“I’m very bullish on the future,” says Clay Jones, chairman, president and CEO of avionics manufacturer . “Late 2014-early 2015 and beyond – those are going to be good days indeed.”
And that’s from the head of a $4.8 billion company whose business is 55% defense-related. The threat of sequestration of the U.S. defense budget fails to shake his positive view. “If I read everything in the newspapers, I could get very depressed,” he says.
The key to Jones’ confidence has been his insistence that Rockwell Collins become versatile and nimble in the face of adversity, such as the years following the terrorist attacks on New York City in September 2001 that devastated the commercial aviation industry.
“I lost 25% of my commercial business over two years, when the business was 60% commercial,” says Jones. But increased defense spending after 9/11 helped Rockwell weather the storm.
Jones realized that the company must be able to react quickly to upturns and downturns in the civil aviation and defense cycles by making its products as common as possible between the two. There is no reason, he says, thatcockpit upgrades cannot incorporate technology from the latest Pro Line Fusion commercial avionics, or that the military could not use the same weather radar that Rockwell supplies to instead of specifying their own that ends up with the same functionality.
“The secret has been shifting commercial technology to the military,” says Jones. His military business generates a 20% margin while saving the military money, giving the warfighters more bang for the buck as they pay commercial rather than military prices.
While maneuvering between the usually out-of-sync commercial and military cycles, Jones is careful that his business mix does not shift to more than 60/40 either way. “You must have 40% business in a segment to have critical mass,” he explains.
Two years ago Rockwell’s business was 50/50 commercial/military. During the recessions of the last decade it stretched to 60% military, but by 2014 it will be 50/50 again.
And then, says Jones, times will be good for the company, with strong revenue growth from civil aviation.
“There will be a couple of thin years in defense through 2014” as the budget cuts are sorted out and stabilized, he says. But beyond then the commercial markets should have healthy renewed growth. With air transport growing faster than the world’s economies, demand will increase for the platforms featuring Rockwell products that will be ramping up production or being well on the way towards entering service, including the, Airbus , , and Chinese regional airliner.
Jones does not even view the defense sector too pessimistically. The company’s internal forecast sees the U.S. market going from the recent 5-7% annual growth to anywhere from flat sales to a 2% decline. But he expects that to be offset by 3% growth in defense spending outside the U.S., in Europe and in nations such as Brazil, India, Turkey and Saudi Arabia.
“Most companies have survived well with just the U.S. military, but four years ago we saw the need to find export markets for defense products and began to re-craft our international businesses,” Jones says. “We put more people in country, to get to know the customer and customize solutions.”
Since then Rockwell has won roles in thesale to Saudi Arabia, and forward air controller products in several Middle East countries and Australia. It will also supply the glass cockpit and avionics in ’s military transport.
Jones notes that part of the transition to an agile company has been to get management to recognize reversals in cycles and act quickly to adjust. Asked whether this pressure might provoke knee-jerk reactions to short-term swings, he says every reversal is preceded by macro or economic events, for example, 9/11, or credit freezing up and banks being bailed out. “Now, massive budget deficits tell you something is turning again,” he notes. “These are volatile markets, and we must learn to live in them.”