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 VIP Interview
Mark King
President and CEO, International Aero Engines
FLUG REVUE: How do you see the current market in the V2500 thrust class?
Mark King: It's strong. It's stronger than we could have hoped for some years ago. I took this job at the end of 2003 when we were just recovering from the terrible events in 2001 and I think the recovery of the market was much faster than we expected. We had to do some fairly significant things in the supply chain to make sure we were capable of dealing with it. We delivered in 2005 probably 30 percent more engines than we delivered in 2004. So we went up from up to 250 engines to 350 engines in 2005. And we sustain that level now. I think we are probably at the best time we ever had marketwise. We certainly delivered at the highest rate ever.
FR: Will it stay this way?
King: At the moment the orders for the A320 family are pretty solid. Airbus does not seem to have any problems filling all their slots, at least for the next two years. I certainly don't see us taking he production rates down for a couple of years. There seems to be a solid market for the next two years. There is nothing to suggest it comes down after that. There are views that say this is a sustainable market because the are certain parts of the world that have not participated in it yet, most notably the US. There is a big replacement market. So there is clearly some potential that this could be a sustainable rate of aircraft production.
FR: Could the V2500 be a 5000 engine program?
King: I think so. That is what we have started to believe. We got 3000 in service as of earlier this year. We have over 1000 engines on firm order. In fact that backlog is getting bigger. We broke trough a 1000 at some point in 2005. We have the challenge for the whole team that while we are delivering engines at roughly one a day we want to take new orders at one a day and at least maintain that backlog. We have been successful in at least doing that. And I thing the backlog at the end of 2006 will be higher than the backlog was at the end of 2005, and that was over a thousand engines.
FR: What is your current market share?
King: By our datum we seem to get more than 50 percent. For the last three years we have consistently taken more of the engine orders than our competitor. We win more of the campaigns. Typically where we can compete - of course we would love to be on the 737 but unfortunately that never happened - we win most airline campaigns, but in terms of engine volume we typically get just above 50 percent market share.
FR: You are facing a large production ramp-up and at the same time moved the European production line from Derby to Dahlewitz. Have you now reached the necessary production rates?
King: The move was done smoother than we could ever hoped. We have a lot of confidence in the German production method and the methodical approach to something like that. It was planned out with meticulous detail. Every milestone was met on time. Then Dahlewitz ramped up production. They are doing between three and four engines a week. The first engine passed tests at the test cell there at the beginning of October.
FR: How many engines do you plan to deliver in 2007?
King: I think it will be a similar number to this year. It is going to be 300 and 350.
FR: From today's perspective, do you think not to participate in the CSeries was a right decision?
King: Only time will tell. We looked at it very closely. The most positive thing we saw out of it was that the partner companies all immediately said: 'Listen, IAE is the route to the market for this type of opportunity.' We were pleased how quickly we got a principle decision to explore the avenue and secondly how quickly our joint engineering teams came up with a solution that would have worked technically for the product. Just with the amount of risk and the uncertainty as to what other application there would be for that engine or elements of that technology we just could not make a business case that had acceptable risk. I do not know if the aircraft program will be launched in the near future, but if it is, good luck to them because they got a good team. We were disappointed that at the end of the day we just could not get the business case.
FR: For what time frame do you foresee a successor to the V2500, and do you expect your shareholders to do it through IAE?
King: The first question is hard, the second question is easy. All the shareholders have been consistent for some considerable time now that their preferred route is IAE. I think we feel pretty secure as a joint venture now – we are going to have 5000 engines and well over a hundred customers. There is a very significant investment over the last twenty years in IAE and its incumbency. When we asked the shareholders last year to invest in a product upgrade they were very quickly willing to do so. All the body language and all the statements make us quite comfortable. What we are seeing now is an acceleration of technology demonstration by all the shareholders. Pratt & Whitney has the geared fan which is a pretty exciting piece of technology. Rolls-Royce have various other engine configurations which they are also looking at. People often say to me 'Are the going different directions?' There is not a need for them to confer at the moment. We always said that one of the fundamental premises of IAE was technology. We have more access to more technology than any engine company in the world. Seeing the technology race beginning for the next generation and seeing what is potentially on the shelf for us to choose from just reconfirms the dynamic is beginning to start for the next generation. At some point these guys will get together with us, with the aircraft manufacturers, and then we decide what we are going to do. As to when, I wish I knew every day because we are making decisions on investment in production and in new product developments for the existing engine, and of course every time you make that decision you ask yourself how much longer is that production run going to be.
I certainly see it difficult for the aircraft manufacturers to stand up and decide they want to shorten a production line which is selling at the highest rate it has ever sold at. It is quite a tough decision. It does not mean they will not make it. We are not expecting an imminent announcement of a new airplane. It is clear when it happens it will probably happen quickly. Something in the market will develop that will trigger it, and it could be a whole host of things. And we have to be ready to go quickly which is why we are so pleased with what the partner companies are doing. They are getting us into a position where we have a lot of option to choose from.
FR: Will the engine be the biggest driver for a new narrow-body aircraft?
King: You will often hear that this is what triggers it. Is there going to be a step-change in engine technology which will make sufficient clear water between the existing and the new product? That is only one of the triggers. There is a whole host of other political or economic things that could happen that could cause the trigger for the next generation aircraft. Therefore I do not anticipate some step-change in technology to trigger the new plane. But is the engine fundamental to the economics: yes!
FR: So with your Select improvement you are making it even harder for a new model?
King: It makes the step-change even harder. But you have to keep improving. We can see a lot of opportunities to improve the existing V2500. And what we are putting into Select - the first set of improvements that will be launched into production in mid-2008 - are technologies that are pretty well proven and in some case flying already. We can see quite a significant step there – one percent of fuel burn – and a significant lengthening of the time on wing – 20 percent. We are very close to confirming that we will be able to improve the emissions and making it CAEP6 capable as well. The Select One build standard will be a step improvement from the engines currently coming off the production line. Therefore maybe it will extend the life of the current product. Equally that is not for us to be complacent that we may have to do something much more significant for the next generation aircraft.
FR: What would happen if Pratt & Whitney and Rolls-Royce could not agree on the engine architecture?
King: I haven't even thought about that. I think it is hard to imagine.
FR: Could the market sustain three different engines?
King: The customers love competition as they should do. We are not afraid of competition. We compete with one of the toughest competitors in the world. Equally they are realistic in some of the benefits of two as opposed to three. There is a whole host of considerations not least of which is financing. We have recognized how important the leasing companies are in the current market. They are a fundamental pillar in the single aisle market - 30 or 40 percent. People who finance aero planes do not want too many variations of a plane because that makes the whole process more risky and more complex.
FR: Do you see any new application for the present V2500?
King: We always look at some. There is always re-enginening applications . There a couple we are looking at at the moment. You always have to be quite critical where you really can use the existing engine. You have to make small changes which can become big changes. It is not out of the question. There is certainly one we are looking at at the moment which is confidential but it looks like a reasonable opportunity. But I think any new aero plane that comes along will demand a new generation engine, tailored for it.
Patrick Hoeveler was asking the questions
From FLUG REVUE 2/2007
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