Rainer Ott, Diehl Aerosystems
Release Date: 2009-03-24
A recurring theme in the industry is the need for consolidation and restructuring of the overall German aerospace supply chain. Looking at the trends within EADS and Airbus, there has to be slight concern from a German perspective. What are your thoughts on the matter?We gear our business first and foremost to the needs of our customers, primarily Airbus and Boeing. Clearly it is in the interests of aircraft manufacturers to coordinate their processes with just a handful of top-ranking systems providers. These partners then assume the role of organizing the supply chain. This model represents a new approach. If we compare this with the way things were two or three years ago when Airbus, for example, had hundreds of suppliers, it is apparent that only a few are set to remain in the future. For us, this means that the supply chain in Germany must be adapted and restructured to accommodate these changing conditions. One model might, for instance, involve several small, highly competent suppliers, whose services remain essential to Airbus and Boeing, being organized and coordinated by two or three major suppliers, such as Liebherr and Diehl Aerosystems. Both of these companies are global players with the right experience and skillset, and both are also suppliers to Boeing, Embraer, Bombardier, etc.
Diehl Aerosystems’ strategy is to continue to position itself long-term as a global player and to reinforce and develop its role as a key partner to Airbus and Boeing. To achieve this goal, we must continue to expand our capabilities and move into the area of cabin integration. It is in this context that Diehl Aerosystems acquired the Airbus plant in Laupheim – renamed Diehl Aircabin – in October 2008 and is one of the key suppliers for the A350XWB. We are looking at other potential acquisitions with the aim of broadening our product offering in the fields of electronics and avionics, both from the perspective of Diehl Aerospace and with regard to Diehl Aircabin. Consider our current portfolio, enhanced by our partner, Thales: Thales and Diehl Aerosystems together represent the second largest supplier for the A350XWB, which is a phenomenal success.
Let’s return to Airbus. Its Center of Excellence for Cabins is located in Hamburg. From this base, the company manages its entire German supply chain to source all of the components required for the cabin area. It goes without saying that Diehl Aerosystems – a significant supplier for the Hamburg operation – is keen to see cabin production continue there and the Center of Excellence remain in this location. We will continue with the process of evolving into a cabin integration partner. At present, Diehl Aerosystems is a competent supplier of floor-to-floor modules and lining components for both A380 and, in the future, A350XWB cabins. By seeking out suitable partners, we are able to integrate modules that are not yet included in our portfolio into our process, and thereby pave the way for supplying the entire cabin. Filling the gaps in the product and skills portfolio of Diehl Aerosystems is a major milestone for 2009.
How will Diehl Aerosystems be able to compete effectively considering there are more established and well-rounded overall providers of cabin interiors?
When we compare ourselves to our main competitors, we see major benefits in Diehl Aerosystems’ ability to combine – to synergetic effect – the expanding electronics and avionics know-how of our subsidiary, Diehl Aerospace, with our cabin design abilities and knowledge of the diverse electronics requirements in the cabin. Diehl Aerospace is a well-established and experienced supplier in the areas of avionics and cabin lighting, for example. In addition to leading mood lighting systems, it also supplies the Doors and Slides Management System for the A380, which comprises 16 doors, 16 embedded door controllers, and a central computer unit. Diehl Aerospace also provides IMA (Integrated Modular Avionics) on board the A380, which is used to control a range of cabin functions. These examples alone demonstrate that substantial avionics equipment already forms part of our system portfolio. Diehl Aerosystems in particular also possesses extensive knowledge of electronic applications in the cabin. Our aim is to combine our electronics know-how with our knowledge of the cabin so that we are in a position to offer much more than just a cabin and some cabling; we want to move toward providing a highly sophisticated, modular aircraft cabin that integrates all of the required functions. That’s a unique offering.
Diehl Aerosystems is the global leader in the area of cabin lighting; its equipment can be found in virtually all Airbus and Boeing aircraft. Innovative lighting systems, such as our mood lighting concept, help improve passenger comfort and can also significantly reduce the impact of jet lag. A further competitive advantage can be tapped by combining the skills of cabin and lighting designers; Diehl Aerosystems is able to perfectly harmonize lighting and cabin design and offer an integrated product from a single source. This improves the overall esthetic appeal of the cabin and accordingly the level of comfort that the space offers. That’s what airlines are looking for: Superior, integrated cabin solutions that offer the freedom to personalize the space in sophisticated ways and achieve an optimum cabin atmosphere and appearance in their particular design. In this sense, Diehl Aerosystems is the ideal partner for Airbus and Boeing because our expertise ranges from cabin design, cabin lighting, and additional cabin equipment through to avionics and electronics. This sets us apart from our competitors.
While a decade ago it may have been safe to generate the overwhelming majority of business from major players like Airbus and Boeing, increasingly this is found not to be the case; does Diehl Aerosystems have a similar logic of client base diversification?
Diehl Aerosystems generates around a quarter of its sales in the military sector, for instance from flight computers for the Eurofighter, components for helicopters, etc., which represents a good, solid basis for us. The majority of the remaining 75% of our sales from the civil sector are the result of our business dealings with the two major aircraft manufacturers. Because Diehl Aerosystems has been a recognized and proven partner to Airbus for many years, our partnership with Boeing is developing very rapidly. The Boeing 787 Dreamliner will be the first passenger aircraft to be equipped exclusively with LED lighting and Diehl Aerosystems is supplying the lighting package. We are also collaborating with Honeywell to develop the flight control computer for the Boeing 787 Dreamliner. For many years now, we have also been supplying components for other Boeing aircraft, mainly lighting elements. These examples are evidence of Diehl Aerosystems’ aspirations to build an equally strong partnership with Boeing. That said, Embraer and Bombardier, who we also count among our customers today, will continue to be important to us.
A company you mentioned, Liebherr, has made a clear strategic choice in committing to operations development in the BRIC markets which it feels will be driving future global growth. For example, its joint venture in Russia, and also activities with the ARJ-21, have resulted in receiving several complete work packages. What is Diehl’s competitive advantage as a partner for emerging aircraft programs?
Diehl was able to gain considerable experience of cooperating with Russia around ten years ago. From our perspective, the time has come to take a fresh look at the BRIC markets and find ways to re-enter them. Leading companies in the industry already know Diehl Aerosystems very well and maintain regular contact with us. In the meantime, however, our main focus will be the development programs for the Airbus A350XWB and the Boeing 787 Dreamliner. To talk numbers briefly, Diehl Aerosystems has invested or will invest more than €160 million in development within these projects and also has major involvement in the A400M, whose current situation is leaving many suppliers facing considerable challenges. With these factors in mind, we must avoid overdiversifying our skillset and instead focus on our core competencies. This is motivating our current strategy to focus principally on large commercial aircraft, while keeping an eye on developments in China, India, and Russia so we can become involved if we so choose. Particularly in the Chinese market, we see potential for raising our company profile. Our aim is to foster a perception of Diehl Aerosystems befitting its position in Europe and the USA. To this end, we’d like to explore the possibility of custom projects in connection with our A350XWB development programs and the Chinese 150-seat aircraft planned for the future.
The two German-market champions, so to speak, are diversified, very historic, and family-owned companies. Is there a noticeable difference in going abroad and conducting business as a family-owned company?
While they quickly spot the benefits themselves, it usually takes a little time for customers outside of Germany and Europe to appreciate that the benefits of family-run businesses can be ascribed to their ownership structure. The Diehl concern is a company that does not necessarily pour its energy into maximizing profits. We are much more interested in achieving sustainable growth with reasonable profit levels. Furthermore, our company enjoys a reputation as being reliable and competent. These are the factors that come to the fore in family-run businesses and that the customer takes notice of. We attach great importance to upholding our reputation.
From a Diehl perspective, what are your overall thoughts on the 150-200 seat aircraft that COMAC in China is currently planning and soliciting proposals for?
Diehl Aerosystems is keeping a very close eye on the Chinese market and monitoring developments with a keen interest. We are on the lookout for reliable and significant partners and system suppliers as well as for resources for composites, electronics, and software. Diehl Aerosystems is taking the same approach in India, where we currently have over 100 employees working for us successfully in the areas of software and engineering. We see China as both a market and a supplier of resources.
When CAAC was looking for suppliers, they wanted those who were perceived as having a European product. The difference this time around is that they are looking for suppliers that certainly have a Chinese face as well. In what direction does Diehl Aerosystems intend to go? You identified software as an area of interest in India, but in China how would you incorporate or develop local resources to display a long-term commitment?
We can realize long-term commitments either by seeking a joint venture with a reliable Chinese partner or by establishing a presence in China made up entirely of our own ranks. Diehl Aerosystems will definitely place emphasis on the Chinese aviation market. We have already established a presence in Tianjin, where we are providing final assembly line support for Airbus. This location will be the base from which we coordinate our activities and implement our strategy.
A recently released management consulting survey showed that companies with global operations and a global footprint with centralized R&D have poorer returns compared to companies with a globally spread out R&D infrastructure. What are your thoughts on these findings?
It’s too early to take a definite position on this one. While Diehl Aerosystems has established a good basis in China by providing final assembly line support in Tianjin, we are very much in the early stages. Looking to the future, we intend to expand our skillset in this location. It would be conceivable to establish a facility there, for example to produce hardware, software, and systems components for the Chinese market. We are definitely willing to exploit and transfer our knowledge. The issue of protecting our IPR (intellectual property rights) also has a major bearing here. As a basic principle, however, we are not interested in tapping cheap skills and resources, but rather in creating competent structures that are able to satisfy the needs of the market.
Many people are concerned with IPR protection, but some aren’t, arguing that as long as innovation continues, the copiers will always be one step behind. What are your thoughts on this idea?
That is correct. If we assume, for example, that in the avionics sector it costs €100 million to develop a flight control computer with the relevant hardware and software, you can imagine that it’s not particularly easy to copy work at this level. Diehl Aerosystems is certain that it will take around five to eight years for someone to get to the stage where they can copy the development of a system for a Chinese aircraft. By which point, of course, we’ll already be another step ahead.
What is your final message to IBD readers on Diehl’s new and growing presence in China?
Diehl Aerosystems will develop its presence in the Chinese market. However, we will not focus solely on identifying resources for composites, electronic equipment, and software. Instead, we will endeavor to establish sustainable business relationships with competent and reliable partners to become a recognized systems provider for Chinese aircraft manufacturers.
| Company: | Diehl Aerosystems |
| Position: | President of Corporate Division |
| Country: | Germany |