boeing globalization program - encarnation industry.pdf · kazuo tsukuda, president hideaki omiya,...

Growth & Productivity:Leveraging Business

Internationally

Dennis EncarnationHarvard University

BOEINGGLOBALIZATION PROGRAM

PART IV:Aerospace Industry

BOEINGGLOBALIZATION PROGRAM

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AEROSPACE: TRANS-ATLANTIC CONCENTRATION

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*Revenues for defense & space, government information services &

commercial aircraft (including financing), components & subsystems.

2007

Sales, $B*

Source: Annual Reports; Dennis J. Encarnation & Associates, 2008.

STILL, SOME INDUSTRIES WILL LIKELY REMAIN CONCENTRATED GEOGRAPHICALLY FOR A LONG TIME …

TOP 20 AEROSPACE COMPANIES, 2007

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AEROSPACE: TRANS-ATLANTIC CONCENTRATION

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*Revenues for defense & space, government information services &

commercial aircraft (including financing), components & subsystems.

2006

Sales, $B*

TOP 20 AEROSPACE COMPANIES, 2006

STILL, SOME INDUSTRIES WILL LIKELY REMAIN CONCENTRATED GEOGRAPHICALLY FOR A LONG TIME …

CONTINUED CONCENTRATIONMILITARY SPENDING

(US$ billion & % of US$1,367 billion, 2006)

1.622.3INDIA10.

1.723.7SOUTH KOREA9.

2.635.7GERMANY7.

22.6307US Alliances*

9.0122CHINA2.

4.459.1RUSSIA3.

4.155.1UK4.

3.345.3FRANCE5.

3.041.1JAPAN6.

1.925.4SAUDI ARABIA8.

47.5%

% GLOBAL

MILITARY

SPENDING

644

MILITARY

BUDGET(US$ billion)

USA1.

COUNTRYRANK

Note: *Multilateral (NATO) and bilateral (Australia, Japan, S. Korea) alliances.

Sources: International Institute for Strategic Studies, 2006; US Department of Defense, 2007.

… IN PART BECAUSE OF BIASES IN DEMAND, CAPITAL OUTLAYS, AND TECHNOLOGICAL ADVANTAGE

GLOBALIZATION THRU LOCAL CONTENT: MHI

Aerospace

Systems

FY2006 Financial Results (FY Ending 3/31/06)

Sales - $26.0B

Operating Profit - $627M

Executive Management

Kazuo Tsukuda, President

Hideaki Omiya, President

Machinery &

Steel

Structures

Ship-Building

& Ocean

Development

Power

Systems

• Defense Aircraft & Aeroengines

• Tactical Fighters

• Helicopters

• Commercial Aircraft Components

• Aircraft Engines

• Guided Weapon Systems

• Space Systems

• Launch Vehicles

• International Space StationOther

2006 Sales – $3.9B

Mass &

Medium-lot

Machinery

2006 Sales – $6.3B 2006 Sales – $2.0B

2006 Sales – $4.8B

2006 Sales – $608M

2006 Sales – $7.1B

Mitsubishi Heavy Industries

Japan’s largest defense contractor for a half century

2006 Preliminary Financial Results

Sales = $15.7B

Op. Profit = $1.1B


Pier F. Guarguaglini, Chairman and CEO

Giorgio Zappa, COO

Chairman & CEO, AleniaCOO, Finmeccanica

2005 Sales = $2.5B

2005 Sales = $1.5B2005 Sales = $961M

2005 Sales = $4.1B

• Agusta Westland (50%)

• Bell Agusta Aerospace Co. (50%)

• GIE ATR (50%)

• Civil Aerostructures

• Modifications

• Military Transport,Training & Combat A/C

• Telecommunications

• Components &subsystems

• Satellites & Services

• Space Mission Mgmt

Aeronautics

TransportationEnergy

• Avionics

• UAVs

• Land & Naval C2

• Radar Systems

Defence

Electronics

GLOBALIZATION THRU LOCAL CONTENT: ALENIA

2005 Sales = $917M

Space

2005 Sales = $3.1B

Helicopters

• Missiles

• Land, Air & NavalWeapons Systems

• Underwater weapons& sonar

2005 Sales = $1.5B

Defence

Systems

Protecting the Home Market

Finmeccanica

GLOBALIZATION THRU LOCAL CONTENT: NORTHROP

Electronic

Systems

2006 Sales=$6.6B2006 Margin=11.3%

2006 Financial Results

Sales - $30.1B

Operating Profit - $2.5B


Ronald Sugar - Chairman,

CEO & President

Aerospace

2006 Sales=$5.6B2006 Margin=9.1%

2006 Sales=$11.3B2006 Margin=8.7%

• Aerospace Sys.

• C4ISR & Naval

Sys.

• Defensive Sys.

• Navigation Sys.

• Gov’t Systems

• Space Sys.

• Air Combat Systems

• Airborne Early

Warning/Electronic

Warfare

• Airborne Ground

Surveillance/Battle

Management

• Civil Space

• Missile & Space

Defense

• Satellite Comm.

• ISR

• Radio Systems

• Technology

Information

Technology

& Services

• Government IT

• Enterprise IT

• Technical Services

• Commercial IT

• C2 & Intelligence

• Missile Systems

• Technical & Mgmt

Svcs

2006 Sales=$5.3B2006 Margin=7.4%

Ships

• Aircraft Carriers

• Surface Combatants

• Amphibious &

Auxiliary

• Submarines

• Commercial & Int’l

• Services

Northrop Grumman

GLOBALIZATION THRU LOCAL CONTENT: NORTHROP

Electronic

Systems

2006 Sales=$6.6B2006 Margin=11.3%


Sales - $30.1B

Operating Profit - $2.5B


Ronald Sugar - Chairman & CEO

Aerospace

2006 Sales=$5.6B2006 Margin=9.1%

2006 Sales=$11.3B2006 Margin=8.7%

• Aerospace Sys.

• C4ISR & Naval

Sys.

• Defensive Sys.

• Navigation Sys.

• Gov’t Systems

• Space Sys.

• Air Combat Systems

• Airborne Early

Warning/Electronic

Warfare

• Airborne Ground

Surveillance/Battle

Management

• Civil Space

• Missile & Space

Defense

• Satellite Comm.

• ISR

• Radio Systems

• Technology

Information

Technology

& Services

• Government IT

• Enterprise IT

• Technical Services

• Commercial IT

• C2 & Intelligence

• Missile Systems

• Technical & Mgmt

Svcs

2006 Sales=$5.3B2006 Margin=7.4%

Ships

• Aircraft Carriers

• Surface Combatants

• Amphibious &

Auxiliary

• Submarines

• Commercial & Int’l

• Services

Northrop Grumman

Joint Bid with EADS forUS Tankers,

Trading Market Accessfor Product Offering


Sales = $26.8B

Operating Profit = $2.1B


Dick Olver, Chairman

Mike Turner, CEO

Ian King, CEO

2006 Sales = $5.7B

2006 Sales = $6.2B

Airbus (20%)

• A380 development

• Wing design andtransport

• Wingtips, leadingedges, ailerons,airbrakes production

2006 Sales = $3.4B

2006 Sales = $532

2005 Sales = $5.9B 2006 Sales = $7.8B

• InformationSystems

• Controls

• TechnologyServices

• Information andElectronicSystemsIntegration

• C41SR

Air Systems

• Eurofighter

• JSF

• Nimrod

• Hawk

Sea Systems

• Type 45

• Astute

• UnderwaterWeapons

• Future Carrier

ProgrammesCommercial

Aerospace

Electronics,

Intelligence

& Support

International

Systems &

Partnerships

Customer

Support &

Solutions

HQ & Other

Business

GLOBALIZATION THRU INVESTMENT & JOINT PROGRAMS: BAE

Structure is the servant of strategy

BAE Systems

Land &

Armaments

2006 Sales = $4.1B


• Armoredcombatvehicles

• Naval gyros

• Missilelaunchers

• Artillerysystems

• Intelligentmunitions

SOLD


Sales = $24.7B



Dick Olver, Chairman

Mike Turner, CEO

Chris Geoghegan, COO

Steve Mogford, COO

Mark Ronald, COO

2004 Sales = $5.3B

2004 Sales = $4.1B

Airbus (20%)

• A380 development

• Wing design andtransport

• Wingtips, leadingedges, ailerons,airbrakes production

2004 Sales = $3.5B

2004 Sales = $2.0B

2004 Sales = $5.3B 2004 Sales = $5.0B


• Controls

• TechnologyServices

• Information andElectronicSystemsIntegration

Air Systems

• Eurofighter

• JSF

• Nimrod

• Hawk

Sea Systems

• Type 45

• Astute

• UnderwaterWeapons

C4ISR

ProgrammesCommercial

Aerospace

North

America International

Partnerships

Customer

Support &

Solutions

Avionics

GLOBALIZATION AT BAE: US ACQUISITIONS

Structure is the servant of strategy

BAe Systems

REVERSE TREND, GLOBAL TO LOCAL: LOCKHEED

Aeronautics

2006 Sales = $11.4B2006 Margin = 10.3%


Sales = $39.6B



Robert J. Stevens, Chairman,President & CEO

Space

Systems

2006 Sales = $7.9B2006 Margin = 9.4%

Information&

TechnologyServices

• Combat Aircraft

• Air Mobility

• Aeronautical R&D

• Launch Services

• Commercial

Satellites

• Government

Satellites

• Strategic Missiles

• Ground Systems

• Missiles & Fire Control

• Maritime Systems &

Sensors

• Simulation, Training &

Support

• Systems Integration -

Owego

• Transportation &

Security Solutions

• LM Canada

• Federal

Technology Svcs

• Department of

Energy

• Gov’t &

Commercial IT

• Aerospace Svcs

Integrated

Systems

Solutions

• Management &

Data Systems

• Mission Systems

Electronic

Systems

LockheedMartin

Systems & IT

2006 Sales = $20.3B2006 Margin = 10.5%

--------------3 Prior Divisions disbanded February 2006---------------

REVERSE TREND, GLOBAL TO LOCAL: LOCKHEED

Aeronautics

2005 Sales = $11.7B2005 Margin = 8.5%


Sales = $37.2B



Robert J. Stevens, Chairman,President & CEO

Space

Systems

2005 Sales = $6.8B2005 Margin = 8.9%

2005 Sales = $10.6B2005 Margin = 10.5%

Information&

TechnologyServices

2005 Sales = $4.0B2005 Margin = 8.8%

• Combat Aircraft

• Air Mobility

• Aeronautical R&D

• Launch Services

• Commercial

Satellites

• Government

Satellites

• Strategic Missiles

• Ground Systems

• Missiles & Fire Control

• Maritime Systems &

Sensors

• Simulation, Training &

Support

• Systems Integration -

Owego

• Transportation &

Security Solutions

• LM Canada

• Federal

Technology Svcs

• Department of

Energy

• Gov’t &

Commercial IT

• Aerospace Svcs

Integrated

Systems

Solutions

2005 Sales = $4.1B2005 Margin = 8.8%

• Management &

Data Systems

• Mission Systems

Electronic

Systems

LockheedMartin

•US Government, 51%

•US Classified, 20%

•Foreign Governments, 19%

•US Commercial, 7%•Foreign Commercial, 3%

Geographic Sales, 2005 (%)Not seeking to become a “global enterprise for aerospace leadership”

• Astrium

• Arianespace (22.9%)

• Satellite Systems

• Ground Stations

• Space Transportation

• Eurofighter (43%)

• Dassault (45.7%)

• Defense Electronics

• MBDA (50%)

• Support, Services,Training

• SecureCommunications


Louis Gallois, Co-CEO

Thomas Enders, Co-CEO To Airbus CEO

• ATR (50%)

• EFW

• SOCATA

• SOGERMA

2006 Sales = $1.6B

2006 Sales = $4.0B2006 Sales = $7.4B

• Military Helicopters

• Civil Helicopters

2006 Sales = $4.8B

2006 Sales = $2.8B

GLOBALIZATION AS REGIONALIZATION: EADS


Sales = $49.6B

Earnings = US$501M (vs. US$3.6B in 2005)

• CASA MilitaryTransports

• Airbus MilitaryCompany (A400M)

Other

Astrium

Defense &

Security

Systems

Military

Transport

Aircraft

Eurocopter

A microcosm of the macro dynamics of EU integration

EADS

Airbus

2006 Sales = $31.6B

Airbus Integrated

Company (80%)

• Commercial Aircraft

THE MANY FACES OF GLOBALIZATION: GE

R & D Sourcing Production After SalesService

Appliances

Lighting

Medical Systems

Plastics

Aircraft Engines

Note: The wider the bar, the greater the share of value created outside the U.S.

Sales &Marketing

Companies do NOT globalize, businesses do…

GLOBALIZATION & VALUE-ADDED: GE

Example: The ‘worst quarter’ in the history of GE Aircraft Engines

Q1, 2003, CAGR Total Commercial Military

Revenues -8%

Goods -35% -37% 3.5%

Services 14% 23% 9%

Bottom Line: Operating Profits up 13% (to $474 mil.)Thanks to Top-Line Services & Productivity Gains--These are the Main ‘Drivers’ in this Business Today

REDEFINING GLOBALIZATION: GE

Example: The ‘worst quarter’ in the history of GE Aircraft Engines

Q1, 2003, CAGR Total Commercial Military

Revenues -8%

Goods -35% -37% 3.5%

Services 14% 23% 9%

Bottom Line: Operating Profits up 13% (to $474 mil.)Thanks to Top-Line Services & Productivity Gains--These are the Main ‘Drivers’ in this Business Today

And what if GE had acquired Honeywell?According to the European Commission, upwards

of 2/3 of the value of the aircraft--includingengines, electronics, and capital--would have

come from the merged business.

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*Revenues for defense & space, government

information services & commercial aircraft

(including financing), components & subsystems.

2003

Sales, $B*

REDEFINING AN INDUSTRY: GE

A GE-Honeywell merger would have furtherconsolidated the aerospace industry, creating a

new #4 with aspirations for being #1 or #2

GE + Honeywell

RESTRUCTURING TODAY: A FEW TRENDS

Entry ofAdjacent Players

Case Study: India

The NewNationalism

Case Study: Global

Servicing a largeinstalled base

Commercial: GE-Ae serviceshops

Military: Boeing’s ISS, fromCanada to the Netherlands(to Korea)

New products innew geographiesacross regions

BAe’s acquisition of Sandersin the US defined the futureof aerospace M&A

Finmeccanica’s acquisitionof DRS Technologies in theUS is the largest to date

GE’s acquisition of SmithAerospace in the UKillustrates the reverse trend

Expansion intoAdjacencies

Case: Trans-Atlantic



Case Study: India

Sovereign funds &state banks

Middle East oil exporters:Mubadala, SAGIA, etc.

Russia: Vneshtorgbank’s5% equity stake in EADS

State-ownedenterprises

Russia: Consolidation ofseveral enterprises in UnitedAviation Corporation (UAC)

India: HAL’s resurgencethru offsets

State Aid, Revisited Exim financing or not to

buyers: airlines

For R&D: GE-GlobalResearch Centre-Munich

The NewNationalism

Case Study: Global











Tata no prior defense or aero-

space experience except in IT

By 2011: sole supplier of787 floor beams, & potentialJV partner for Boeing

Mahindra Indian defense contractor,

mainly for combat & supplyvehicles to the Army

partner of choice for BAeSystems as it expandsplatforms into India

Larsen & Toubro Indian defense contractor,

mainly for ships and weaponsto the Navy

potential supplier to Boeing


Case Study: India

Sovereign funds &state banks

Middle East oil exporters:Mubadala, SAGIA, etc.

Russia: Vneshtorgbank’s5% equity stake in EADS

State-ownedenterprises

Russia: Consolidation ofseveral enterprises in UnitedAviation Corporation (UAC)

India: HAL’s resurgencethru offsets

State Aid, Revisited Exim financing or not to

buyers: airlines

For R&D: GE-GlobalResearch Centre-Munich

The NewNationalism

Case Study: Global










boeing globalization program - encarnation industry.pdf · kazuo tsukuda, president hideaki omiya,...

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