GKN Aerospace has established positions on a wide range of programmes that show substantial growth over the next 10 years
Products
GKN Aerospace is a leading supplier of airframe and engine structures, components, assemblies and engineering services to aircraft prime contractors and other first tier suppliers and operates in three main product areas: aerostructures, propulsion systems and special products.
At the end of 2007 the analysis of business by sales revenue was approximately 53% aerostructures (2006 – 50%), 33% propulsion systems (2006 – 30%) and 14% special products (2006 – 20%). The increases in aerostructures and propulsion systems were largely the result of businesses acquired in 2006 and 2007 whilst the reduction in special products group was mainly due to the ending of a number of military transparencies spares contracts. The aftermarket business spans all three and equates to approximately 15% of overall revenues.
As a leader in the design and manufacture of advanced composites, transparencies and complex metal structures at the component and assembly level, GKN Aerospace serves all the major airframe and engine original equipment manufacturers. The business is focused on the creation of value through technological excellence in composite technologies (19% sales), lightweight, highly stressed metallic components (43% sales), integrated systems and aftermarket service (23% sales) and other areas, including aircraft canopy and ice protection systems (15% sales). It operates through 20 manufacturing facilities across the world supported by a worldwide network of design and support facilities.
The customer base is relatively concentrated with the top three customers representing some 50% of divisional sales. Current annualised sales are approximately 58% to defence and 42% to civil customers. Some 65% of sales by origin are in the US.
Markets
The overall aerospace market was buoyant in 2007, with sustained strength in both the civil and military sectors.
In the civil airliner market, Airbus and Boeing delivered in aggregate 894 aircraft in the year compared with 832 in 2006. At the end of the year there were some 6,800 aircraft on order worth $750 billion at current list prices and equivalent to 6 years’ production. Looking forward to 2008, order levels for civil airliners are forecast to be below 2007 levels, although still ahead of current production rates and, with the order backlog noted above, the entry into service of the A380 and B787 and the launch of the A350 XWB (extra wide body), production is likely to remain high.
Demand for regional and business jets was good and higher than 2006. The regional aircraft market is forecast to remain fairly stable with a resurgence in demand for turbo prop aeroplanes. Business jets are expected to show sustained growth with new entrants in the existing market and considerable activity in the emerging very light jet sector.
The defence market was also strong in the year and US spending is likely to remain solid in the short term with fighter production stabilising at around 100 per year, slowly consolidating around the Joint Strike Fighter (JSF) platform. Growth in non-US defence spending on aircraft procurement is strengthening and during 2007 there have been additional orders for the C-130J, F-18 and F-15, all of which have significant GKN content.
Within these markets, there is continuing growth in demand for lightweight materials and advanced composites and complex titanium structures which provide opportunities for increased passenger load and fuel efficiency.
Input costs
The most significant raw material costs are for composite materials, titanium and fasteners. The use of long term supply agreements has, to a large extent (around 70% at the end of 2007), secured both supply and price. In some cases sales contracts contain arrangements for the automatic adjustment of prices if input costs change.
Divisional strategy
GKN Aerospace’s strategic priorities are to:
- continue to increase presence in the commercial sector and aftermarket through organic growth and acquisitions;
- establish meaningful positions on future defence and commercial platforms, with particular focus on the next generation of single aisle aircraft;
- develop and expand positions on existing platforms with significant future production potential;
- maintain technology leadership in composite and titanium structures; and
- complete focused acquisitions which build on existing competences.
2007 Highlights
GKN Aerospace sales were £820 million compared with £695 million in 2006. The impact of currency on translation was £33 million negative while acquisitions added £96 million. The underlying increase was £62 million (9%) and arose as a consequence of the overall strong markets, in particular for regional aircraft, and a number of new programmes which entered or increased production during the year.
Trading profit of £83 million was £13 million higher than 2006. Excluding the benefit from acquisitions of £12 million and the negative impact of currency (£3 million), the underlying increase of £4 million was 6% above 2006 reflecting the benefit of higher sales.
The margin of 10.1% was the same as 2006, in line with the target margin for the business, and return on invested capital was 15.3%(2006 – 15.1%).
Capital expenditure on tangible assets in the year was £28 million (2006 – £30 million) which represented 1.2 times (2006 – 1.4 times) depreciation. Of this figure £9 million was in respect of new programmes, including the B787.
Capital expenditure on intangible assets (mainly non-recurring costs) totalled £16 million (2006 – £27 million) and reflected investment in a number of important programmes including B787, A400M and JSF.
In 2007, GKN Aerospace secured a number of new programmes, including:
- a system design and development contract for the fuselage aft transition for the Sikorsky CH-53K;
- the design, development and manufacture of the B767-300 ER (extended range) blended winglet, with first deliveries commencing in the fourth quarter of 2008. The agreement covers the supply of up to 300 767-300 ER and 200 737-300/500 blended winglet shipsets; and
- the development and supply of advanced titanium metal matrix composite (TMMC) thrust links for the B787. This represents the first use of TMMC in a commercial application and offers major weight savings of up to 40% over traditional material.
In addition, we have extended our content on a range of existing programmes where there is strong market demand including the F-18, JSF, B787 and a range of other commercial aircraft.
GKN now has established positions on a wide range of programmes that show substantial growth over the next 10 years.
In 2007 research programmes made considerable progress. Our involvement in a number of funded programmes to develop the wing for the next generation single aisle aircraft (including VITAL, Integrated Wing and ALCAS) has moved forward with speed and generated significant intellectual property. Two new programmes have been approved to commence in 2008 — the Next Generation Composite Wing with Airbus and a potential programme with Rolls-Royce to develop a lightweight composite engine fan.
The integration of the Stellex businesses acquired in 2006 was completed, in line with the acquisition plan, during 2007.
In June 2007, GKN acquired the Teleflex Aerospace Manufacturing Group of Teleflex Inc. The business is a leading manufacturer of complex engine components for the aerospace industry and increases the division’s presence in civil aerospace, giving positions on a range of established engine programmes such as the CFM56 and GE90 as well as new programmes for the light jet market and also the F-135 Joint Striker Fighter engine for the military market. The business has both a range of cold section products that are complementary to GKN in engine cases and fan blades, and hot section core activities in blisks, compressor airfoils and guide vanes.
On 19 December 2007, GKN was selected as the preferred partner for the acquisition from Airbus of their Filton wing aerostructures site including the potential award of design and manufacturing packages for the A350 XWB wing programme. The combination of Filton with our existing capability would enable us to create a globally competitive centre of excellence for the design and manufacture of composite aircraft wing structures.
Going forward into 2008, sales revenue is expected to continue to grow organically as a result of new programmes moving into production, notably the B787 and the A380, together with increased levels of development work including the CH-53K and the A350 XWB. Margins in the existing business are expected to improve based on the further implementation of lean manufacturing practices and the progression of a number of recent programmes into full production.