When considering GKN Aerospace, one does not get very far before concluding that the UK-headquartered tier one is an acquisitive company – and that it is very good at acquisitions.
In early 2009, the company leveraged a long-standing partnership with Airbus to buy the airframer’s wing-making unit at Filton for £136 million ($175 million). That move, which also helped Airbus realise its own restructuring and outsourcing ambitions, took the company’s headcount to 10,000 worldwide (including 1,500 at Filton) and positioned it solidly as a first-tier aerostructures supplier – and one of the world’s three biggest, rivalling the likes of Spirit Aerostructures. Marcus Bryson, then chief executive, rated GKN’s composite materials manufacturing expertise as industry-leading – and continued investment in technology has done nothing but drive further improvement.
In 2012, a £633 million acquisition of Volvo Aero turned what had been a small engine components aftermarket business into one of the engine systems top three, behind only Avio Aero and MTU.
Now, GKN is assimilating another big play, its July 2015 €706 million ($782 million) purchase of Fokker Technologies, from a private equity owner. Kevin Cummings, who last year succeeded the retiring Bryson, said at the time that the Fokker deal “strengthened its position” in GKN’s “classic” domains of wings and composite aerostructures. But, mirroring the move into engines with the Volvo buyout, GKN also bought its way into a world-leading electrical wiring capability that should only become more valuable as aircraft become increasingly electrical.
According to Cummings, Fokker’s Elmo wiring and interconnections business is probably number three in the market, and very strong in design and systems integration. Cummings also describes Fokker as “complementary” in terms of composite structure technology; where GKN’s strength is in thermoset composites, Fokker – known for its sandwich-style “Glare” skin panels used on Airbus A380 and other types – is a market leader in thermoplastics.
On top of that, Fokker brings strength to GKN technology in the “adjacent” segment of landing gear. Fokker has part of the Netherlands’ involvement in the Lockheed Martin F-35 and NH Industries NH90 programmes. The deal also gives momentum to a broader GKN drive to invest in Asia. Fokker has about 1,000 employees in China, India and Turkey, which will take GKN’s total Asian headcount to 8-10% of its global workforce.
Speaking recently in London in the run-up to the Farnborough air show, Cummings described GKN, with its 2015 sales of £2.5 billion, as being much more “comprehensive” than any of its tier-one peers. In aerostructures, he notes, Spirit is number one by revenue, but is very concentrated on Boeing. GKN, by contrast, has “a multitude” of different customers. In engines, he says, MTU is number one. But, again, their business model is focused; GKN is “broader”, the result being that it has “to compete each day to win business” and needs a more diverse technology offering to be as big as it is.
Having said that, he stresses: “We are still not trying to be everything to everybody. Do that and you lose your way.”
Where GKN operates – and it ranks itself today as global number two in aerostructures, number two in engine systems, number one in special products such as transparencies and ice protection systems and number three in wiring interconnect systems, while being a “global brand” in landing gear and services – it likes to be big. Says Cummings: “Scale is a large competitive advantage for us” because there are constantly new needs and demands. Simply, it matters to have the financial and intellectual resources to be a driver of advanced technology. Of Fokker, Cummings says that while the company knew it had “great technology”, it didn’t believe it was big enough to thrive.
Indeed, GKN’s formal statement in response to the UK’s 23 June referendum vote to leave the European Union puts the value of scale in perspective: “As we said, we believed that it would be better in the long term for UK business if Britain remained a member of the EU. However, GKN is a global company with less than 15% of activity in UK. We do not anticipate negative impact to the overall group and we will work hard to try to ensure UK operations do not lose out over the long term.”
What the long term holds – for aerospace generally, UK aerospace specifically and GKN in particular – is of course anybody’s guess at what can best be described as a time of global economic and political volatility. Cummings simply notes that, in talking to investors looking at the aerospace industry as a target, GKN has over the past six months been “more conservative” in its outlook than some others – which he reckons translates into more credibility. He talks about “having a better conversation, as realists” and adds that GKN has tried to stay flexible and not overextend itself.
As for military spending and its effect on aerospace – and GKN enjoys strong content positions on “growth platforms” including F-35, Airbus A400M and Boeing CH-53K – Cummings notes some rumblings of rising expectations. But, he describes GKN as cautious: committed, he stresses, but cautious. Likewise on the civil side of the market, which has been driving aerospace fortunes for several years now: there are warning signs, says Cummings, that emerging markets might not develop as expected. Asian demand, in particular, may falter. At GKN, meanwhile, “we watch carefully.”
In the shorter term, Cummings has three key objectives for the next year or so. One is to reach a point where all stakeholders clearly identify the Fokker acquisition as a success: “Absolutely critical to us at this point.”
Second, he intends to make sure that GKN meets all its obligations as key growth programmes ramp up to higher output levels. The list includes just about every important new programme: Airbus A350 and A320neo, Boeing 737 Max, 787 and 777X, Bell 525, Embraer E2, Mitsubishi MRJ, Bombardier CSeries; in business jets, GKN supplies Bombardier’s Global 7000 and 8000, Dassault Falcon 5X, Gulfstream G500 and G600 and is a major partner – building the fuselage – for HondaJet. Delivering all that as planned, simply, gives customers confidence in GKN, he says.
Third, Cummings hopes to have identified the “next big thing for GKN Aerospace”.
What might that next big thing be? Cummings may well have some ideas but he certainly isn’t going to say. But the Fokker acquisition could give some clues as to where he is looking, because it meets all five of GKN’s acquisition criteria. Fokker, says Cummings, is a leader in its chosen markets, aerostructures and electricals. It also helps GKN strengthen its global footprint.
Moreover, Fokker has – like GKN – traditionally seen technology as a driver of growth. And Fokker stands for operational excellence: “Our customers really received this well. They see it as a big plus.”
Finally, the acquisition will help GKN sustain above-market growth, by adding Fokker’s immediate business and enhancing existing GKN activities. Integration of Fokker is going well, says Cummings, and he is optimistic that will continue.
So, GKN continues to be an acquisitive company, by choice, and will make “large plays” as needed, says Cummings. Or, as he sums up: GKN is always interested in acquisitions – but never forced.
Source: FlightGlobal.com
