Anyone doubting GKN Aerospace's ability to handle the bleak outlook surrounding military spending in its key North American and European markets should consider the shape of GKN plc, where nearly half of 2012's £6.9 billion ($10.8 billion) sales were accounted for by its dominant automotive driveline products division. Aerospace was second, with £1.8 billion or 26% of group sales. The group's third-largest customer is Airbus, behind Volkswagen and Ford.

Heavy reliance on US military sales - GKN is a supplier to programmes including Boeing's CH-47 Chinook, F/A-18 and F-15; Bell Boeing's V-22 Osprey; Lockheed Martin's C-130J, F-22, F-35 and F-16; GE/Rolls-Royce's F136; and Sikorsky's Black Hawk and S-92 - has been pulled back.

"We've flipped the business around," says GKN Aerospace chief executive Marcus Bryson. In 2012, civil sales made up 61% of the division total, but pro-forma for 2013 has that share rising to 70%.

For 2013, sales growth - including through the 2012 acquisition of Volvo Aero, the aeroengines components business Bryson has described as "transformative" - will take the division to nearly $3.5 billion.

Bryson describes much of that growth as "embedded", that is, to come through programmes ramping up production. On the Boeing 787, for example, GKN ships $3 million of parts per aircraft and expects Boeing to finish 2013 working to a rate of eight or 10 per month.

The Airbus A350 and Lockheed Martin F-35 are also significant programmes for GKN, as is the Airbus Military A400M.

However, Bryson is not too worried over military spending cuts, noting that GKN is well positioned on "mature" programmes with multiyear contracts. "It's as good a place as you can position yourself in today's environment."

But it is the £633 million purchase of Volvo Aero, which achieved full-year 2012 sales of more than £670 million although GKN only owned it during the last, £191 million, quarter - that is driving much of the change at GKN. At a stroke, the acquisition turns a player in rotating engine components into the third largest in the world, with annual sales of £800-900 million and some 8% of the market putting it, among independents, behind only Avio and MTU. Make that second, of course, given GE's assumption of Avio into its share of the near 60% of the market commanded by the engine OEMs.

Mike McCann, who heads what is now called GKN Aerospace Engine Systems, stresses the value of this position, noting that, after aerostructures, engines are the industry's second-strongest growth area. Moreover, he adds, there is "good clarity" on programmes coming through during the next decade. As a supplier of engine components to most major aircraft programmes, growth prospects look solid.

McCann is particularly keen on programmes such as the Airbus A320neo, Bombardier CSeries and Mitsubishi MRJ, which will be taking growing numbers of Pratt & Whitney PurePower geared turbofans, with which GKN is now a partner.

More broadly, he says, GKN's technology base is sound when it comes to engines. The trend is for higher burn temperatures, and metallic components expertise is a GKN strong suit. At the cold end, where composites are increasingly making the running for reduced weight, GKN also brings market-leading technology to bear.

Another reason GKN likes the aero engines business is it lessens reliance on Airbus and Boeing as customers, to whom other units supply aerostructures. Now, companies such as GE, Snecma and MTU are substantial - and growing - customers.

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Source: Flight Daily News

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