A look ahead at FY'07

FY'06 was a year of remarkable earnings, recovering markets, and key acquisitions. So what does FY'07 hold in store for Rockwell Collins?

By Jill Brimeyer

At Rockwell Collins, goals are a big part of life. We continually set them, align them, and we work hard to attain them. We review what went well and we ponder what could be done better.

There also are the "big picture" goals charted by our company as part of our fiscal year incentive plan. But what, specifically, does each business unit — Commercial Systems, Government Systems and Services — need to accomplish to bring those "big picture" goals into focus?

For answers, we turn not only to those leaders charged with providing strategic direction, but to the people behind our products, the people who work hard every day to design, develop and manufacture the trusted solutions our customers have come to rely on.

Commercial Systems

In FY'06, original equipment manufacturer (OEM) aircraft delivery rates increased by double digits in both Air Transport Systems (ATS) and Business and Regional Systems (BRS). At the same time, our Commercial Systems employees were laying the groundwork for the future, capturing key program wins in high growth marketplaces such as China, India, and the Middle East.

But what does the future hold in store? According to Bryan Vester, vice president of Strategy Development for Commercial Systems, our future growth and continued success in the commercial aviation market segment is all about execution.

"Commercial Systems has been extremely successful in capturing new business," said Vester. "Now, making sure we execute on our program commitments and meet our customers' expectations is crucial. Ultimately, doing so will help our customers decide whether to further expand their business with Rockwell Collins."

For instance, successful follow-through and delivery of flight-worthy hardware for the Boeing 787's first flight in 2007, will further demonstrate to the world that Rockwell Collins can manage large-scale integration programs, said Vester.

In addition, successful delivery of Airshow 21 Cabin Electronic System full functionality to Bombardier, a key customer for our Cabin Systems business, also will set the stage for future business. And, as always, Vester says we need to stay focused on achieving our customers' performance measures in areas such as quality, on-time delivery, reliability, and customer support.

The Chinese ARJ21 program also opens the door to future possibilities. Rockwell Collins was selected to provide Pro Line 21 technology and serve as systems integrator for the advanced regional jet in China, a country that is expected to realize phenomenal growth in coming years.

To ensure a successful program, the Chinese established high performance and reliability objectives, said Dave Sampson, ARJ21 technical project manager. So when AVIC 1 Commercial Aircraft Company (ACAC) sought avionics that could meet these challenges and those of an increasingly demanding regional airline environment, the company looked to the global supply base and, specifically, to us for avionics. The effort was so successful, added Sampson, that our team went on to receive a Gold Supplier Award from the Chinese firm for program performance.

Ferli Fernandes, a technical project manager with Rockwell Collins Electromechanical Systems in Irvine, Calif., also is seeing some exciting inroads toward new customers and market segments.

"We are capitalizing on our core competencies and expanding our capabilities to become a Tier 1 supplier to Boeing to provide equipment directly to them," said Fernandes, who is managing the hardware build of pilot controls for Boeing and Gulfstream. "In the past, pilot controls were designed and built by the customers themselves. Today, we are delivering integrated solutions into this market segment. One of our major development programs is the Boeing 787 program."

Success was even sweeter when Boeing pilots recently approved our design for the 787 Dreamliner's pilot controls.

"It's a significant step for Boeing and the 787 program, and is confirmation that we have done the right thing," said Fernandes.

Government Systems

Products such as the ARC-210 radio and our global positioning systems (GPS) units have held their own through war and peace, and periods of growing and waning defense budgets. However, our company will need to remain vigilant in FY'07 and beyond to ensure that these military mainstays remain vital in the marketplace as long as possible.

"Sales of our legacy products will begin to slow as new technologies — such as our Joint Tactical Radio System (JTRS) and our next generation GPS Modernized User Equipment (MUE) — are developed," said Meg Thompson, vice president of Strategy Development for Government Systems. "The key will be for us to maximize the life cycle of these legacy products."

According to Thompson, funding for transformational programs including JTRS and the Army's Future Combat Systems (FCS) continues to be delayed due to budget pressures brought about by the continued War on Terror. However, our company is eyeing some key contracts in the coming years that could potentially strengthen our position in the marketplace.

One of these is the JTRS AMF (Airborne, Maritime, Fixed Site) program, which "would not only enable our company to maintain our position as a leading airborne communications provider, but also would extend our reach into maritime communications," said Thompson.

Rockwell Collins also is posturing itself for a win in the cockpit of the German CH-53, a heavy transport helicopter. Thompson said this would allow us to capitalize on the German position brought about by the April 2005 acquisition of TELDIX, now referred to as Rockwell Collins-Deutschland.

Another area Thompson says will have significant impact on our company is OpenEdge, a discipline based on reusing software component technology. The concept already is being applied on programs such as the AC-130 Gunship Link-16 Integration Program, Flight Information Management System, and a new, lightweight low cost Link-16 system called MAX.

According to Michael Sprague, chief architect, OpenEdge is an open systems software technology for edge applications.

"Edge refers to applications and systems residing at the edge of the global information grid," said Sprague. "It is a technology that came out of the commercial marketplace that is currently being applied to next-generation Nokia and Motorola cell phones ... we think this is a really big deal. The difference will be more quickly deployed, lower cost information capabilities."

A key enabler of OpenEdge is software created by the former Anzus, Inc., the Poway, California-based software developer acquired by our company in September 2006. This high-speed tactical data link software will further propel OpenEdge as one of our future growth drivers.

"This is the year of OpenEdge," said Sprague. "We're working on OpenEdge products for many programs, so in the coming year, we are busily making this happen."

Rockwell Collins Services

The programs our people are working on today are a result of groundwork that's been laid for many months and years. Nowhere is this more evident than in Rockwell Collins Services, where business in our simulation and training, government and commercial market segments appears to have a very bright future.

In the area of simulation and training, Services will continue working in FY'07 to complete the integration of Rockwell Collins Simulation & Training Solutions Visual Programs. Created when our company acquired the simulation assets of the former Evans & Sutherland in May 2006, this business provides our company with several future growth opportunities.

According to Kent Statler, executive vice president of Rockwell Collins Services, the former Evans & Sutherland brought with it a number one position in the visual systems marketplace, and strong customer affinity with airline and military customers worldwide.

"Their expertise in this area will undoubtedly help us expand into new simulation market segments," said Statler. "Traditionally, we have been a U.S. military simulator provider, but this acquisition will help us grow into the global marketplace."

Scott Gunnufson, vice president of marketing and strategy for Rockwell Collins Services, agrees.

"The technology, systems and marketplace presence that Evans & Sutherland brings to our company will definitely prove beneficial," said Gunnufson. "In the future, we will be able to provide our customers around the world with more robust solutions."

According to Visual Programs Director Nick Gibbs, our simulation and training solutions products can be found on a broad spectrum of platforms. From the Boeing 787 to the Joint Strike Fighter and the Apache Longbow Crew Trainer, our systems are making an impact in the marketplace. Visual Programs also is addressing one of the most significant threats to soldiers in Iraq, an effect called "brown out."

"As rotorcraft attempt to land in the desert, they become enveloped in sand and they tend to lose their bearings," explained Gibbs. "We've received favorable feedback from our customers who are training in simulated brown out conditions, so we know we're headed in the right direction."

In addition, Services continues to work with Government Systems on opportunities to move toward embedded training in the cockpit avionics we currently produce. In fact, at the recent Interservice/Industry Training, Simulation and Education Conference (I/ITSEC) in Orlando, Fla., we showcased the first-ever embedded training across the Common Avionics Architecture System (CAAS) cockpit and received strong customer reviews, said Statler.

In the government arena, Services is in the process of completing a market study aimed at identifying and prioritizing key market segments for entry and growth. According to Statler, this will likely mean a shift from more traditional parts and labor service, to more supply chain management, obsolescence management, field service engineering and integrated logistics support.

"We need to become a full service provider for the Department of Defense, and this market study is the first step in identifying the most effective path to do so," said Statler.

In the area of commercial services, Statler sees a promising future, despite the fact that Services is still feeling the lagging effects of the 9/11 impact on the aerospace industry.

"The aircraft sold in 2001 and 2002 are just now coming off of warranty, and that means our growth rate in revenue generating work is relatively slim, despite the latest headlines of new airplane deliveries," said Statler. "We'll be reaping the benefits of the current new airplane delivery rates and outstanding order capture rate by Commercial Systems in about four to five years."

Until then, Services will continue to work with customers on their long-term contracts, and focus on reliability improvement, technology insertion and preventative maintenance plans. Servicing our customers in the field will continue to be our top priority.

"Our technology and expertise will get us in the door, but good, old-fashioned service is what will keep us there," said Marc Cronan, manager of Customer Support at Rockwell Collins Simulation & Training Solutions in Sterling, Va. "The better job we do, the more inclined people will be to come to us for service."

Jill Brimeyer is a freelance writer.

This article contains forward looking statements including statements about the company’s anticipated growth and performance in FY’07.

Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to those detailed from time to time in our earnings press releases and Securities and Exchange Commission filings.