Smiths Aerospace is a company on the move. Last year, it forged ahead aggressively, acquiring three companies and announcing the merger with TI Group Plc, further consolidating Europe’s top tier of aerospace suppliers.
Smiths invested some $378 million (ï¿½268 million) in aerospace last year to purchase Invensys Aerospace, Marconi Actuation Systems from BAE, and Fairchild Defense division from Orbital Sciences Corp. Then, in late November 2000, Smiths merged with TI Group, including Dowty Aerospace, essentially doubling its size, with combined sales of about $4.2 billion (ï¿½3 billion). The merger prompted a name change, from Smiths Industries to Smiths Group, and Smiths Industries Aerospace became simply Smiths Aerospace.
Smiths isn’t slowing down, however. Its acquisitions and merger only strengthen the company’s hand in securing additional agreements for expansion. Its list of aerospace products is long and diverse–ranging from flight data systems, navigational aids and digital flight controls to microcircuits, displays, instruments and on-board diagnostic systems. However, it has positioned itself for a larger role with airframe manufacturers, as a systems integrator and developer of futuristic electronic control devices.
Orchestrating all of this activity is Dr. John Ferrie, who succeeded Norman Barber (now retired) as Smiths Aerospace’s president in August 2000. The Glasgow, Scotland, native came to Smiths from Rolls-Royce Plc, where he worked for 35 years and left as executive vice-president, business operations, at the engine manufacturer’s Allison division in Indianapolis, Ind.
His experience in the United States will doubtlessly serve him well, because although Smiths Aerospace is headquartered in London, its presence in the U.S. almost equals that in the UK. A graduate of Warwick University, where he received his engineering doctorate, Ferrie told Avionics Magazine he also enjoys his free time as a private pilot, flying Cessnas.
Accompanied by Bill Mawer, Smiths’ marketing director, Ferrie agreed to an interview by Avionics Magazine. Here are his views of Smiths Aerospace now, and in the future.
Avionics Magazine: With your acquisitions and merger with TI Group, where do you see Smiths Aerospace going now?
Ferrie: I think you have to put it in the context of where Smiths was several years ago. It was pretty much centered in cockpit-type instruments, electromechanical and flat-panel. We then acquired Lear Siegler, with its flight management and data management capabilities, and that started this move away from pure cockpit instruments.
Then we got interested in fuel indication measurement and electrical power management. So when we did the [Boeing] Triple Seven–I guess about five years ago–we began to realize that instead of the airframers buying all these different pieces of equipment themselves, there was an opportunity for suppliers like Smiths who have a broad base of equipment to then start offering a more integrated-system solution.
Avionics Magazine: So the B777 deal was kind of a turning point for Smiths?
Ferrie: Yes, I think it was.
Avionics Magazine: Where does this take you, technologically?
Ferrie: Well, for example, hydraulic actuation already has an electric control and will be replaced eventually by electric muscle. We could see that evolving, and that was when we decided to acquire the Invensys electromechanical group, and that was the logic behind the Marconi actuation buy. So we started to move more into utilities and to look at secondary system actuators.
Avionics Magazine: And the TI merger?
Ferrie: The interest in TI was two-fold. One is to give Smiths the muscle for the next big step of acquisition. With its size [prior to the merger], Smiths would find it difficult to step up to the type of acquisition it likely will meet next. So part of the strategy was to get more buying power.
Also, the decision by TI to sell its automotive division created the opportunity for us to acquire, through a merger, the other assets, which are mainly aerospace. We saw the merger as providing a reasonably good fit–not ideal, but reasonably good.
Avionics Magazine: What kind of financial muscle are we talking about?
Ferrie: With the merger, we’ll have around a $2-billion turnover in the aerospace business, which puts us at about the fifth largest player in Europe.
Avionics Magazine: You say the "next acquisition"–that begs the question...
Ferrie: Yes, well, this is where the strategy is the coincidence of opportunity and desire, and the timing is neither convenient nor predictable. We may not have predicted the TI move, even though we’ve been talking with TI for four or five years. So you have to be ready when the opportunity comes up.
Now, if you look at what’s happening in the [aerospace] industry, we already have the consolidation of the airframers. I think the next series of rationalizations is going to be a mixture of the primes [airframe manufacturers] deciding what they want to divest and the equipment industry deciding where it wants to play. You’ll see some new groupings being formed out of that.
Avionics Magazine: You seek opportunity. Still, there must be specific areas that you are looking at for merger or acquisition.
Ferrie: There are two main areas that we’re centering on. One’s still clearly the cockpit, integrated avionics. Another area, as I said earlier, is integrated utilities–the power distribution, the power generation–which today are very much stand-alone and integrated by the airframers. In conversations I’ve been having with [the airframe manufacturers], I’m seeing if they’re looking to move out of some of these areas–put these assets on the block. And that will then present the opportunity to start putting together complete management systems–all of the actuation, etc. We see ourselves five to 10 years out as being a major systems supplier, providing an integrated system and the management of a complete supply chain through to service support.
Avionics Magazine: How do you achieve such a supply chain?
Ferrie: You need entirely different skills than during the design, development, certification and production manufacturing phases. We have dedicated facilities and a dedicated technical team, and they’re now developing technologies for e-commerce. We’re set up [in e-commerce] so that operators can come straight in; they can find the status of the equipment and the status of their billings. We can do the whole front-end relationship with a customer through e-commerce. The operators can take that information, download it, and patch it into their own systems. So we’re beginning to become more integrated with our operators.
Avionics Magazine: How do you see the role of e-commerce in product support?
Ferrie: I think there’s a lot of fluff written about e-commerce. E-commerce has been going on really for quite a long time.
But basically the ability to transfer information seamlessly from your customer to yourself and on to your supplier–that whole data stream is what we’re all trying to do. The thing that really determines our success is how well we’ve got our back-office operation–how well we are able to transfer the information within before we start transferring it out to our customer or out to our supplier.
Avionics Magazine: So, how far along are you with your e-commerce?
Ferrie: It’s patchy. I’d have to be honest and say that we’re building on the customer interface. We’re building on the supplier interface. We’re working internally.
If you look at each of the companies in the aerospace business, they’re all at a different point in the [e-commerce] evolution. It’s evolving. It’s not a big bang. The big bang doesn’t work here. In many cases, you’re trying to do something you never have done before.
Avionics Magazine: You also could gather a lot of performance data through e-commerce, right?
Mawer: Yes, there’s our HUMS [health and usage monitoring system]. That’s an example of where you take the data off the equipment and have it properly analyzed and presented for decision making.
Ferrie: It’s all about data. If you’re not hacking metal, as I used to say in the engine business, you’re hacking data, and there are more people hacking data than there are hacking metal.
Avionics Magazine: We see HUMS making advances. Where is that technology going?
Ferrie: To get the economics out of the equipment, you want to be able to predict deteriorating performance before either an unscheduled event or a serious mechanical failure. That means building software with predictive capability. It allows you to run on on-condition; you’re now able to predict, and manage, the life of your equipment.
We’re actually doing this on our own equipment. We’re providing support under what we call performance-based logistics management. In effect, we’re saying that a piece of equipment will always be available to you for, say, 15 years. If anything goes wrong with it, you can give it to me, and I’ll give you another one. You carry on operating, and I take complete responsibility.
Avionics Magazine: HUMS remains largely a system for rotorcraft, right?
Ferrie: Well, today that’s the application, but we’re working with two major engine manufacturers to develop systems for big, fan engines. Because the engine manufacturers are selling the engines on a power-by-the-hour basis, they have to manage the operating costs of their products.
Avionics Magazine: You’ve teamed with RADA Electronic Industries in Israel to develop data acquisition systems–initially for Israeli F-16s, correct?
Ferrie: That’s a starting point. But we see a lot of opportunity in the F-16–beyond the Israeli Air Force F-16–to market that data management system across the globe.
Avionics Magazine: Getting back to the makeup of Smiths, what is the military-commercial ratio of your business?
Ferrie: We were about 60-40 military-civil. After the merger [with TI Group], we became almost balanced 50-50. TI was 60-40 civil-military, and they’re just about the same size roughly [as Smiths].
Avionics Magazine: You have quite a few projects for the Joint Strike Fighter. If you win in that program, will it impact your civil-military ratio?
Ferrie: Well, with the Joint Strike Fighter, you’re talking probably production at the latter half this decade. It’s not going to significantly shift the [military-commercial] mix as we see it for the moment.
Avionics Magazine: And your ratio of business internationally after the merger?
Ferrie: We’re about 60% in the U.S. versus the rest of the world. TI is about 40% in the U.S. Together, we become about 50-50. In terms of new equipment to the after-market [as opposed to OEMs], we’re about 70-30. TI is about 70-30. Put the two together and we stay about 70-30. We happen to be very strong in [supplying products to] Boeing. TI is stronger in Airbus than we are. Put them together, and we get a better balance.
Avionics Magazine: So, in many ways, the merger creates little overlap.
Ferrie: There’s no real duplication. It’s complementarily–and the merger is especially complementary in actuation. From a technology point of view, TI specializes in hydraulics, secondary flight control surfaces; put that with our electromechanical actuation, and you get a much healthier-looking business.
Avionics Magazine: We’re talking here of the so-called "electronic aircraft."
Ferrie: The more-electric aircraft, yes. What you do in a box, you can do in a single card, so now we’re selling cards and software.
But the ability to handle that fusion of data from the airplane, that’s something that we think we’re pretty good at. We’ve done it in the cockpit, and we’re understanding it in [aircraft] utilities. So, in those two areas, you could speculate that we could effectively provide the complete electrical system for an airplane. And though we don’t necessarily provide all the sensors and all the actuators, we can handle all the data that’s floating around that airplane.
Mawer: We’re also participating in Airbus’ move toward integrated, modular avionics architecture, where they’re looking at standard computing engines. This is based on technologies for land-based computer networks.
Ferrie:We’re talking of very large software packages on the airplane. Smiths’ experience with FMS provides the know-how to take safety critical software, structure it so that you can partition the functionality, and prove that it’s certifiable.
Avionics Magazine: Returning once more to your company structure, is your presence in the United States greater than in the UK?
Ferrie: Smiths overall–industrial, medical or aerospace–is 60% based in the U.S. as result of our acquisitions. I think we’ve got 34 major plants here in the U.S. We have about 6,200 employees in aerospace in the U.S. versus about 7,200 in the UK. Smiths is very much a decentralized business. We have individual companies with their own management.
Avionics Magazine: And growth will continue at Smiths?
Ferrie: Aerospace, with the merger, is Smiths’ single biggest component–and we’re going to continue to grow. We have very aggressive growth targets: 15% compound annual growth is becoming the benchmark, which means doubling the business every five years. We just [in 2000] doubled the aerospace business, and we’ll keep that track.
The business-jet marketplace has roughly tripled in size in recent years...it’s looking pretty strong. There’s about a 600 to 650-a-year aircraft total market. That’s somewhere in the region of $7 billion to $10 billion a year in total sales. You can’t ignore a market that’s that large.