Avionics Magazine: You’ve acquired Racal and merged with Germany’s Diehl Avionik Systeme last September. Across the Atlantic, Honeywell and AlliedSignal joined together. Is there room for any more consolidation in aerospace electronics?

Lureau: I think, in terms of mergers, at the platform or systems level, the Thales level, currently consolidation is more or less done. But if you talk about the equipment sector, it’s obvious there are still many players.

Avionics Magazine: Perhaps now more than consolidation, there are partner agreements. Might you seek a partnership across the Atlantic?

Lureau: Trans-Atlantic, as you know, is very difficult [but] our group is clearly involved in trans-Atlantic collaboration.

Avionics Magazine: Did the acquisition of Racal give you greater influence in the U.S. marketplace?

Lureau: I wouldn’t say this was a primary factor for the acquisition. But clearly, it was considered, and the UK companies have positions in the U.S. that the French companies don’t.

Avionics Magazine: You and Diehl have separate marketing and you have separate engineering, so how do you jointly tackle the pursuit of a big program?

Lureau: We have a strategy policy committee, which I chair. We review everything that is relevant to major programs, and in terms of product development, we make sure we develop what is needed without duplicating our efforts. And the decision- making is based on an agreed common policy for the business.

Eventually, we form teams for a program. One company has the lead. That company is selected on a case-by-case basis. If it is a German program, it would be led by Diehl. If it is a French program, it would be led by Thales. If it is a UK program, it would be lead by Thales Avionics Ltd.

Avionics Magazine: Tells us about Thales’ involvement in the aircraft-of-the-future/air-traffic-management system.

Lureau: We have a systems approach for collaborative decision making. Thomson-CSF started a long time ago to look at this systems approach with Thomfans. With the Thomfans initiative, we were first in Australia to put into operation a full, combined ADS/CPDLC [automatic dependent surveillance/controller-pilot data link communication] in air traffic management.

Now, with the new organization, we have Thales Avionics, formerly Sextant, together with Thales ATM, formerly Airsys, working together to establish a worldwide system. We now can take a broad look at the whole [air traffic] system.

Avionics Magazine: Seeing a greater need for after-market support and training, your competitors boast of using the Internet to better serve their customers. What about Thales’ activities in this area?

Lureau: They made large announcements about use of the Internet and now are more quiet on the subject. But it is true that customer support is becoming an increasingly important part of the business.

Looking at Thales from the top down, we have five values which are shared by every employee in the company, the first being customer dedication. We have in every business group a dedicated customer service organization to address the needs of our customers.

Another important point: We make sure that we measure the quality of what we deliver. We use metrics, which we share with the customers. We have targets in customer satisfaction, and we use these metrics to measure performance.

Mathieu: In Thales ATM, we find customer support important, first, because we’re joining Plessey, Siemens, Thomson, Alcatel. This meant we had many customers to serve. And second, because customer support is indicative of the air traffic control business, we find we must provide for our customers upgrades for their systems in small steps. We have dedicated teams to develop those upgrades, sometimes at the site.

Regarding the Internet, we use it as a tool. We didn’t make any fancy announcements. We’ve been using it at dedicated sites. The customers get information on how the repair work is progressing and when they can count on a system’s return. And now, we are starting to support remote maintenance services and remote training, for example, of the ATC systems.

Avionics Magazine: Can you talk more of the training support?

Lureau: We are developing partnerships with the avionics e-training on the Internet, which has a lot of potential. At Farnborough [Air Show] last July, we presented a concept which we are developing for British Airways that is more like a stationary cockpit. It does not use the real hardware, everything being simulated, but this is less expensive than a full flight simulator, yet it still allows the crew to really do everything they have to do on-board the aircraft.

Avionics Magazine: Is training becoming more important because of systems complexity and human-interface issues?

Lureau: That is obviously part of the problem. That’s why we have pilots in our engineering teams; we have air traffic controllers, people who have operated the systems. That’s very important to keep this human interface under control.

Avionics Magazine: How do you see the in-flight entertainment market?

Lureau: There are segments of the market that are unclear. But I’m convinced that there are needs, a lot of needs in that market.

One thing is clear: Images–that is video–is a must now. We feel that live TV is available and can be very easily provided with almost no cost above the normal video distribution system that you have now on every class on aircraft. We feel that for the narrowbodies and, of course, for the widebodies for continental flying, live TV could be extended to Europe or other regions.

Beyond that, there is still a question mark. It is fairly obvious that the ultimate goal is to have the Internet for each and every passenger. But that is far from easy to achieve. Today, we don’t have the satellite systems that would allow airlines to have full Internet for 300 passengers in an aircraft.

And also there is the question of who is going to pay for that? People say, "Well, I’m going to charge $20 an hour to use the Internet." But are we sure that a passenger will pay $20 in an aircraft when they get it free at home. I’m sure there is a need. I’m sure it will come. I don’t know yet when. So that’s why we favor a step-by-step approach that would be practical.

Avionics Magazine: You seem a bit cautious about IFE’s future, but you once said it would be a growing part of your business.

Lureau: Yes, I do feel that some years from now it will be as big as the cockpit business within Thales. I think in five to seven years, we’ll see passenger systems and the cockpit systems carrying the same weight. The IFE business will grow faster, provided, of course, the market stabilizes and there is a consensus among the airlines on what they really want and what is possible.

Avionics Magazine: We’re hearing more and more about the Airbus 380. You are no doubt working hard to be a part of that program.

Lureau: Yes. We, of course, didn’t wait for Airbus to announce that they are proceeding with the project. We have been working with Airbus for many years. So we feel that we are ready to answer all the issuing RFPs [requests for proposals] in our field. We are ready for the so-called plateau phases.

Avionics Magazine: Looking at your future business another way, how do you see the military/commercial ratio?

Lureau: Just looking at avionics in aerospace, our business is 75% commercial and 25% military. I think we should keep something like a two-thirds/one-third ratio, with programs like Tiger [European combat helicopter] and NH-90 [European utility helicopter], for which we expect contracts fairly soon. For us, these programs are as important as the A380, and they use many of the same capabilities. We could talk about A400M [transport aircraft]. There are military programs that will certainly be very important marketing targets for us.

Avionics Magazine: Quite opposite the A380, the helicopter market seems to capture Thales’ interest.

Lureau: We feel that the helicopter business will grow a lot–both on the military and commercial side.

We have integrated avionics for all the commercial line, all of it. We are pretty strong on the military products, as well, so we see vast growth in helicopter avionics.

Avionics Magazine: Do you see major growth in the helicopter market or in your share of that market?

Lureau: We see some growth in the market, but more, we are increasing our share of the market. The Racal acquisition gave us very good helicopter mission systems integration capability, which is enhancing our overall helicopter offer.

Avionics Magazine: Finally, give us your outlook for the air traffic control market.

Lureau: Air traffic control will not increase more than the pace of the growth rate of the aerospace market, so it is 4% or 5%. We see our business more in improving existing systems. Of course, we will compete for new systems, but the demand is for not that many new systems.

We have been the first to implement ADS/CPDLC, so now you have the collaborative decision-making, which is a new concept involving air traffic control and the airlines. And this will lead certainly to additional opportunities to ease the workload of air traffic controllers and airline operations centers.

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