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Nacelle Maker Lands a Big Market Share

About a year after United Technologies Corp. acquired Goodrich Corp., the UTC Aerostructures division is busier than ever, churning out nacelles for the world’s largest aircraft makers.

Nacelles are the aerodynamic housings surrounding jet engines that contain, among other things, thrust reversers used when planes land.

As Marc Duvall, the president of UTC Aerostructures division said, “It’s not an easy product to design.”

To better understand the complexity and detailed craftsmanship that goes into these machines, Duvall compares them to custom-made Armani suits.

“Virtually every nacelle we make is customized to suit the jet engines,” he said.

Any variation on an engine results in remaking the entire nacelle. For example, the Boeing 787 Dreamliner comes with either a General Electric or Rolls Royce engine. That means UTC has to make two systems to fit the different engines despite the engines being part of the same model aircraft.

New Aircraft Demand

Spurred by the making of new aircraft by Boeing Co. (NYSE: BA), Europe’s Airbus, Brazil’s Embraer SA (NYSE: ERJ) and Canada’s Bombardier Inc., the UTC Aerospace group — in which Aerostructures is one of 14 divisions — did about $13 billion in annual sales last year, and that figure will get much larger in the near future.

Just for one program, the high-profile Boeing 787, Duvall said his division will make about 150 nacelles this year and about 250 next year. For the largest volume program, the Airbus A-320, the number produced this year will be about 1,000, he said.

Revenue From Maintenance

All those systems are sold with 10- to 15-year maintenance agreements that generate about 40 percent of the Aerostructures division’s revenue; the remainder comes from producing the systems.

Last year, UTC reported net sales of $57.7 billion, ranking it as the 48th-largest corporation in the nation, and the 73rd-largest public manufacturer in the world.

“We are now the largest equipment supplier in the aerospace industry,” Duvall said about UTC’s Aerospace division, which also includes Hamilton Sunstrand. The latter business, a maker of aircraft electronic control systems, maintains a small presence in Kearny Mesa.

While Southern California’s manufacturing companies have suffered massive employment contraction in recent decades, particularly those connected to the defense industry or in legacy industries such as apparel, the type of high-tech products made by UTC and at its plant in Chula Vista aren’t easily duplicated.

Loren Thompson, an aerospace analyst with the Lexington Group in Arlington, Va., said the type of manufacturing the company does “is not metal bending anymore. It involves very sophisticated physics and materials processing. … It’s more like high-end machining and engineering things to very fine tolerances.”

Unlike many corporate acquisitions where buyers consolidate operations and cut lots of jobs, the impact felt locally from the UTC-Goodrich combination has been minimal, Duvall said.

The Business Is Hiring

Some 40 employees were laid off last year, and about 150 took voluntary retirement packages this year, but for the most part, the business is hiring.

“Right now, we have 250 openings and across all types of positions,” Duvall said, noting that the Aerostructures division has about 2,500 in Chula Vista and about 6,500 people globally.

Duvall points to a timeline of the business that traces its roots to 1941 when founder Fred Rohr moved the aircraft company to Chula Vista from downtown San Diego. It soon became a major supplier to manufacturers producing the B-24 bomber and then military jets.

But the business didn’t always thrive, and Rohr nearly went bankrupt in the early 1990s as the commercial airline industry cut way back on orders.

Things have been moving in the opposite direction in the past few years, Duvall said, with the business winning huge contracts with Boeing and other major aircraft manufacturers.

“We kind of won the Super Bowl in the last five years, winning these programs, and seeing the growth trajectory that we’re on,” he said.

Yet the recent success won’t let Duvall stop reminding UTC’s many younger employees that they cannot afford to get complacent.

Lean Manufacturing

“This isn’t a guaranteed gravy train here,” he said. “If we don’t continue to perform and drive out waste, and do lean [manufacturing processes], then someday the business may return to that [near bankrupt] position.”

Scott Hamilton, managing director of Leeham Co., a Washington-based aviation consulting firm, said many airlines are expanding their fleets due to increasing passenger projections, which bodes well for jet manufactures and their suppliers.

“It’s like a food chain,” Hamilton said. “The airlines have a voracious appetite that the [original equipment manufacturers] have to fill, and in turn, all those in the supply chain have to fill the appetites of the OEMs.”

UTC has two other main competitors in the nacelle business, but thanks to the recent contract wins, it’s about to gain market share, Duvall said.

“We have about 25 percent of the market share today, but if we go out to 2016, we’ll be at about 40 percent of the market.”

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