Kelly Ortberg became CEO of on Aug. 1, succeeding Clay Jones, who had led the aviation electronics and communications company since it was spun off in 2001. Ortberg met with Aviation Week editors to talk about how he plans to guide Iowa-based Rockwell Collins through the downturn in U.S. defense spending and capitalize on a growing commercial aviation market.
AW&ST: Rockwell Collins has been run by one CEO, Clay Jones, since it was spun off as an independent company in 2001. How are you going to make your imprint?
Ortberg: You'll see me establish myself with a little bit different personality, but I don't think you'll see a fundamental shift in the strategy of the company. I'm an engineer and Clay's not, so I come at things differently, though in the end we get to the same place. Clay has been a great ambassador and representative of our company and our industry, but he hasn't done everything by himself. We've got a very strong leadership team.
So, how should we view this change in management?
I'm billing this as a full-steam-ahead transition, not a course correction. I've been with Rockwell Collins for 26 years, so I'm no newcomer. I've run both our government and commercial organizations. I come at this very well schooled in the strategies of our business. Many of the growth items are programs or technologies that I've been in the middle of driving. My first priority as I take over is to accelerate growth. The credit crisis had a major impact on business aviation, and we moved right from that to sequestration and its effects on thebudget. That left us with about five years of no top-line growth. We know we are in cyclical markets, but we can't continue to be a vibrant company with no top-line growth. You can't cut your way to prosperity.
How is Rockwell Collins's split between commercial and defense sales changing?
When we spun out as an independent company in 2001 we were 60% commercial. The pendulum swung back to 60% government four years ago. This year we'll be about 50-50. We estimate that with the recovery of the commercial market accelerating, we'll move to 56% commercial in five years. But I believe that the need for a strong defense is always going to be there. There are still a lot of opportunities.
Then how do you view the near-term in defense?
We believe sequestration is here to stay. This year, in our guidance to investors, we estimated it would [cause] $120 million in lost revenue. We'll do the same for next year. I see nothing that is going to drive a grand bargain and make this go away. In a strange way, I'm almost to the point where I'd rather get to the bottom quickly. The uncertainty is what is more difficult than the actual cutting of budgets.
When does your defense business hit bottom?
We would expect that sector to be stable by 2015. The Defense Department budget may still be declining slightly, but it won't be the large cuts we're seeing in sequestration. And there will be some clarity. The real issue for our industry is the lack of clarity on where they are going to spend the money. That has got everybody making assumptions.
Is there a lot of lobbying of program managers?
The interesting thing is, all the program managers believe their programs won't be cut. Every program manager is telling us that. Meanwhile, reality is working its way down. So far, there haven't been a lot of program cancellations. But you may see some program cuts in 2014 as the budget gets rationalized.
Many of the companies we talk with are just like the program managers. They all say, 'We're on the programs that won't get cut.'
We've chosen not to take that approach. Almost every platform that flies has Rockwell Collins equipment on it. And to think we're not going to feel some impact is foolish. I'd rather be out in front forecasting it. The people who are in denial are being disappointed as reality starts to take hold.
If your top goal is to accelerate growth, where is it going to come from?
The first area, which is the easiest, is growing market share in our core business. We have 14 new Pro Line Fusion flight decks—our avionics solution for business aviation—in development. There are also [large aircraft] programs that will be kicking in over the next five years. We have new positions on theand MAX. We need to execute on those programs and ride the market share gain we've already captured. The second element is exploiting the services that go with our products. Once we get on an aircraft it gives us opportunities to have a larger share of the MRO (maintenance, repair and overhaul) market. On the government side we see pockets of growth, primarily internationally. We've won the new [military transport] with . Brazil is a perfect example of a market we just didn't address in the past, because we had enough opportunities at home. The Middle East is another region where we see growth. Whenever the OEMs (original equipment manufacturers) sell any large platforms, we ride their coattails. For example, and Black Hawks for Saudi Arabia are big for us. There is also strong demand in the Middle East for targeting systems. Our product, FireStorm, allows a forward observer to designate and communicate target coordinates for precision strike. As the U.S. pulls out [of a region] we're seeing more demand for such capability.
Can you talk about the Joint Strike Fighter helmet program?
There have been challenges in the development of the new helmet, but we're making great progress in resolving those. We're trying to do something that has never been done before. This helmet includes a head-up display (HUD) within the helmet–there is no HUD on the airplane. Until we got into the dynamics of how the human mind interacts with the helmet, we didn't understand some of these parameters. The big lesson learned is we should have been doing earlier risk management, risk reduction and technology demonstration. This is the most 'Buck Rogers' thing I've ever seen. It integrates the digital camera system on the airplane and provides pilots with really great situational capability.
What about the commercial aircraft market in China?
We're well positioned in China to capture very strong market share as [western OEMs] sell into those markets. We're also positioning ourselves on future programs. We're on Comac'sand . I don't see those fueling top-line growth in the near term, but they are progressing and are committed to the aerospace industry. We want a share of that opportunity.
Stanley Chao, a U.S. consultant who advises companies doing business in China, wrote a Viewpoint for Aviation Week in which he predicted the C919 will be a flop and that Western suppliers investing in it will be sorely disappointed.
If his measure of success is that [the C919] will stand toe-to-toe with the 737 MAX, I might understand his perspective. The Chinese are very much looking for Western suppliers for this equipment. Their focus on [the C919] is around the civil certification of an airplane. They're figuring out how to do high-level systems work. Do I believe we've seen the last of the delays of these programs? No. We understand that and take that into account. We're not taking huge investment risks on these programs. In many cases we've formed ventures or partnerships. If the C919 is unsuccessful, it's not going to be catastrophic for our company.
But we can't just sit and watch this evolve. China has an indigenous market, a lot of money and a stated desire. We don't want to be on the outside of that. There were a lot of people betting against Airbus in its early days.
How long will it take before China moves forward with development of a widebody jet?
I don't' know whether they will focus on a widebody next or business aviation. There's going to be a huge market for business aviation once the airspace in China opens up and that may be where they head.
How do you view the overall business aviation market?
The high end is pretty good, the low end is not good at all. We attribute that to the [sluggish] nature of the economic recovery. High-end [customers] are predominantly high-net-worth individuals or global corporations, and they're going to fly whether they've got $10 billion or $9 billion. The low end is much different—owner-operators and small businesses. Put yourself in their shoes. You're running a small business, you've laid people off, you're not hiring. Are you going to [order a new] business jet now? Probably not.
What about competition with Garmin? They started at the low end but have moved up into your territory.
We've introduced a new Pro Line Fusion product line to respond to them. It's kind of like an iPad mini-size: weight, power and lower cost for a low-end business jet. Garmin was opportunistic and took some market share from us at. We didn't have this product line available when Cessna wanted to upgrade those [low-end] aircraft, primarily because they had been investing in a large aircraft, Columbus, and did a 180-deg. turn. Having said that, I don't think we'll see the number of bizjet upgrades during the next five years that we've seen in the last five. We probably aren't going to compete nearly as much with Garmin at the OEMs, at least in the next few years.
Where do you see the unmanned aircraft market heading?
There are some real deficiencies in the operation of UAVs [unmanned aerial vehicles] that are going to provide some good opportunities, such as [enabling] these aircraft to fly in civil airspace. We're working withon developing some new standards and technology for the control links. We're pretty well positioned with the onboard autopilots, navigation and communications equipment. But these avionics solutions are not civil-certified, and there are some real problems learned during the wars [in Iraq and Afghanistan]. They're going to need to have a higher level of assurance and integrity in the avionics, which plays to our strength. But as to the overall market, I don't think you're going to see major production ramp-ups in the next few years.
Education: B.S. in Mechanical Engineering from the University of Iowa.
Career: Joined Rockwell Collins in 1987 as a program manager.
Appointed head of the company's Commercial Systems business in 2006 and Government Systems business in 2008.
Promoted to president in 2012.