Tuesday, October 1, 2002
Thales Avionics' Francois Quentin
How is Europe’s largest avionics manufacturer faring? With its close ties to Airbus, a program to efficiently adapt to market change, and product breadth–from IFE to military gear–the company is faring well, according to its CEO.
Based in France, Thales Avionics is the world’s third-largest avionics specialist. In 2001 it produced more than 1.1 billion Euros in revenue, almost 11 percent of the parent company’s sales.
Thales has grown rapidly in the past dozen years from mergers and acquisitions, changing its name multiple times. A predecessor company, Sextant Avionique, was created in 1989 from the merging of three Aerospatiale subsidiaries with the general avionics division of Thomson-CSF. A decade later, after Aerospatiale divested its stake in Sextant, Thomson-CSF Sextant was formed. In 2000 Thomson-CSF purchased the British firm, Racal Electronics, and became Thomson-CSF Racal. The same year the company changed its name to Thales, after the ancient Greek mathematician and astronomer. The French government’s stake, meanwhile, has decreased from 58 percent in early 1998 to about 33 percent as of July 2002, and may decrease further in the new political environment.
Thales Avionics’ competitiveness, close relationship with Airbus and large customer base have positioned the company for further growth. Recently Avionics Magazine interviewed François Quentin, chief executive officer (CEO) of Thales Avionics and senior vice president of the Thales’ Avionics Systems Business Group. He oversees Thales’ activities in civil and military avionics, aircraft electrical systems, and in-flight entertainment (IFE).
Avionics Magazine: Thales Avionics has changed since the days of Sextant Avionique?
Quentin: Sextant’s business was primarily military. But now our business is 70 percent commercial and 30 percent military. We like that split very much and plan to keep it around that. We are also two to three times bigger than we were then. Today we support 200 airlines and 40 different armed forces. We have enjoyed continuous growth for the last five years, including 10 percent growth in 2001, compared with 2000, despite the year-end slowdown. We do not expect a decrease, but [we expect] flat [revenues] in 2003.
Avionics Magazine: You are poised for growth?
Quentin: We strongly believe we’re gaining market share. We have 30 to 40 percent of our business with Airbus, 30 percent military and 10 percent with Boeing. We have a strong position in Germany and in European military and export. A key difference between us and our competitors is that we are on recent [Airbus] aircraft and the fleet is building up very fast. So, we are projecting growth. Very few of [the Airbus aircraft with Thales systems] are retired and very few of them will retire in the coming 10 years. So there is enormous growth potential–built-in growth. Our competitors enjoy a bigger fleet today, but retirements will offset new aircraft. We also subcontract quite a lot, to be flexible and make sure we do not do work we are not very good at.
Avionics Magazine: Thales Avionics’ reach is quite international, right?
Quentin: We have three major business units in North America: IFE in Irvine, Calif.; regional/business aviation in Montreal, Canada; and customer support in Edison, N.J. Australia is a strong point for Thales, as well as Singapore, China and Japan. [These sites involve air traffic management, training and simulation, and other activities, as well as avionics.]
Avionics Magazine: What are some other key themes?
Quentin: We are building on flexibility. We have a major change program called "Top Avionics." The target is to make the organization change to adapt its processes to the challenges of our environment and to make sure that the customer’s needs are met in a timely manner.
The second target is to design new services and products when they are needed by the market. It is a major company-wide improvement project to change the culture of the company. We’re now coming up on three years [in the program]. It has been a major success, putting the company into a positive change momentum. We have precise performance ratios and each year we raise the targets to be at the leading edge of the industry.
For example, we have a major supply chain management initiative within Top Avionics. In the past we provided our customers with boxes–one by one–and customers had to run huge inventories. Now we are delivering complete ship sets, on time, within a very short time frame. This is something we do with Bombardier, Airbus and Dassault.
We are addressing systems because we believe they are key. We provide customers with complete solutions–it could be a complete cockpit for Bombardier, for example. We are climbing–with our customers–the ladder of system procurement. We now have the "bricks," the key products or components, to build systems and integrated modular architectures [IMAs]. We are currently developing the IMA for the A380. Integrating different devices into the IMA is something completely different from an LRU [line replaceable unit]—based solution.
We also can tap all the Thales expertise and technology at will. We have access to all of the technologies, all of the products that could be of interest, especially when new technologies are requested by the aviation industry. A good example is communications. We can mix antennas from military technology or other systems.
Support services are also a key part of our business. Since the ’90s we have been building relationships with 200 airlines. We want to make sure we are very close to our customers. In Toulouse, for example, we established a major facility to be close to Airbus. We are in a facility in Seattle to be close to Boeing. We are in Montreal with a business unit to be close to Bombardier. This is key to our strategy. We want to be very close to our customers, to do joint development with them and to be in a position to deliver services from very near.
The aftermarket is a growing area for two reasons: the number of aircraft on which we have a significant [amount] of equipment and the opportunities to provide operators with new kinds of services. Those who pioneered [outsourcing] a few years ago at that time were considered almost jokes–they were not good enough to do their own maintenance. Now they are in better shape than their competitors and are becoming more and more a business model. Some significant airlines are moving this way–with a lot of care because it’s internally sensitive and it has to be proven to be cost-effective.
Avionics Magazine: And Thales also is involved in air traffic management.
Quentin: We are the only company with both capabilities–airplane communications design and ATM. Lockheed Martin and Raytheon are the other two, but they’re not involved in avionics. The idea is to push for aircraft and control center systems designs that are consistent with each other. We have set up a marketing body between our two operations to market joint solutions and provide more efficient ATM solutions. We also are marketing solutions for new concepts such as collaborative decision making and maintenance.
We not only have an understanding of what will happen five to 10 years from now, we are in a position to be ready very easily, much earlier than others. This will be the case more and more because of integration [projects], such as the Open Sky initiative, which imply a lot of modification to systems. We also are working on onboard solutions that could provide the relevant precision and communications with the proper level of security. [Thales, EADS and Airbus announced at the Farnborough Air Show an Air Traffic Alliance to pursue simultaneous integration and deployment of aircraft capability and ground ATC systems.]
Avionics Magazine: Tell us about Thales’ involvement in seller-furnished equipment.
Quentin: Seventy percent [of our business] is seller-furnished or selectable seller-furnished. Thirty percent is buyer-furnished. But buyer-furnished is becoming slightly different because the airframer has a stronger say in its definition. IFE used to be, "do as you want," but now it is seller-furnished, selectable by the buyer.
Avionics Magazine: What are you doing in IFE?
Quentin: IFE is primarily focused on Boeing aircraft today. We are doing the reverse, entering into Airbus aircraft. IFE has to be flexible. All the airlines won’t need full video on demand, interactivity and antenna capability. The way we designed the i-Series was with several levels of functionality, but all of them compatible, with the same LRUs. So [the airlines] can grow from one version to another or have sections of the aircraft with better functionality. It’s capable and upgradeable. The A318 [a new addition to the Airbus 320 family] is the very first Airbus we have fitted all seats with such a system.
Avionics Magazine: Is dual-use technology important?
Quentin: We believe that the basic technologies, or key elements, of products [from civil to military] are very similar. It is an expertise of Thales Group as a whole to build on dual technology. There is a lot of synergy. We are addressing four different markets: regional/business jets, helicopters, military transport and combat aircraft, and air transport. [With dual-use technology], we spread the costs across the different markets. An example is LCDs [liquid crystal displays]. We have an in-house capability to design and manufacture LCD displays. We have a complete understanding and grasp of the technology.
Avionics Magazine: What are your key R&D focuses?
Quentin: FMS [flight management systems], IFE, surveillance, integrated modular avionics and man-machine interface/HUDs [head-up displays]. We have done military FMS for a long time. But we decided to enter the air transport FMS market in 1997-1998. We’re now close to certification on the Airbus A320. There is ongoing development on new FMS for the A330 and A340. We now have 70 percent of the Airbus FMS market.
We are investing for the future in satcom. In the long term, satcom will have broadband [capability]. We have a partnership with Honeywell [in satcom]. I believe [satcom] is the number one product for air transport. It is very popular for Airbus and will become more and more a growth area, when the satellite infrastructure [expands]. The vision we have is that communications will become critical. Satcom will become the one big link in the future.
We also are integrating Galileo [the future European satellite navigation system] into navigation systems. And we are working very hard on helmet-mounted and head-up displays.
Avionics Magazine: How are you doing in the helicopter market?
Quentin: We have a huge market share with Eurocopter. We provide avionics suites for most, if not all, Eurocopter commercial helicopters. We have a strong position with AgustaWestland. On the military side, the Tiger and NH-90 have been very successful in exports. [Thales provides avionics and utilities, such as electrical systems, for these aircraft.] We have efforts in the United States with helmet-mounted systems. [Thales has been selected by Bell Helicopter to provide the TopOwl helmet-mounted sight and display (HMS/D) for the U.S. Marine Corps’ AH-1Z and UH-1Y helicopters.] Now that [the HMS/D] is fitted on many platforms, it could very soon become the helmet of choice for military helicopters.
We are also on French, German and British [fixed-wing] combat aircraft. On the Rafale, we have the displays, HUDs, computers and integrated modular avionics. We are on the Eurofighter, Hawk trainer aircraft and Nimrod maritime patrol aircraft. We are part of the Eurofighter through our German company, Diehl Avionik Systeme, of which we own 49 percent.