Sjoerd Vollebregt, Stork B.V.
Release Date: 2009-02-13
Stork is unquestionably the face of the Dutch aerospace industry. Whereas in other countries the role and position of the industry is more well-defined, it’s fair to say that in the Netherlands it’s perhaps a little less clear. As the head of a company very much at the core of the Dutch aerospace industry, what is its place in the world in your view?Stork has moved from being an aircraft manufacturer and integrator with a lot of deep knowledge into a specialist supplier of critical, complex components and infrastructure. This helped the company to shape the business model much more professionally than would be possible as an OEM. We’ve been doing that for 12 years, and it’s truly seen when talking to the big aircraft builders that Stork can support them to make their life much more easy, reliable, and cost-effective. Stork is still active in a consortium for military helicopter manufacture, with over 500 already sold, in addition to certain specialist positions. One is on structures, where Stork provides complex parts in wing movables, empennage, tails, and certain types of composite panel materials. Thermoplastics is one example where Stork has new technology and a lead over many other global companies. The Netherlands is well-known in that regard and respected by main customers. Another such area is metal bonding, where GLARE is an excellent example as an element that came from research led by Fokker. On the one hand, there is the specialist position which fits Stork’s customers very well, where being much more deeply developed than they have time to be, makes their lives less complex, in addition to a certain deep expertise in engineering capability The broader Dutch industry is pretty similar as a whole, having moved into niche and specialist positions, with many of the companies to some degree a spin-off of Fokker. As the flagship Dutch company, Stork cooperates closely with the other parties, and when we enter a certain program, it can be that we on our own have 15-20 of those small or midsized businesses as suppliers. For Stork, it’s much easier to talk to big companies and go through their infrastructure, and understand their requirements and contracts, which for a smaller unit is much more complex.
According to NAG figures, Dutch aerospace industry turnover is €2 billion, and Stork accounts for around €500 million of that. What does it say about the industry when a single company represents over 25% of the total?
I think it’s logical for a smaller country, because you need a certain size and critical mass to make an impact, and a lead player to do so. Ultimately, when all positions are given in a changing supply chain globally, then you can be smaller, but right now being feasible requires one big player.
Within its aerospace activities, Stork has a 50/50 military to civil split. What kind of internal mechanisms are in place to transfer the kind of knowledge and innovation on the military to civil sides of the business?
What Stork does is build a portfolio of various programs we work in, from early development through to late cycle, where the latter bring in the necessary cash to reinvest in the former. In the same mechanism there are often certain materials applied to certain positions on aircraft, and there’s a tendency to first test and fly such developments on a military aircraft. One example is with landing gear, where Stork has developed a composite alternative tried with the Ministry of Defense and the Air Force, which will subsequently move into a further new program of military or civil. This is a similar process to what was done with GLARE testing, so there’s an active way of working from defense into commercial.
The new US government is leading heavily towards reductions in Pentagon spending, with ripple effects to be expected around the world. How do you see this trend impacting Stork?
The first intent may not always be something that can be done in effect. Overall, there are certain Stork programs that will face a spending pinch. The biggest one is Joint Strike Fighter. Given the fact that the F-16 needs to have a successor and the US Navy needs to replace it, it’s more a matter of optimization and which part of the development cycle is to be ramped up, the total production, and how much budget is available.
Recent economic turmoil has been tempered in the aerospace industry by a longer-term view, with European order books in many cases full to four or five years, so even with a two- year downturn, some experts are not too worried. What is your view from a Stork perspective?
Stork is positioned in the late cycle of the real economy, aerospace has a good order book, and besides that the company is part defense-oriented. What you see is that the first two quarters of 2009, there will still be the benefit of existing order books, Stork thinks in a three to four year cycle, and therefore three to four years from now business should really pick up. First of all there is a deep dive and crash landing, followed by fluctuations, stability, and the pick-up. There is a lot of hot air in the economy that needs to get out, and even when it gets out and governments have stabilized it, it will be a costly affair. Two factors that can make a big difference on a global level are China and India, with demand in those countries set to increase, and domestic markets increasing in importance much more than just export countries being cheap producers. Hopefully, as soon as possible that process will continue to evolve.
Candover private equity took over Stork around one year ago. In your view, you mention a longer-term recovery is the most likely scenario. Given that private equity is notoriously short-term oriented, and with aerospace being long-term oriented, how does that apparent contradiction impact Stork?
First of all, private equity is value-oriented. Normal exit time horizons differ, from three to five to seven years. Five years is normal for Candover, and it tends to be less in a booming market, when you can do more and there are more people ready to take strong positions. In a downturn like is being experienced at present, you can extend the horizon automatically for two years, because it doesn’t make sense to part from the company in a buyer’s versus seller’s market. Also, within private equity there is a spectrum of companies, and many have entered the aerospace market, with 2007 representing a boom year in that respect. Where private equity will be is where structure in the market changes. The supply chain is changing, there’s a certain momentum of consolidation and more competitors in the market. It happened that there was a shortfall in production capacity of metal components, and private equity bought into it, taking the view that demand will be strong in the coming years.
Stork is well-financed in an environment where for any company capital is not in cheap demand. The industry has to revisit some of its fundamentals. The fact that in commercial aerospace, the primes ask their suppliers to prefund large chunks of airplane development is an extremely costly way of running the business model. The strongest companies actually pay for most of the development themselves, because any supplier which has to put up their own capital will pass along that cost plus an additional 15% minimum.
Having presided over Stork before and after private equity involvement, what changes do you notice in management style?
First of all, you have to look at the type of private equity. Some types look for undervalued assets, make a couple of major changes quickly, and sell them to a new owner. Others use refreshed management methodologies to move quickly, replacing management with experts to do that as quickly as possible. Then there are in-betweens like Candover, which works in a broad range of industries with solid underlying businesses, mostly market-leaders in a specific sweet spot. Given the legacy of Candover’s 25-year history and English pedigree, one of the good things is that they help move the business accounting and internal control one level up,. Once the banking arrangement is stable and they feel there is a solid asset in the books, then there can be significant investments in developing the business. One year out from the stock exchange, Stork has invested a record amount, the biggest investment in the entire company history, which is uncommon when people think about private equity.
In 2005, Stork entered into a symbolic partnership with Shenyang Aircraft Corporation for the manufacture of Gulfstream components, and Fokker Elmo is also present in the country. What does China represent for Stork?
China is an aerospace factor of importance that is only going to grow; that’s clear and everybody knows it. When the world starts to talk about it, add another five to 10 years before it truly materializes to something substantial. It’s a slow process. As an example, with the opening up of borders in the European community, everyone was prepared for 1992 but it finally happened in 1997. You need to take that long-term view.
Stork had a very good experience in China from forays in the printing business, and has had a similarly good experience in the wiring business over the past five years. Talking to our customers like Boeing and Airbus, they will see that as a model of how you can successfully work in China. Our operations there are top quality, with 99% of the 600 employees are locally-sourced, and it’s become part of our global infrastructure, linked with the computer system, and is a natural extension that is very important for our customers who are increasingly interested with China.
As Stork and China continue to evolve, what do you anticipate will be the company’s future involvement in the country?
The AVIC-1 program is something that will grow in steps. In five years’ time I would like to see two or three programs done jointly with them, because currently it’s only subcomponents. There’s a business-oriented development path, and Stork has worked on the 747-8 project, typically as a bridge supplier, developing and engineering components closely associated to Boeing. From there, we move it into China, and work with a local company to get in the production phase the majority share of that type of work.
The Tinbergen Institute came out with a discussion paper last year showing that Sino-Dutch trade growth had been outpaced only by Philippines and India over the last decade. What does such encouraging data mean for the countries’ relations and how do you predict for their future?
The Netherlands has a long history and build-up of knowledge, extending back generations in this industry. The country has institutes which focus on light material application at the heart of our industry and company. Building relationships with countries which will play an important role in the future, the Dutch have been pragmatic and good at it, and that tradition will only grow it further. The other element we hope to see more and more of is Chinese companies starting to work also in Europe. It’s not only about Chinese companies staying in China, and there needs to be more fluid interactions by having a presence in both ways and becoming part of the European infrastructure.
What types of partnerships are you looking to develop at Stork in this respect?
First of all, you need to look at a natural industrial setting, at what are the key strengths of your partners, and the need to build an integrated approach which means an exchange of people, reducing language barriers, and increasing fluency over time. It’s possible to deal with processes and systems to keep control in developing aircraft, but at the end of the day it’s people who make something of those tools and systems, and that you need to do directly. That interaction is of long-term importance, and obviously the intention is to find areas that are much better developed because of a given heritage, and to focus and concentrate on those. In the interaction itself, it’s important that China remains cost competitive. The Netherlands must do so as well, and it is quite a burden, with a number of processes and tools to do so, but China is also gradually developing a more mature economy, sometimes experiencing a shortage of people in key spots.
Coming out of a competitive sports background as a world-champion sailor, what were the best lessons learned in terms of transferring that winning sports mentality into the business realm?
The most important is a clear goal and the reason for why you’re doing what you’re doing, and next is how you do it. One piece of advice is to assess both the short and long-term health of the company, and create a very clear road forward. Anything that touches it and thus creates a problem will be fought until the end, and Stork has shown it’s willing to do so. When you go to the how, it’s about discipline and result orientation. It’s not the input that counts, but the result, which is typical in sport – you either win or lose. Second place is not something you aspire to in sports, even if it’s possible to have extremely good companies that aren’t necessarily market leaders. And finally, getting there is blood, sweat, and tears. As a technology market leader, it’s 2% inspiration and the rest is just work and discipline.
Where do you want to bring Stork over the next five to 10 year time horizon?
If you look at big parts of the business in technical services, also there are many specialist positions servicing the oil, gas, and power industries, and also there we work in the power industry in China. Stork has over €1 billion in Technical Services business with the ambition to grow and potentially return independently to the stock exchange, although that’s still a few years off yet. In aerospace, Stork continues to grow the specialist business focus and balance the portfolio to get closer and closer as a strategic supplier to the primes. That’s the ambition. Size is not critical to me; it’s more about getting the true value to the customers and keeping a long-term orientation.
What is your final message, on behalf of both the Netherlands and Stork, to Chinese readers and current and potential partners?
To China, it’s very important that the country balances export orientation and internal development to a mature economy with its own demand and strength, and the quicker they do it, the more benefit for the recovery of the current recession, that’s very clear. China can be one of the prime engines in the global economy’s recovery. It’s time China moves in that direction, and now that is possible if the leadership so desires. On behalf of the Netherlands, the country by its nature and history has an open mind with how to cooperate with partners, and it should be a mutually beneficial relationship. In practice, the Dutch have a reputation in being smart and not forgetting their own interests, but underlying this is that we actually do something that is useful for big economies, otherwise they wouldn’t take us in the long term. In that sense, being a bridge supplier, and bringing our big customers in a more fluent way to China in a more specialist position is typical for our company, but this can also be in the service business, and Stork can support China to enter quicker to the global economy with a fully-fledged support network. When the country begins entering with regional jets, there are companies in Netherlands with all the expertise necessary to support them and enter more quickly.
On behalf of Stork, the company intends to keep going as we have for the last 182 years. We know where we want to go in a rough sketch, and will refine it along the way, consistently working to improve internal processes to match what the customer wants, to not only be efficient but effective, by adopting typical methodologies such as six sigma and kaizen. As one of the leading companies in the industry, that’s our way to stay competitive, and it’s what Stork expects from its partners as well.
| Company: | Stork B.V. |
| Position: | Chairman and CEO |
| Country: | Netherlands |