Mike Pollack GLOBAL SENIOR EXECUTIVE SALES & MARKETING | - PowerPoint PPT Presentation

Mike Pollack GLOBAL SENIOR EXECUTIVE SALES & MARKETING | BUSINESS DEVELOPMENT | SUPPLY CHAIN LinkedIn Profile 0

The Aerospace Industry Supply Chain Consolidation: Trends, and Consequences • Global A&D Market • Channel Dynamics • Major Players • Supply Chain Personal Case Histories • Summary Points 1

A&D Global Market • The commercial aircraft order backlog is at its peak of more than 14,000 — with about 39,000 aircraft expected to be produced globally over the next 20 years. • Geopolitical tensions are continuing to intensify and demand for military equipment is on the uptick, driving defense spending across the globe. • Changes in the international trade agreements likely to disrupt the global supply chain and increase costs. • M&A activity to remain strong as pressure on suppliers to reduce costs and increase production rates continues. • Though A&D industry growth is primarily led by the United States, other regions including China, France, India, Japan, the Middle East, and the UK, will be contributing to the industry’s performance in the near term 2

Commercial OEM Market 3

RPK Growth 4

Strong Firm Order Backlog 5

Global A&D Spending Growth

Growing Global Middle Class 7

Growth in Emerging Countries 8

Growth in Emerging Countries 9

Growth in Emerging Markets 10

Global Demand 11

Global Fleet Growth Better, more fuel efficient aircraft are lasting longer Growing global fleet drives aftermarket / MRO growth 12

A&D Channel to Market OEM OEM’s Design, Final Assembly and Test Tier 1 Major assemblies, purchase parts & sub-assemblies Tier 1 - Major assembly Tier 2 Tier 2 - Structures and Sub-assemblies sub-assembly Tier 3 Tier 3 - Components / Components / detail parts Detailed parts

Stock Prices vs S&P 500 A&D Sector Strength 3,000% 2,492% 2,500% 2,050% 2,000% 1,500% 1,100% 1,062% 808% 1,000% 579% 567% 371% 500% 283% 259% 134% - (500%) Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 NYSE:BA ENXTPA:AIR NYSE:UTX NYSE:RTN NYSE: LMT LSE:MGGT NYSE:TDG NYSE:ETN ENXTPA:SAF NasdaqGS:WWD ^SPX 14

Revenue and Operating Margins Over Time Tier 2+ Suppliers Margins improve further down the channel $ 12 80% ▪ OEM’s – Revenue growth reflective of growth in the industry 9 60% – Operating margins lower than Tiers 1 / 2 / 3 suppliers ▪ Tier 2+ Suppliers 6 40% – Potential to acquire Tier 3 and other suppliers to maintain high margins – TransDigm is executing on a successful M&A strategy to 3 20% drive outsized revenue growth and maintain superior margins - - ▪ Large Tier 1 Suppliers 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM – Tier 1 Suppliers also have the ability to acquire smaller 6/19 companies but are less efficient than their smaller Meggitt TransDigm Woodward counterparts (TransDigm, Woodward, Meggitt etc.) Meggitt TransDigm Woodward OEM ’s ($ in billions) Large Tier 1 Suppliers $ 400 20% $ 60 20% 15% 300 15% 45 10% 200 10% 30 5% 100 5% 15 - - - - (5%) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 LTM 6/19 6/19 Boeing Airbus Eaton Safran UTC Lockheed Martin Raytheon Airbus & Boeing UTC, Lockheed Martin, Raytheon Eaton Safran 15 Sources: Capital IQ.

Revenue and Acquisitions Over Time TransDigm has been exceptionally acquisitive in the last decade, comprising most of the acquisitions (by count) among its respective peers. These companies have access to tens of thousands of smaller, privately held companies to continue to industry consolidation and revenue / margin improvement ($ in billions) Woodward, Inc. Meggitt PLC TransDigm Group Incorporated Total Acq. Count TransDigm Acq. Count $ 12 8 7 10 6 8 5 6 4 3 4 2 2 1 - - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 16

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Case #1: Reducing Price Volatility and Assuring Demand for Helicopter Blades through Improved Supply Chain Relationships Relationship Drivers: Erosion shields (leading edge) for helicopter blades Titanium pricing was volatile creating pricing instabilities across the supply chain Lawyers assessed anti-trust concerns / FTC rulings Cross functional participation across the supply chain including the U.S. Army Supply chain; Result: 5 year contract from the US Army at a fixed price with 2 option years. Key Points: Leverage Value up and down the channel to market Focus on core competencies Long term LTA can stabilize volume / level load production / reduce risk for all Listen for Real Need and Create Win-Win opportunities 23

Case #2: Leverage strong performance credibility Relationship Drivers: Established credibility with key customer as key supplier of 737 Spoilers Lean / 6 σ program consistent with Boeing’s Boeing had compelling need / failing supplier – single point failure Leveraged existing supply chain for BOM on 777 Tail Cone / 787 Windows & Wing Box Key Points: We are in the Problem Solving business Internalize Lean / 6σ – Learn it and live it - the language of industry People like to work with people they like and trust 24

Case #3: Developing Corporate Relationships to Leverage Spend Across Multi-Site Suppliers Relationship Drivers: 10% of Suppliers represent 90% of Spend / Top 25 Suppliers represent half of Spend 10 Supplier Business Units represent 90% of demand at key suppliers Long term supply agreements reduce risk for all players in the Supply Chain Supplier Conformance to UTC Governance on all key terms and conditions Drive Lean / 6 σ to reduce risk on supply base cost / quality / delivery UTC Divisions (P&W, Collins, Otis, Carrier) Product Value Streams / Commodities Execution Strategies Negotiations UTC Corporate Ops Supplier Development ` PROACTIVE Transactional Purchasing & Planning Key Points: Pool economies of scale whenever possible; Leverage Spend Pareto Principle – 80:20 Rule Lean / 6 σ strengthens relationships / reduce risk through improved cost / quality / delivery 25

Case #4: Leveraging Customer Relationships Relationship Drivers: UTC Strong position on industry recognized growth program Customer’s willingness to support supply base initiatives – E2 Platform Conference 80% of spend with 20% of suppliers – focused initiative Suppliers desire to participate in long term growth opportunities Economies of scale spend on multiple programs across platform to reduce cost on both new and existing business Capacity: 88 – 130 (2-class) Awards to UTC Range: 1,400nm – 1,800nm Engine Engine Controls Nacelle Air Data Forecast: 1,980 aircraft Wheels & Electric Systems Brakes First Flight 2016 / First Deliveries 2018 >$.5B annually of new business opportunity for UTC’s supply base Fire >$8M UTC Content per E2 Aircraft Evac Slides APU Protection Key Points: Pool economies of scale whenever possible; Leverage Spend Pareto Principle – 80:20 Rule Lean / 6σ strengthens relationships 26

Summary Points • Robust A&D growth expected to continue • OEM demand will remain strong • Aftermarket becomes increasingly more important • Battle over IP ownership • Supply chain consolidation / rationalization continues • Need to leverage value up and down the channel 27

BACK UP 28

Stock Prices vs S&P 500 B O E I N G ( N Y S E : B A ) A I R B U S ( E N X T P A : A I R ) 1,000% 700% 580% 808% 800% 500% 600% 400% 300% 200% 134% 100% 101% - (200%) (100%) Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Jul-00 Jul-03 Jul-06 Jul-09 Jul-12 Jul-15 Jul-18 Boeing S&P 500 Airbus S&P 500 U N I T E D T E C H N O L O G I E S C O R P O R A T I O N ( N Y S E : U T X ) R A Y T H E O N ( N Y S E : R T N ) 500% 700% 567% 371% 500% 300% 300% 134% 100% 137% 100% (100%) (100%) Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 May-01 May-04 May-07 May-10 May-13 May-16 May-19 UTC S&P 500 Raytheon S&P 500 29

Stock Prices vs S&P 500 L O C K H E E D M A R T I N ( N Y S E : L M T ) M E G G I T T ( L S E : M G G T ) 1,300% 300% 259% 1,100% 1,100% 900% 134% 700% 100% 500% 300% 134% 100% (100%) (100%) Sep-99 Sep-03 Sep-07 Sep-11 Sep-15 Sep-19 Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Lockheed Martin S&P 500 Meggitt S&P 500 T R A N S D I G M ( N Y S E : T D G ) E A T O N ( N Y S E : E T N ) 500% 2,300% 2,050% 1,900% 300% 1,500% 283% 1,100% 134% 100% 700% 300% 127% (100%) (100%) Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Mar-06 Mar-10 Mar-14 Mar-18 TransDigm S&P 500 Eaton S&P 500 30

Stock Prices vs S&P 500 S A F R A N ( E N X T P A : S A F ) W O O D W A R D ( N A S D A Q G S : W W D ) 1,100% 2,900% 2,688% 936% 900% 2,300% 700% 1,700% 500% 1,100% 300% 500% 138% 100% 138% (100%) (100%) Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Sep-99 Sep-04 Sep-09 Sep-14 Sep-19 Safran S&P 500 Woodward S&P 500 31