KIERAN DALY / CHARLOTTE
Chief executive Marshall Larsen is building for the upturn after the integration of TRW Aeronautical Systems
A year after swallowing TRW Aeronautical Systems, Goodrich is looking more and more like the lean and muscular player it will need to be to achieve its aim of outperforming the market when better times return.
Chief executive Marshall Larsen has made little secret of the fact that Aeronautical Systems, and especially much of the former Lucas Aerospace business that it had previously acquired, was in worse shape than first suspected.
But today, speaking on the eve of Goodrich's third-quarter results announcement at its austere but elegant headquarters in burgeoning Charlotte, North Carolina, he paints a more satisfactory picture.
The headquarters is far from any of Goodrich's numerous facilities, a legacy of the earlier acquisition of Coltec, and would not be out of place in Wall Street. Larsen, about to add the chairman's title after succeeding David Burner as chief executive in April, is tieless and in shirtsleeves, but his manner is all business and no small talk.
Speaking of Goodrich Aeronautical Systems, he says: "We have made a lot of progress. The financials are not where we would want them yet, but the integration has progressed very quickly."
The "$1 billion, matrixed, one-organisation entity" has been rebuilt in four units - Engine Control Systems, Actuation Systems, Power Systems and Cargo Systems - the first two combined with pre-existing Goodrich units in the USA and Canada respectively, and all but Power Systems, which is run by ex-Aeronautical Systems staff, headed by incumbent Goodrich managers.
"All these are complete. All have strategic plans with the right objectives and financial incentives. The managers have ownership of those plans and they know what they have to do," says Larsen.
"The key is accountability. People need to know what they are doing and what they are accountable for. You must have the line of sight to the customer in accountability. It doesn't mean you cannot have supply chain management that crosses the lines, but [the managers] must know what their metrics are and the operating people must have a say. It is very important to get the people in the business to buy into it.
"At the end of the day we have something that the executives and us agree to and they get paid against that plan."
In the case of Actuation Systems - essentially a Lucas business - the plan will include further downsizing. "Actuation was severely behind with deliveries to Airbus and Eurocopter. So the last thing we wanted to do was to cut people. It was a situation where we could have shut down the A340-500/600 line and that is now behind us. We will streamline that.
"Aeronautical Systems' management team had been charged with selling the business and were not as effective at restructuring the business as other people like us were. We took out 3,200 people and 20 facilities after 9/11."
Larsen, however, sees aerospace as a prime example of the USA's so-called jobless recovery and believes that many of those jobs would have gone thanks to productivity improvements even without the industry downturn.
Despite the barely profitable Aeronautical Systems activities accounting for 20% of revenues, he points out, Goodrich still has 9-10% margins overall and expects to return to the "mid-teens".
Larsen says: "We have been doing that through cost control. But not just laying people off - we have been going through the whole manufacturing process, applying lean manufacturing and Six Sigma. We dive deep into the processes and take the variation out of them.
"Even without the cycle I think we would have taken out those 20 facilities, but we would not have had to lay off all those people - they would have helped us with the growth."
He points to Rohr, which Goodrich acquired in 1997 and which had been forced to become a leader in lean manufacturing to survive, and to a Goodrich evacuation-slide plant where he was once general manager and where some manufacturing cycles have been cut from 45 days to 10 days.
Larsen warns: "It won't be the same as before in the recovery. I would be very surprised if Boeing brings back even half of the people they laid off because they are making such big productivity improvements. It will take longer for the jobs to come back, but as the top line comes back, so will the jobs."
He sees next year as "the bottom of the valley", with the airlines then gradually recovering, and all the US majors surviving, while the major airframers follow at least a year behind to a total build rate of 500-600 aircraft.
Larsen says: "Part of the picture is what happens to regional jets, and if they take up some of the single-aisle market. It also depends on aircraft parked in the desert. Maybe some airlines will want Stage 4 [noise] compliant aircraft and will not even want to take out Stage 3 aircraft.
"But the real question is whether the major carriers can restructure their businesses enough that, when we resume growth, their constituencies in the labour force have a workable contract - or will it be a situation where everybody wants their due at that time and all of a sudden the model doesn't work.
"For manufacturers, it's a case of restructure or die. We have to constantly reinvent ourselves and our processes to meet the price pressures. You can no longer pass on the price rises to the airlines when they are in this condition."
With the airframers also demanding more and more commitment from their major suppliers in terms of up-front investment, Goodrich is working hard to secure systems-integration roles.
Having already seen Goodrich's investment in the Fairchild Dornier 728 written off, Larsen declares: "For us it's a bet. But you get better aircraft because the people who know how to make the systems do make the systems.
"It is very important to be at the systems level. It allows you to have more control over your own destiny. You are then a tier one supplier building a significant portion of the aircraft."
Goodrich is watching closely as Boeing edges toward a hoped-for commitment to building the 7E7. Larsen says: "The way they are going to procure and build is going to be significantly different from in the past. If they can get it down to 20 suppliers and the systems come together just in time at an assembly centre, that is going to be radically different from the past when they made significant parts themselves.
"They will have to do a much higher level of integration in the plant then in the past and they will rely heavily on Goodrich and others that have the ability to do that and stand behind it."
Meanwhile, he concedes no doubts over the viability of the Airbus A380 - potentially worth $6 billion to Goodrich over its life.
He says: "Airbus saw a market of 1,500 aircraft in that class. That was when Boeing was going to build the 747X and everybody thought they would be first to market. Suppliers were in a quandary - but then Boeing dropped out.
"We were not depending on all 1,500 being built, but all of a sudden the prospect of that aircraft being successful increased."
While it is markedly focused on the commercial market at present, Goodrich still derives 28% of revenues from the more stable military and space markets.
As previous chairman of the Aerospace Industries Association (AIA), Larsen led the fight on Capitol Hill against Buy American legislation and he is scarcely less energetic in his opposition now.
He explains: "We have taken a position in AIA that Buy American is bad for US industry. If we have to build tooling in our US plant then it is going to be costly - and there are items that can only be produced outside the USA.
"Why should the UK or Poland buy Joint Strike Fighter if they cannot participate in it. We could ruin some of those programmes.
"And anyway we must figure out how not to have trade wars with Europe. I have been on the Hill with Boeing saying that, and Airbus is there too."
Despite the opposition, the legislation has passed through the House of Representatives and is working its way through a divided Senate.
An exasperated Larsen notes: "In many instances when a politician has taken a stand, and even they know it is not the right one, it is hard to back down. In the end I hope common sense will prevail."
Another problem he is wrestling with is how to build a viable future for Goodrich's smallest unit by revenue - the former Tramco heavy airframe maintenance business at Everett, Seattle - which contributes 4% of its $4.3 billion of sales.
Larsen has been frustrated to see airlines reluctant to outsource maintenance in the face of union opposition even when the potential savings could be huge.
He says: "I think more outsourcing has to take place by the airlines. We can do it at much less cost. We have been able to go to airlines and say we could take 40-50% down but they would not do it. They are restricted because of union agreements and because they treat it as a fixed cost."
Goodrich is taking hope from signs of United Airlines outsourcing and US Airways talking about sending its Airbus A320s outside in the teeth of union objections.
"I think airlines are going to try to avoid putting new models in the existing agreements," he suggests.
He hopes to see closer scrutiny of third-party providers by the airworthiness authorities in Europe and the USA and a consequent raising of the entry hurdles.
But ultimately he concedes that what is really needed is consolidation so that, for example, rival narrowbody overhaul-providers could team regionally, obviating the need to fly empty aircraft around the country for maintenance.
"We need a lot more consolidation in the MRO [maintenance, repair and overhaul] business. We would be watching that very closely and looking at trying to make our operations more effective."
He declines to speculate on Goodrich's role in any consolidation, but the company has promised "no significant acquisitions" for the foreseeable future.
Source: Flight International
