CEO 360 Degree Perspective
Aerospace & Defense-2009
We Accelerate Growth

Take Aways for Participants
Top 3 Take-Aways:
1. This is an A&D trough not a valley
2. There are no market segments that are immune to the
economic conditions, but there are sectors and regions
that are having fewer effects
3. Some very basic changes in market philosophy requires
changes in market strategy
2
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Aerospace & Defense Markets
Comprehensive Industry Coverage
C4ISR
C4ISR
Homeland
Homeland Military Aviation
Military Aviation
Security
Security
Aerospace
Aerospace
&
&
Defense
Defense
Federal Budgets
Federal Budgets Commercial
& Programs Industry
Industry Commercial
& Programs Participants & Aviation
Aviation
Participants &
Competitors
Competitors
3

The CEO’s Perspective of the Complex Business
Universe
4

Economic Perspective:
The Complex Business Universe
Aerospace &
Aerospace &
Defense Industry
Defense Industry
Economic
Economic
Environment
Environment
Airline Travel off Significantly
High, but not Historically High, Fuel Prices
Credit Markets are in Shambles
Shift in Military Procurement
Continued Robust Defense Spending in the U.S
Source: Frost & Sullivan
5

Economic Perspective:
Primary Economic Challenges Impacting A&D Industry Growth
Competing
Competing
National Primary
National
Budget
Budget Challenges
Priorities Impacting A&D
Priorities
Industry Growth
Market
Market
Maturity
Maturity
U.S. market imbalance
U.S. market imbalance
Current
Current
Spending
Spending Dominance of aafew large
Restricts
Restricts Dominance of few large
firms
firms
Development
Development
Reduced government R&D
Reduced government R&D
Source: Frost & Sullivan
6

Global Perspective:
The Complex Business Universe
Demand for Engineering Skills
ITAR Restrictions
Offset Schemes
Restricted Spending
Aerospace & Defense Industry
Aerospace & Defense Industry
Global Environment
Global Environment
Source: Frost & Sullivan
7

Global Perspective:
Technology and Services Continues to be a Challenge
Limits flexibility
International Traffic in Arms Regulations and markets
Firms bear costs of
R&D Spending Limited technology/
product
development
Projects delayed,
Science & Engineering Funds Restricted cancelled and
costs increase
IT investments
Global Production is Challenging Project helps mitigate
Coordination effects
8

Integrated Industry Perspective:
The Complex Business Universe
Increased Use of COTS
Need for Multiple
Technologies
Unrealistic Estimates
and Immature
Technologies
IDIQ
Contracting
9

Integrated Industry Perspective:
Aerospace & Defense Industry Cross Pollination
Testing & Measurement
Aircraft and
Health Care Automotive
• Engines
• Electronics • Trauma • Hybrid Power
• Materials • Medical Evacuation • Stronger, Lighter
• Fuels • Blood Clotting Materials
• On Board Diagnostics • CBRN Protection • Stealth
• Wound Care • Avionics and
Displays
COTS AND COMMERCIAL INNOVATORS MATURE PRIME
BASIC RESEARCH
PROVIDERS ANDVENDORS
MANUFACTURERS CONTRACTORS
• SDR • Vehicles
• FPGAs • Communications
• Materials • Embedded computers
• Engine Parts Systems
• Alternative Fuels and cryptography
• Strategic Materials • IT Architectures
• Electronic • Robotics
• Language & Culture • Training &
Components • Multi-Spectral
• Explosives Simulation
• Communications Imaging
• Oils and Lubricants • Health Care
• Optics • Super Computers
• Ship Building • Construction
• Self Healing
Networks • Logistics
Source: Frost & Sullivan
10

Competitive Perspective:
The Complex Business Universe
More
European Congress may Asian/Middle
Firms in Limit Acquisitions Eastern HLS
the U.S. Airlines Market
Off-shores
11

Competitive Perspective:
Cooperation in the Market
Partnering for Success
Continued large Systems Integrators, but challenged by Sec. Gates
Logistics, integration, maintenance, and training all growing
Local firms overcome labor, tax, security, and use restrictions
Governments want teams, including local investment/labor for major contracts
12

Technology Perspective:
The Complex Business Universe
Dependence on Small Innovative Firms
Data Fusion, IPv6 and SDR driving improvements
Legacy standards still required
Few clear electronic standards
Electronic Heat Generation Problems
“Green” Initiatives
Aerospace & Defense Industry:
Aerospace & Defense Industry:
Increasing adoption of Commercial
Increasing adoption of Commercial
Technology Standards
Technology Standards
Source: Frost & Sullivan
13

Technology Perspective:
A&D Challenges
Industry Wide Aerospace C4ISR Homeland Security
• Alternative Fuels • Regional Carrier • Unmanned Vehicles • Communications
• Increased Competition Expansion • COTM Interoperability
• Legislative Scrutiny • Asian Competitors • Commercial SATCOM • Lack of Central
Leadership
• Political Change • Hazmat • Increasing Budgets but
Fewer Programs • Unclear Budgets and
• Training and Simulation • Parts Shortages
Programs
Advances • Supplier Alliances • LSI Changes
• Poor Actual Spending
• Navigation Technology • Expanded TEs
• Immature Technologies
Upgrades • Multi-level Access
• Cap and Trade Programs • Embedded Crypto
• New Procedural Solutions
14

Customer Perspective:
The Complex Business Universe
Acquisition
Airline shifts from
NCO key to recovery will “cost-plus” to
fighting need “fixed-price
terrorists improved incentive” will
operating restrain
efficiencies
margins
Contracts will be
fewer, but more
involved!
U.S. Ground Forces
Reset is Priority 1
15

Customer Perspective:
Growth Opportunities
Defence Market Commercial Aerospace Market
Continued Demand for New Aircraft
Focus on the Key Growth Markets
in Asia and Middle East
Growth Opportunities
U.S., Eastern Europe, Mid East Will provide industry participants with
opportunity
Growth of the Key Markets Segments High Age of the U.S. Aircraft Fleet
in Operation
Tactical Communications, Intelligence, S&R Large investments by airline companies to
support passenger traffic growth, eventually
Major Technology Trends Growing Production of Aircraft in
China
COTS, Unmanned Systems, Embedded Crypto,
Need for investments in modernization of
Signal Processing
production facilities and efficiency improvement
Demand for Services Stable Growth of MRO Market
Engineering, Integration, Project Management, Stable MRO market and increasing competition
Maintenance, Training forces search for cost efficient solutions
16

Best Practices Perspective
Best Practices in A&D
Apply mature technology to new
 Apply mature technology to new
problems
problems
Apply new technology to old
 problems technology to old
Apply new
problems
Partner with established
 Partner with established
integrators
integrators
 Seek out small innovative firms
Seek out small innovative firms
Pool “services” skills for specific
 Pool “services” skills for specific
projects
projects
 Expand “services” portion of your
business “services” portion of your
Expand
business
 Focus on regional demand
Focus on regional demand
 Forward deploy with customers
Forward deploy with customers
 Take advantage of DoD
Take advantage of DoD
interoperability certification
interoperability certification
Source: Frost & Sullivan
17

Future Scenarios
From Proprietary From Program
Systems to Open Competition to
Architectures Program Team
Building
A&D
Industries:
Effective
Growth
Strategies
Integration, Providing End
Training, and Users Practical
Operational Solutions
Services
18

Future Scenarios
Sustainable
Sustainable
Aerospace deliveries down, but rebound in 2-3 years
Aerospace deliveries down, but rebound in 2-3 years Growth
Growth
Poor Credit Market affects Aerospace, but signs of loosening
Poor Credit Market affects Aerospace, but signs of loosening
Defense firms limiting commercial forays, but future bright
Defense firms limiting commercial forays, but future bright
Focus on low-intensity warfare drives spending changes
Focus on low-intensity warfare drives spending changes
Ground forces funding share will increase the next few years
Ground forces funding share will increase the next few years
Stable funding for basic equipment and services
Stable funding for basic equipment and services
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Questions and Answers