Honeywell Aerospace: Connectivity is key to the future

Honeywell International has a long history in Japan, going back to 1918 when the company sold a gyro compass to Tokyo Keiki Inc. Today, Honeywell Aerospace is a leading global provider of integrated avionics, engines, systems and service solutions for aircraft manufacturers, airlines, business and general aviation, military, space and airport operations.

This year, the company’s aerospace and defense division is celebrating its 60th anniversary in the Japanese market where it works with more than 20 licensing partners and trading companies to sell engines, electronics & avionics and mechanical parts to the Air Self-Defense Forces. Japan’s Ministry of Defense is the biggest customer for Honeywell after the U.S. military.

Overseeing Honeywell Aerospace’s business in the Asia-Pacific region is Mark Burgess. Originally from Britain, Burgess holds a degree in Economics, Politics and International Relations from the University of Hull. He spent 15 years with BAE Systems, working in Asia, Europe, the Middle East and North America. He took up his current position in 2013, and is currently based in Brisbane, Australia.

What are the biggest markets in Asia-Pacific for Honeywell Aerospace?

Japan, Singapore, South Korea, Taiwan and Australia.

How important is Japan in the global pie?

Internationally, we’ve got three big customer sets. Of those, Japan is either No. 1 or 2 in any given year. The Ministry of Defense is the biggest customer for Honeywell after the U.S. military. This year marks our 60th anniversary in Japan and we have had about 20 licensing partners for decades here, so we are really significant in Japan, compared to other markets. When I took this job two years ago, Japan accounted for about 70% of our revenue in the Asia-Pacific region in my business. This year it will be 59% but that’s because our business has grown more quickly in other Asian countries.

How were first quarter results this year?

For Honeywell International, sales and revenue for the first quarter dipped but our operating income and profit were up. Within the aerospace business, globally we had a strong first quarter, and within the defense and space business, in Asia-Pacific we had a great first quarter - up by 12%. Sales in Japan were up 9-10% last year. For aerospace, I expect to see good growth over the next few years.

Where do you see growth in Japan coming from?

We are seeing usage rates increase due to some tensions in this part of the world. I saw stats that said the Air Self-Defense Forces were one sortie short of an all-time record in the 1980s. They are using F-15s and Honeywell has a significant amount of content on F-15s. The more they fly, the more they need spare parts, repairs and upgrades. We are also seeing new platforms going into production, such as the P-1 aircraft, and the company has lots of content on that aircraft. So that is expected to drive our growth. We have had some success with new satellite communications products. We also made an important sale onto the C2 cargo aircraft, and we are pushing hard on the commercial helicopter market in Japan.

Which sector is the biggest revenue earner?

Across the region, about 70% comes from mechanical (engines, APUs, valves, cabin pressure and so on) and 30% electronics and avionics (weather radars, satellite communications, collision avoidance systems).

What are some of the exciting developments you foresee?

One of the really exciting things is satellite communications in terms of hardware that allows you to connect to satellite networks. With aircraft, at the moment, you get connectivity for a lot of safety or a small amount of performance data. The weather radar is a really interesting development. You’ve got 3,000 aircraft airborne at any one time in Asia-Pacific. If all of them are connected and have weather radars, and can provide the weather characteristics of their environment, you can aggregate that from all aircraft and get a weather picture for each region like you have never had before. It will increase passenger safety and improve airline efficiency.

Honeywell is one of the biggest suppliers of weather radars and satellite communications technology for aircraft globally. What we are working on right now is combining those two things to give you that global weather picture. We are also one of the world’s leaders in health and usage monitoring systems for aircraft -- rotary and fixed wing. So if you combine that with satellite communications, you have real-time performance data about your aircraft being sent back to your control center.

Inside the cabin, the mobile connectivity market, particularly for airborne customers, is projected to surge in the coming years, driven by passengers’ insatiable appetite for connectivity for smartphones, iPhones, iPads and laptops. Honeywell views connectivity as key to bringing the aerospace industry into the next decade and beyond.

What are some issues that need to be addressed in dealing with your customers?

I have to say that our on time delivery performance is not as good as it should be. Most of the feedback I get from customers is that we have world-class products and engineers and levels of quality and reliability are industry-leading but we are sometimes late with delivery. In Japan, this is vital because their expectations are way higher than some other markets. Part of the reason is because we have the most diverse product portfolio of any aerospace company in the world. That can be difficult to sustain. If you’ve got 50,000 parts, some of which you might only sell one or two a year, you get supply chain issues. We have brought in some additional resources to drive performance improvement in on-time delivery.

Dealing with so many countries in Asia, is your business model the same for each market?

In many of our big markets like Japan, Australia, South Korea, Taiwan and Singapore, there are consistent elements. You have a very sophisticated military and a procurement organization with clear expectations in terms of scope and specifications. Although there are differences in culture and language, many of those countries share more in common than they differ. I’ve found that there tend to be greater differences in the emerging tier-2 markets – the systems and processes they have in place are less sophisticated.

One of Honeywell’s strengths is that we’ve got managers in each country who are nationals of those countries and that is hugely beneficial to understanding the market intricacies as well as to customer relationships, which as you know are particularly important in Asian cultures. In Japan, our relationships have been in place for six decades. Our licensees know us and trust us. There is also a level of understanding with people who worked on projects with us 20 years ago. It’s great that we can still tap into their knowledge. There is a degree of longevity in Asian markets like Japan where you can do that.

The Japanese government has revised its defense guidelines to ease a self-imposed ban on transfers of arms equipment and technology. How will that affect Honeywell Aerospace’s business in Japan?

We expect a boost. There are 20-plus companies we have worked with in Japan and more than 50 licensing agreements in place. For example, we have significant content with ShinMaywa on the US-2 aircraft. If they sell it to India, we’ll derive an immediate benefit. Same with the P1. We have about $3.5 million of content on each aircraft, and if they sell it to the UK, that will mean a big boost for us as well. With new business, the F-35 is a good example. We want to introduce with Kayaba -- our partner in wheels and brakes – local sustainment of the F-35 fleet. We already do that for F-15s and Kayaba already make parts for F-15s. They want to make parts for the F-35 and we would consider that.

But what’s changing now is that the Japanese government wants to see a different return on investment. It’s not just about sovereign capability, security of supply, technology transfer and job creation. There is a different dimension now. They want to see export business opportunities. From our point of view, when you have established suppliers capitalized often by the government, and who have ongoing production, their licensing arrangements to date have been specific to Japan. But if that policy changes, they could be our supplier for those components to sell to say, Saudi Arabia or South Korea, so the potential is huge.

Where do you focus your energies?

I have a good team, so my role is to make sure they understand the strategy for the market they operate in, have everything they need to do their job, and where there are infrastructure challenges, I deal with those. I tend to spend less time on the sales process and quite a lot of time on strategic campaigns, and on our execution performance, things like late deliveries, quality control and export licensing issues – anything that might gum up the wheels.

You must travel a fair bit.

Yes, probably about half my time. The bulk of my team is in Asia, there are six at our headquarters office in Phoenix and my regional boss is in Shanghai.

How do you like to relax when you are not working?

I love sports. That’s one of the good things about living in Australia. I used to play competitive rugby until I was 35.

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