Ownership changes loom in gas turbine components market

Citation

(2005), "Ownership changes loom in gas turbine components market", Aircraft Engineering and Aerospace Technology, Vol. 77 No. 6. https://doi.org/10.1108/aeat.2005.12777faf.012

Ownership changes loom in gas turbine components market

Ownership changes loom in gas turbine components market

Keywords: Turbines, Mechanical components

A newly published survey into the world market for gas turbine structural engine components predicts imminent changes of ownership for key suppliers as private equity owners take advantage of the upswing to capitalise on their interests while the going is good. Many other companies are potentially on the market because of combinations of the following; aging owners, the wish to get out on the upswing, dislike of market volatility, and inability to cope with unrelenting pricing pressure from customers.

For those that choose to stay in the market, the desire of the primes to deal with a smaller number of larger and more capable suppliers means ensuring highly efficient management of lower tier suppliers, gaining proprietary processes if at all possible, being prepared to invest in new, low cost geographical areas, and either accepting risk and revenue sharing partnerships (RRSPs) or building a sufficiently strong position through economies of scale so that RRSPs can be resisted. There is a great deal to get right if a company is to stay on the corporate tightrope.

Counterpoint Market Intelligence, authors of World Gas Turbine Components Market, have examined all the key trends in the market and produced profiles of over 120 companies in their comprehensive study, which is designed to be a strategic decision making tool for the industry and the investment community. Their new study follows on Counterpoint's influential World Aerostructures Market, which was published in December 2004.

A four year cycle?

The report points out that MTU has already been floated by its private equity owners and conjectures that Firth Rixson and Doncasters, owned respectively by Carlyle and Royal Bank of Scotland, could well be sold off as well. Avio, also owned by Carlyle, was acquired two years ago and since the average holding time for major private equity companies seems to around four years, a sale here too would not be unexpected.

Increasing importance of low cost countries

The report sees increasing migration of work away from Western economies to secure lower costs (Mexico currently seems to be the preferred location) and to gain market access (China seems to be the supreme example). Will established Western suppliers be able to grasp this nettle? The forthcoming Singapore Air Show will be a fertile ground for suppliers from both east and west seeking to forge business links.

The rise of Japan

The report notes that the Japanese industry, centred on three large risk sharing partners, MHI, KHI and IHI, has seen a steady growth in its involvement in western engine programmes. This is due not only to their technical capability and preparedness to invest, but also the willingness of the Japanese government to supply development capital. This support enables these companies to engage in RRSPs that many Western suppliers would not be prepared to entertain.

RRSPs to plateau

The report predicts that, despite the steady growth of RRSPs –, e.g. 36 per cent on General Electric's new GEnx engine for the B787 and A350 – a plateau has been reached. Many Western suppliers have successfully resisted RRSPs by virtue of their technology and capacity. Whilst the primes are being successful with their strategy to increase the aftermarket proportion of the business, could this be undermined was the proportion of RRSPs to rise further?

Details available from: Counterpoint Market Intelligence, Tel.: +44 (0) 20 8748 9797, E-mail: info @cmsstrategic.com Web site www.cpmil.com