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Published: May 14, 2010
Avionics is a combination of the words
"aviation" and "electronics," and that’s exactly what the word
means. It entails all electronic systems used on any aircraft,
whether commercial or military, fixed-wing or helicopter.
Avionics encompasses communications, weather detection,
collision avoidance, engine and fuel control displays - all the
blinking lights that a pilot sees and must interpret in the
cockpit.
Avionics as a term and as a distinct field didn’t take hold
until the early 1970s, as an outgrowth of the increasingly
sophisticated military aircraft developed to fight the Cold War.
As is often the case, these military innovations spun off into
the commercial sector. Until then, radios, radar, displays, and
radio navigation aids were individual and often mechanical (that
is to say, non-electronic) systems. The explosion of computer
technology in the early 1970s made it possible to turn gauges
and dials into electronic systems - hence, avionics.
According to G2 Solutions, an aerospace consulting firm based in
Kirkland, Wash., avionics sales in the air transport market are
projected to reach nearly $10 billion in 2010, representing an
average annual growth rate compared to last year of +4.6%. The
industry is expected to at least equal that rate of growth next
year. G2 asserts that the avionics sector remains the most
innovative in aviation, in terms of new technology adoption and
experimentation.
Notable case in point: Harris Corporation (NYSE: HRS), an
international communications and information technology company.
Harris helps end-users contribute to product development by
maintaining a transparent supply chain that fosters
collaboration and integration. This “groupware” approach to its
supply chain ensures that each of the vendors contributing to an
avionics system produces standardized modules that can be easily
integrated. Hence the company’s oft-repeated motto: “Right item,
right supplier, the first time.”
By taking this approach, Melbourne, Fla.-based Harris provides
greater avionics affordability and more frequent technology
updates. It has made Harris a world leader in advanced avionics
for military aircraft.
New avionics technologies envisioned by major aircraft
manufacturers such as The Boeing Co. (NYSE: BA) are
developing at an exponentially faster rate because of the
efficiencies of the Internet-connected workspace.
As the avionics industry emerges from its slump this year,
Harris is in a strong position to benefit. The company’s
products include combat radios, fighter-jet cockpit
communications and command-control systems for military
planners.
The company has five divisions: microwave systems, broadcast
communications, network support, radio communications, and
government systems. What gives Harris a decided edge is that
only half its sales are commercial, with the other half to
government agencies including the FAA and the Pentagon. This
dichotomy helped the company survive the brutal slowdown in
commercial aviation, which is now finally showing signs of
easing.
The continued growth of military spending
in 2010 will boost military avionics, which is Harris’ forte.
According to G2 Solutions, the world’s air forces are at various
combat aircraft replacement and upgrade cycles, which is good
news for the avionics market.
Most NATO countries are in an active replacement phase for their
1970s designed aircraft, while emerging nations such as India
will evaluate entirely new aircraft sources in the near future.
More than 5,000 combat aircraft will be entering service
globally during the next decade, with a peak of 524 deliveries
in 2014.
The military avionics market also will be fueled in 2010 by
expanding airlift operations worldwide and the corresponding
need for new communication, navigation and surveillance
equipment that allow military aircraft to share airspace with
commercial aircraft - again, Harris’ area of expertise and a
market that it dominates.
The large number of smaller players in the avionics market makes
it difficult to pinpoint exact
market share, but Harris is most certainly a major player in
the military avionics market. The company produces cockpit
communications systems for the F-35 Joint Strike Fighter, F-22
Raptor stealth fighter and other big-ticket military aircraft
programs. The military jet fighter market alone generates about
$17 billion a year in avionics demand.
Harris earned $166 million, or $1.27 per share, in the third
quarter ended April 2, compared with $136 million, or $1.02 a
share, in the year-ago period. The company’s third-quarter
bottom line was lifted by orders for the company’s radios
and military cockpit technologies. Orders in the pipeline point
to continued strong growth in the fiscal fourth quarter, and
with a
price-to-earnings ratio (P/E) of 18.6, the company remains
reasonably priced compared with its peers.
Harris plows a considerable amount of its resources into R&D,
maintaining a staff of 7,000 engineers and scientists, out of a
total workforce of 15,000. Harris grew its total revenue by +9%
to $5 billion in fiscal year 2009; not surprisingly, $738
million of that revenue came from new products. Harris’
investment in technology innovation will continue to pay off for
the company and its investors, this year and beyond.
-- John Persinos
Contributor
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