Analysis of the Aerospace & Defense Industry

2012 University Of Nottingham, Business School

Group Management Project – MBA (2011-12)

Amitkumar Maity Sangeetha Bhat Joshna Tangri

Analysis Of The Aerospace & Defense Industry – Tata Consultancy Services

Contents Acknowledgement...... 6 Introduction – Objectives ...... 7 Reasons for choosing the topic ...... 8 Methodology ...... 9 Overall Project Approach ...... 9 Approach to formulate a strategy for TCS ...... 9 Scanning the Environment ...... 10 Porter’s Five Forces ...... 10 Findings ...... 11 Industry Analysis...... 12 Defence Market Current Scenario ...... 12 European Markets ...... 12 The UK ...... 12 Market Size and Sub-sectors ...... 13 Sub-sectors ...... 13 Major world markets for Aerospace and Defence ...... 13 Defence Market size and Markets Share of Major players ...... 14 Industry Concentration ...... 14 Opportunities in the global A&D market ...... 15 Information Technology and Cyber security ...... 15 Emerging Markets ...... 16 Exports lead the way/ Major Deals ...... 16 Other Dominant Trends ...... 17 M&A deals soar high ...... 17 Defence divestures become more common ...... 17 Challenges in the global A&D market ...... 17 Other Issues ...... 17 Industry Risk ...... 17 Shortage of Capital and human resource: ...... 17 Profitability: ...... 18 Liquidity ...... 18 Intellectual Capital Loss ...... 19 Pension Cost ...... 19

Conclusions/ Recommendations ...... 19 Possible Business and IT solutions that can be offered ...... 20 Possible Engineering Services ...... 20 Limitations of PESTEL and Porter’s Five Forces ...... 21 Critiques on PESTEL Analysis ...... 21 Critiques of Porter’s 5 forces...... 21 Literature Review ...... 22 Design of the study ...... 23 Resource Based View (RBV) ...... 24 Study – Comparison of Rolls Royce and Meggit PLC ...... 27 Rolls Royce ...... 27 Products/Services to the Government ...... 27 Effect of Defence Cut ...... 28 Analysis _Rolls Royce ...... 28 Values and Culture ...... 28 Strategy ...... 29 Scale ...... 31 Order Book ...... 31 R&D Spending ...... 32 Opportunities within the market ...... 32 Core Competence – Rolls Royce ...... 33 Trent Engines...... 33 Competitiveness ...... 33 Technology ...... 34 Other Affiliation Programmes ...... 35 Technology Framework...... 35 Capabilities Perspective ...... 36 Resources ...... 36 Research Centres ...... 37 Financial Resources...... 37 Human Capital ...... 38 Intangible Resources – Relationships and Innovation ...... 38 Architecture...... 38 Supplier Partnerships ...... 39

Joint Ventures...... 39 Reputation ...... 40 Innovation ...... 40 Diversification of resources into new markets ...... 41 Resources – VRIN Framework ...... 42 Meggitt PLC ...... 43 Introduction ...... 43 Government Business ...... 43 Effect of Defence cut ...... 44 Scale ...... 44 Order Book ...... 44 R&D Spending ...... 44 Values and Culture ...... 45 Strategy ...... 45 Core Competence ...... 46 Resources for Dynamic capabilities ...... 47 Technology ...... 47 Architecture...... 48 Innovation ...... 50 Resource Based View – VRIN Framework ...... 50 Resources to be applied to other markets ...... 51 Comparison of Rolls Royce and Meggitt ...... 51 Conclusion from RBV Analysis ...... 53 Limitations of RBV framework ...... 53 Strategy Formulation to remove RBV Limitations ...... 54 For Rolls Royce ...... 55 For Meggitt...... 56 Company Analysis ...... 57 Finmeccanica- Case Study ...... 57 Challenges ...... 57 Recommendations ...... 59 QinetiQ- Case Study ...... 60 Business Strategy ...... 60 How objectives are achieved- ...... 61

Challenges- ...... 61 Opportunities ...... 62 Change for the Future Prospects- ...... 62 Recommendations ...... 63 Disadvantages of secondary data ...... 64 Our Learning from the project with TCS ...... 65 References- ...... 66 Appendix ...... 75 Analysis of the Industry (PESTLE) ...... 75 Political Factors impacting the Industry ...... 75 Economic Factors Impacting the Industry ...... 76 Sociological factors Impacting the Industry ...... 76 Technological factors impacting the Industry ...... 77 Environmental Factors ...... 78 Legal Factors...... 78 Porter’s Five Forces ...... 80 Barrier to Entry ...... 80 Threat of substitutes: Low ...... 81 Bargaining Power of Suppliers: Moderate ...... 81 Bargaining Power of Buyers-Moderate ...... 82 Rivalry – High...... 82 TCS Submissions 83

Acknowledgement

We would like to express our deepest gratitude to our Supervisor, Prof. John Colley for his excellent guidance, practical approach, patience, and undying support while he provided us with an excellent atmosphere for carrying out the management project.

We would like to thank Mr Amitkumar Shah who presented us with this opportunity to work for Tata Consulting Services (TCS) where we have learnt about the company’s work culture & procedures that are carried out in the United Kingdom. We appreciate his full involvement in the project and his willingness to constantly review and make suggestions in our best interest of achieving a detailed and meaningful report. He instilled confidence in us in commencing this vast project.

Mr Shah’s contribution has been remarkable as he has provided us with exposure to the current Aerospace and Defence industry through meetings with Professionals such as Mr Paul Ferguson, The Business development Manager at TCS from whom we have acquired valuable suggestion and insight about the global aerospace and defence market.

We are highly indebted to Nottingham University Business School that served as a platform and the staff for their guidance and constant supervision in providing necessary information regarding the project & also for their support in completing the project. We would like to extend our sincere thanks to all of them.

Introduction – Objectives

This is a group management project which will fulfil the objective proposed by Tata Consultancy Services (TCS) - Strategic Analysis of Aerospace and Defence Industry.

TCS wants to offer its services to the Aerospace and Defence sector (A&D) particularly in the UK and European markets. To achieve this objective TCS wanted to conduct a detailed analysis of the Aerospace and Defence sector and some of the major players in this sector. The companies that TCS wanted to study are -Rolls Royce, Meggitt, Cobham, QinetiQ, GKN, Finmeccanica, Babcock, and Bombardier. TCS wanted to analyse each of these companies on various perspectives such as strategic and financial (R&D, investment plans, Mergers and Acquisition plans).

Analysis of these companies in the backdrop of trends in the A&D industry would ultimately enable us to advise TCS on various opportunities that available in the A&D industry space in Europe, particularly the UK. This in turn would enable TCS to formulate a strategy to enter the European A&D market where currently it has no presence. Furthermore, we would also advise TCS on any cross selling opportunities that are available in the A&D space within Europe.

Overall, once we perform the above analysis, we would be able to recommend and suggest TCS on the following

- Identifying the challenging factors and opportunities that are present in aerospace and defence sector. - Evaluating and identifying various business challenges faced by the companies, where TCS can offer services and solutions. - Analysing the company in terms of future strategy and drivers will enable us to understand the outlook of the company in the near term. - After evaluating all the above points, a strategy for TCS to enhance its business solutions offerings within the A&D market in Europe and the UK.

For literature review we have chosen Resource Based view (RBV) as a tool to analyse the following : ’In the light of defence cuts that are impacting global aerospace and defence market; can a company sustain its competitive advantage solely based on its resources? - An RBV perspective’’.

As part of the study we will analyse two companies Rolls Royce vs. Meggitt (emerging player) in aerospace and defence sector through the specs of RBV.

The main objective of this literature review is to see can these players sustain their competitive advantage in the face of budget cut. Currently Rolls Royce is one of the leading players with 2.67% of Global aerospace and defence market as of March 2012. (PWC, 2012) Meggit is an emerging player currently holding 0.34% of Global aerospace and defence market. (PWC, 2012)

Reasons for choosing the topic

Global economies are experiencing budget cuts and austerity measures in various sectors (including defence) due to unemployment and general lull in business. Under such condition it becomes a challenge for all the firms to sustain competitiveness. Some companies consider such economic period as a time when revenue of the firm will go down and wait for right time to act. Some companies consider this as a suitable time to implement developmental and restructuring plans to prepare them for economic upturn.

This attracted our attention where we could relate our company project as a live example of this economic movement. Our team is performing the analysis of Aerospace and defence sector for Tata Consultancy Services. We decided to consider Rolls Royce, the second largest service provider in defence sector and Meggitt the emerging player of this sector. The reason behind selection of these two firms is to compare the major player and emerging player in terms of their core competencies and strengths and to analyse their strategies by which they are planning to bring about growth and profit under such unfavourable condition.

In order to continue with the analysis and derive the conclusion from it we have used Resource Based View framework where our focus is to find out the main resources and capabilities each firm has and how it is helping them to compete and sustain in the present economic condition. We have taken into consideration the financial, technical, human skills and operational aspects for both of the companies and created VRIN framework which indicates the unique strength each firm enjoys and how company has used it till now to develop its business. The main purpose of this analysis is to find and compare how a big firm and a relatively small firm gets affected by unfavourable changes in their industry sector and what are the factors that helps a big company and emerging company to sustain and increase the profit. This is more about researching how much of a company’s competitiveness is driven by sheer scale and how much by its core competence, innovation, R&D spending etc.

Further we have taken into consideration the limitations of RBV analysis and have used Strategic Performance framework where we have suggested future development scope for each firm. Under

8 this section we have searched for future trends that would be beneficial for industries in aerospace and defence industry to increase their revenue and market size. Thus we arrived at some trends and scope for development in future which these companies can focus on and exploit them using the resources and investment plans which the companies already possess.

Methodology

Overall Project Approach

The study would be conducted on the basis of qualitative data (secondary sources). We would go about gathering the data through various publically available information and university subscribed websites.

In order to go about providing TCS with the needed insights on possible opportunities to enter the European A&D market, research through secondary sources was the appropriate route. The scope for primary research was limited due to the following reasons,

 The project scope with TCS did not entail contacting European A&D companies  Neither the University of Nottingham nor any of the members of the group had any contact with these companies.

Approach to formulate a strategy for TCS

Before venturing into advising TCS on possible business strategy, basic understanding of the external factors that could impact the A&D industry as a whole was necessary. This entailed a detailed understanding of the Aerospace & Defence industry, through various strategic tools for analysis such as PESTLE and Porter’s Five Forces model.

Once the industry analysis is completed it will enable us to find the challenges, threats within the industry. Then we will look at possible opportunities that exist within the industry. Upon completion of the industry analysis we will recommend the opportunities within the industry where TCS can possibly offer its solutions.

After analysing the industry, we would evaluate the eight companies in light of the current trends in the industry. The purpose of that is to analyse these companies to understand their weaknesses and problems in the long haul. We aim to build a business case around the problems of the company after carefully evaluating the current, future strategies, financial performance etc. Furthermore, we

9 seek to understand from publically available sources if the entity has an existing relationship with Tata Group. Any previous business or existing relationship could be leveraged by TCS to evaluate cross selling opportunities within the A&D space.

Scanning the Environment

Evaluating and scanning the external environment in the context of the Aerospace & Defence (A&D) industry is essential in understanding the changes in the competitive environment. (Henry A., 2008). There are various tools available to monitor the external environment, to enable an organisation to understand the trends within an industry and forecast the future direction of these trends. Ginter and Duncan (1990) suggest that the macro analysis acts as an early warning system to predict opportunities and threats, to develop possible responses.

PESTEL analysis is a widely used tool to understand the general environment (cited in Walsh et al, 2005). PESTEL refers to Political, Economic, Social, Technological, Legal and Environmental factors. This tool can be used by organisations to understand the trends in general environment that will ultimately impact a company’s competitive environment (Henry A., 2008)

Political factor evaluates the impact of changes in government policy which might impact the industry. This includes government regulation, taxation policy. Economic factors are interest rates, disposable income, inflation and unemployment. Social factors are generally the cultural changes within the environment that shape consumer behaviour. Advent of new technology, obsolescence can change industry dynamics by allowing new competitors to enter the market and gain market share. Environmental factors have come into the picture only recently, this factor covers environmental issues, regulations as well as stakeholder values.

Legal factors consist of legal factors that impact the industry. These factors include health and safety, equal opportunities, advertising standards, consumer rights and laws, and product safety. (professionalacademy.com,2012)

Porter’s Five Forces This framework analyses the industry from the point of view of an incumbent to determine if a new player should enter the industry (Henry A., 2008).Understanding the competitive forces reveals industry’s current profitability and anticipating competition and profitability over time. (Porter,

2008). The five forces that share competition in the industry are entry barriers, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing players. (Henry A, 2008)

According to Porter a competitive strategy within an organisation should aim to find a competitive position within an industry that an organisation can defend against competitive forces. Their ability to change the industry structure will be in direct proportion to the five forces.

Threat of entry - New entrants come in and desire to gain market share and in turn put pressure on prices, and costs. Low entry barriers restrict the profit potential of an industry. (Porter, 2008)

Threat of substitutes – The industry profitability takes a hit when the threat of substitutes is high (Porter, 2008)

Bargaining Power of Buyers – Powerful customers can change the industry dynamics by negotiating for lower prices, demanding better quality of services (thus driving the costs up). Buyers are said to have negotiating leverage if, (Porter, 2008)

 Only few buyers exist, Purchase volumes required by buyers are large relative to the size of single vendor  If industry’s products are standardized  Low switching cost to change suppliers  Buyers can integrate backwards, if vendors are profitable

Bargaining Power of Suppliers - Suppliers can benefit by charging higher prices and passing on the costs to industry participants. Suppliers are powerful if, (Porter, 2008)

 Supplier group is more concentrated than the industry  Low dependency on the industry for revenue  High switching costs to change suppliers  Products are differentiated (Porter, 2008)

Rivalry among existing competitors - If there is high rivalry among the incumbents then the industry profitability is again limited. Particularly the rivalry can be destructive if it is solely based on price. This is the case when the products are identical products.

Findings

Industry Analysis (For details on PESTEL analysis and Porter’s Five Forces, please refer to the appendix no. 1 and 2)

Defence Market Current Scenario The defence sector remained soft largely on account of defence cuts announced by the US. The industry is challenged by the prospect of sequestration in the US, which could trigger further cuts in defence spending. As the president’s budget forecasted a 1.0% decline in fiscal budget for 2013 and over $500 billion reduced budget spend in the next decade. (PwC, 2012)

The US defence spend accounts for about 53.9% of the global spend. This in turn means that the non-American A&D companies’ business may remain the same or go a little lower. Particularly, cutbacks in some programs could disproportionately affect European companies (Delloite, 2012). This entails higher competition between European and US companies as they plan to tap emerging markets.

European Markets The European A&D market has slowed down considerably in terms of growth, with just 0.6% increase in value in 2010-11 (Datamonitor, 2011).

The UK Given the challenging market environment in the UK, the MoD (The Ministry of Defence) has been encouraging reduced cost base and single source procurement. In the UK the focus of various programmes is focused on maintaining the existing military capabilities at a lower cost. The defence support services market in the UK is estimated to be worth GBP 16 billion per year by 2020, as service led capabilities present future growth opportunities.

The current industry events include the following (PwC, 2012)

 Increased focus on border security and intelligence  Focus on lower cost base and operational efficiencies to survive in a challenging market  Onus on securing more contracts with the UK MOD (MOD, 2012 - “National Security Through Technology: Technology, Equipment, and Support for Defence and Security,” February 2012)  Enhanced focus on M&A (Mergers & Acquisitions) activity  Enhanced data collection and knowledge to negotiate better with procurement agencies

Market Size and Sub-sectors Aerospace and Defence market was valued at $1066 billion in 2010 (Datamonitor, 2011). By 2015 the market is expected to grow at 12.9% from 2010 levels to reach $1204.2 billion.

Sub-sectors

The global aerospace industry can further be sub-divided into commercial aircraft and defence.

Within the industry defence accounts for about 74.2% of the overall market. (Datamonitor, 2011)

Major world markets for Aerospace and Defence Countries in the US and Europe are the dominant markets. America accounts for little more than half of the global market revenue. Developing nations like China, India, Mexico and Brazil are emerging as leading markets. (Wordpress, 2012)

Defence Market size and Markets Share of Major players Defences market (excluding maintenance revenue) was valued at about $677 billion in 2011. (PwC, 2012). According to PWC the Market Share of top-5 players in the market is as follows

Industry Concentration Market Share of Top-5 players alone represents 36.5% showing a rather concentrated share among few industry giants.

Opportunities in the global A&D market

Information Technology and Cyber security

 Although the military budgets are cut worldwide, the military is investing heavily on information technology. There is scope for information systems to store information and enemy tactics. IT solutions for real time information processing and management for strategic decision making.  Cyber security is another area where governments around the world are investing into. Cyber security market was about USD 63.70 billion in 2011, Market is expected to grow at a CAGR of 11.3% to reach USD 120.10 billion by 2017. UK Support Services Market is estimated to be 16 billion by 2020.  Unmanned Aerial Vehicles (UAV) demand is high; the global market is expected to grow exponentially to USD 86.50 billion in next decade. Globally the market is expected to grow 4.28% till 2015 (7.26 billion). The US budget allocated USD 2.50 billion for additional UAV Key Players will be AeroVironment Inc., BAE Systems plc. Israel Aerospace Industries Ltd., The Boeing Co., etc.  Other defence segments that are in demand for national security priorities are cyber- security, satellites, missiles and nuclear defence. With China leading the way, Informatized war” is an integral component of defense tactics. (qfinance.com,2012)

Emerging Markets

Defence companies have started to focus on growth markets of India, Brazil, Middle East and South East Asia. Although, the entry barriers in these countries are tricky. Frost and Sullivan (2012) predict that Asia’s overall budget will account for 32% of the defence spending worldwide by 2016, up 24% from 2007. On the other hand North American share is expected to fall from 39% to 29%.

Exports lead the way/ Major Deals

- Much of the increase in defence exports has been supported by growing military power in Asia as China is enhancing its military power as tension between North Korea and South Korea escalates. In 2011, the defence export deals increased to $327 billion, in terms of backlog. With growth of emerging economies, the opportunity for defence exports has more than doubled from 2006 till 2010. Some of the major industry deals include,

 Saudi Arabia has orders on 84 F-15s and 70 upgrades, worth $30 billion (PwC, 2012) • Dassault Rafale fighters valued at $10 billion were selected by India (PwC, 2012) • Next generation fighter F-35 was selected by Japan, for about $8 billion (PwC, 2012) • Taiwan has order to upgrade F-16 fleet, $6 billion (PwC, 2012) • The United Arab Emirates bought $3.5 billion worth of THAAD missiles (PwC, 2012) • 10 C-17s were bought by India for $2 billion (PwC, 2012) • Turkey confirmed orders for 100 F-35s valued at $16 billion(PwC, 2012)

India particularly remains a growth market, as the country is expected to spend $100 billion on its military in the next decade. Boeing is one of the leading companies that will provide new system to replace India’s old fleet of MiG-21 fighter jets made in Russia. The fighter jets F-18 of Boeing compete with F-16 made by Lockheed Martin, the Russian MiG-35 fighter, the French Rafale (Dassault Aviation), JAS-39 Gripen (SAAB) from Sweden, and the European Eurofighter Typhoon (EADS). (qfinance.com, 2012)

Other Dominant Trends

M&A deals soar high

2011 saw many strategic transactions within the A&D industry. 341 deals worth $43.70 billion were announced in 2011 compared to 332 deals in 2010. At the beginning of 2011 global A&D companies had a total of $49.50 billion in free cash flow. (Delloite, 2012)

Defence divestures become more common As defence cuts loom, most defence companies are forced to focus on being efficient. This in turn reflects a slew of divestures of slow growth defence deals and private equity exits. PwC expects the future M&A activity to grow in 2012. (PwC, 2012). The sector would streamline further as divesture of non -core assets escalates, Delloite also foresees some strategic acquisitions

Defence M&A is likely to be around large spin offs. Furthermore, as the defence budget is expected to fall further the industry is more than likely to consolidate (PWC, 2012). For more information on large deals of 2011, (refer appendix no. 3).

Challenges in the global A&D market  The financial performance of industry players is likely to be challenged on account of lower opportunities for revenue growth (Delloite, 2012)  Cost pressure to remain profitable in the industry are mounting, as companies face margin pressures.  As the industry is likely to undergo more stream lining of its cost structure, mergers and acquisitions activity is on the rise.

Other Issues

Industry Risk

Shortage of Capital and human resource: The risk and obstacles the A&D firms are facing at present scenario is mainly concentrated around capital and human resource.

Long time lag exists between the manufacturing and final sales. Thus, there is an inherent risk of order cancellation and a consequent sales backlog that could arise in an economic downturn. Further, few factors that aggravate the risk are the huge amount of capital required for Research

17 and Development (R&D) activity as well as the time to develop new product and technologies to satisfy the future market. The R&D activity is considered as sunk cost and profits are uncertain and do not materialize quickly. Thus R&D program puts pressure on profitability and creates additional risk regarding expected cash flow.

Profitability: Higher the operating margin lowers the risk company will default on its interest and tax obligation. Although the margin for CSIS Index is higher today than past decades, it has been constantly lower to those of commercial Indices.

Operating Margin comparison, CSIS Defence Index and Commercial Benchmarks, 1990-2010

Liquidity: Current Ratio is the ratio of current assets to current liabilities. Higher ratio implies that the company is capable of meeting its current obligation with current assets. Current ratio for CSIS index is constant but slightly lower than other commercial indices.

Current Ratio Comparison , CSIS Defence Index and Commercial Benchmarks, 1990-2010

Intellectual Capital Loss

The risk of intellectual capital loss from both retirees and new entrants has heightened due to the fact that fewer students are obtaining degrees in science, technology, engineering and mathematics. The graduates from these fields have decreased from 32% in 1995 to 27% in 2004. This could raise question on ability of the industry to create new products and satisfy demand. (As on 12 July, 2012). Refer appendix ii for more details

Pension Cost

One more challenge for A&D defence firms today is the pension cost. As pension plans return are directly linked to the stock market return the drop in stock markets affected the pension liabilities as company cash flow decline. So firms are facing the financial cost arising from scare liquidity and volatility in the capital markets and economic policy measures like decreasing the defence budget. (Delloite, 2012)

Conclusions/ Recommendations

As the defense industry gets more competitive, the aerospace and defense companies are focused on product innovations, and services. Furthermore, taking on a hybrid approach the companies aim to maintain a lean operating model. In addition, the companies will look for ways to identify new market opportunities and partners for collaboration.

In light of these events, the businesses are likely to focus on updating their databases, IT systems and systems to enhance customer relationships (KPMG, Business Pulse Survey, 2012)

Possible Business and IT solutions that can be offered

 Customized business Intelligence platforms to track right mix of products and markets  Enhanced IT systems, databases to track costs and lean operations  Platforms and services in social computing (This solution is offered by Infosys at the moment to Aerospace). (Infosys.com, 2012) Advanced offerings in Product Life Cycle Management (PLM) and Enterprise Resource Planning(ERP) offerings.  Supply chain solutions as companies seek agile supply chains (Mc Kinzey, 2012) by deploying end to end visibility of inventory, and improving the process of asset tracking, logistics communications.

Possible Engineering Services

 Design Services in satellite and missiles – these are the possible products that are going to be high in demand  Particularly with its Avionics Solutions offerings TCS can focus on offering avionic systems integrated with hardware and software solutions in the cyber security, safety and mission critical military systems.  TCS can further enhance its end-to-end engineering solutions to offer better quality services through its offshore centers. Company directors/C.E.Os. have cited cost reduction initiatives as key area in 2012 (Refer appendix no.4), KPMG 2012.  TCS can also invest in building on communication platforms to facilitate real time information exchange as ‘Informatised war’ escalates (qfinance, 2012)

Limitations of PESTEL and Porter’s Five Forces

Critiques on PESTEL Analysis

By comparing various views on PEST analysis from various authors (Burt et al) we find that there are arguments that challenge the usefulness of PEST analysis. The factors considered in PEST analysis are of limited help to an organization in exploring and understanding the total business scenario, because they bring up generic factors, fail in delivering understanding of the interrelationships and interdependences among variables, and provide incomplete understanding of the (potential) External drivers of change. (BURT et al,2006)

In our case this argument holds good. Aerospace and Defense sector is very volatile in terms of political, economic, technological and social. The environment in which this industry sector works in dependent on various other factors. The change in oil price, emplacement, CO2 emission, defense budget allocation, market competitiveness and various other factors can affect the A&D sector.

In order to have complete analysis we think that only PESTEL analysis is not enough. It must be combined with various other analysis and frameworks where more in-depth information is available to the managers so that decision making process can be done with full information and confidence. The same indication is given in journals by (Philip Walsh and Burt et al) where they stress on combining PEST analysis with scenario planning and internal resource analysis. The combination of both the traditional approaches and the scenario approach will help the firm in constructing the future strategy in a changing environment

Critiques of Porter’s 5 forces

Porter’s 5 forces only cover the macro analysis, i.e. at the industry level, as opposed to the analysis of more specific product-market segments at a micro level. As in aerospace and defense industry the overall structure of all the companies in this sector are nearly same it is the product and service segment that differentiates them from their competitors. So this model does not provide all tools to analyze competitors. The model does not provide full analysis of complex market structure. The only focus on particular segments of such industries, however, bears the risk of missing important elements. For example our analysis about the companies in A&D sector reveals the complex network in procurement sector for every company. As each component is integration of numbers of parts

21 supplied by various suppliers. It is very difficult to analyze the relation or dependency of supplier and buyer. ( Grundy,2006)

The model takes into consideration relatively static market structures. This is not the case in A&D sector. In present fast paced markets technological breakthroughs and dynamic market entrants from start-ups or other industries completely change business competition, entry barriers and relationships along the supply chain within short times. The live example is before us where Tata Consultancy Service is planning to enter and develop their business in A&D sector. Looking at the profile of TATA group one can cast less doubt on this plan. (TCS services and offering description in Appendix no.4)

The model revolves around the idea of competition. It assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. With this focus, it neglects other strategies like strategic alliances, electronic linking of information systems of all companies along a value chain, virtual enterprise-networks or others.( TheManager.org,2012). In specific to our project we have found that companies in A&D sector have undergone consolidation where companies on both sides have certain advantages, as conditions affecting the sector are changing rapidly.

But 5 forces model be more effective and applied ‘systems thinking’1. This helped us to determine the industry attractiveness. It is not limited to simplistic focus on relative market growth rates. This helped us to find out the factors, which should be considered while comparing companies operating and competing on different product platform. The model also provided initial and start point to start the industry and company analysis. (Grundy et al, 2006)

Literature Review

Research methodology is systematic approach to solving a research problem. There are two approaches to research –(1) qualitative research (2) quantitative research (www.bignerds.com,2012)

The research for the above topic is conducted through qualitative research. Qualitative research is “an inquiry process of understanding” where the researcher develops a “complex, holistic picture,

1 Its essence is seeing inter-relationships rather than linear cause-and-effect chains, and in seeing processes of change rather than snapshots (Senge).Systems thinking is a way of interpreting the universe as a series of interconnected and inter-related wholes. It is a way of identifying the inherent organisation within a complex situation and has been called organised complexity- http://www.reallylearning.com/Free_Resources/Systems_Thinking/systems_thinking.html

22 analyses words, reports detailed views of informants, and conducts the study in a natural setting” (Creswell, 1998, p. 15). In this method the research is conducted through the lens of constructivist (Guba & Lincoln, 1982) and advocacy perspective (Mertens, 2003)

As part of the study we will evaluate the two companies through the lens of Resource Based View of the firm. For the purposes of the study we use qualitative research – secondary methods. The use of secondary sources data refer to use of existing data to answer a research question that differs from the one in primary study (McArt & McDougal, 1985; McCall et al 1991). The scope for conducting interviews did not make sense simply due to the lack of contacts with the company either by the students or the university.

Design of the study

(1) Data Collection The qualitative approach to the study entails that the data be collected on both companies – Rolls Royce and Meggitt PLC to understand the competitive advantages, competence of the firm as well as firm resources. Here most of the data for the study is taken from respective company websites, conference calls and investor presentations.

(2) Data Analysis As pointed out by Merriam (1998), in qualitative analysis collection of data as well as analysis are taken up simultaneously. Data Analysis involves application of logical or statistical techniques to evaluate the data. Here we have relied on prevalent management research to support our analysis and findings. According to Shamoo and Resnik (2003), these analytical procedures “provide a way of drawing inductive inferences from data and distinguishing the signal (the phenomenon of interest) from the noise (statistical fluctuations) present in the data”.

The steps in data analysis include,  Primary evaluation of data  Analysis of data using Resource Based View (RBV) framework to identify the core competence, and resources of the companies

(3) Inference and Analysis Analysis of the data to answer and evaluate the research question. It needs to be pointed out here that the analysis of qualitative data is subjective and suffer from lack of consensus. (Mittman et al, 2001)

As the study is conducted solely based on information that has been published on the public domain, the limitations are that the data may not be validated. Although there is a wide ranging argument by researchers that validity is not applicable to qualitative research. Creswell & Miller (2000) argue that researcher’s perception of validity affects the validity itself. (Jandagh et al, 2010)

Furthermore, there is scope for bias given the interpretative nature of the research. (Ivankova, 2002)

Resource Based View (RBV)

The resource based view of the firm was introduced in 1991 where resources and capabilities of an organisation were used to understand the sustained competitive advantage of a firm (Barney,1991). The basic ideas of the concept were established nearly two decades ago- (e.g., Barney 1991; Henderson & Cockburn, 1994). Each firm has its unique resources and this heterogeneous element confers differences in competitive advantage and thus performance (Hammel et al, 1990; Reed at al, 1990). It is important to note that not all resources can be source of competitive advantage. The resources that are valuable, rare, inimitable and non-substitutable create a sustained competitive advantage. Firstly, the resource ought be valuable (Barney, 1986, 1991,1997). Second, the resource be rare (Barney, 1986, 1991, 1997).Third, the resource must be hard to imitate (Barney, 1991, Collis et al, 1995). Fourth, there should not be an available substitute for the resource (Barney, 1991, 1997; Collis and Montgomery, 1995; Dierickx and Cool, 1989). Lastly the resource should not be easily tradable (Dierickx et al, 1989 and Peteraf, 1993).

Strategic capability of a company is derived by both resources and its competencies. "Strategy is likely to be expressed in broad statements both about the direction that the organisation should be taking and the types of action required to achieve objectives".(Johnson, Scholes, & Whittington, 2009). The strategic capabilities enable an organisation create value by "seek to build competitive advantage" (Johnson, Scholes, & Whittington, 2009).

With the Resource based view of the firm the competitive advantages and performance of the firm is explained, as the resources are distinct. (Johnson, Scholes, & Whittington, 2009). Resources of the firm are said to be valuable in a market and it can act as an entry barrier. Economies of scale with the use of resource are prime example of entry barrier. If the resource is a position barrier then it

24 may be irrational for a new entrant to buy the resource. Overall, RBV of the firm explains better performance of firms and thus the competitive edge. Superior performance is measured in terms of increased profits, sales and market share.

Core Competence of a firm came to the forefront with the recognition of intellectual capital/property as source of differentiation. This was largely a criticism of Porter’s five forces as it failed to identify resources through which companies can enhance their competitive edge. (Hafeez et al, 2002). Prahalad and Hamel’s influential use of the term core competence was more so to refer to collective learning and resources that are difficult to imitate. Core competence by definition should provide access to a range of markets. (Hamel, 1993)

The competence view of the firm brings out the fact that core competence is not discrete assets. Rather core competence offers a unified framework for diversification and unique resources and learning. Core competence is an integrated, collective learning of the whole organisation (Prahalad and Hamel, 1990). Integral to the concept of core competence is core technologies. Also, the ability of the organisation to unify multiple technologies is what differentiates the firm. ‘Creative Bundling’ of many technologies and customer knowledge is what creates a competitive advantage.

Test of Core Competence is three staged.

- Is it offering competitive differentiation - Is this spread, diversified across business? - Is it difficult for the competitors to imitate

As RBV evolved, a new perspective of capabilities was added to overcome shortcomings within RBV. Dynamic capabilities defined as (Eisenhardt and Martin, 2000; Teece et al., 1997). ‘’ the capacity to renew competencies so as to achieve congruence with the changing business environment” by “adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competencies”. Basically these dynamic capabilities are built than acquired in most cases (Makadok, 2001). Therefore learning is at the heart of dynamic capabilities (Zollo and Winter, 2002)

The Dynamic capabilities perspective has been proved essential to understand how firm has acquired and resources, renewed and reconfigured for the firm to survive (Danneels, 2002). Firm can also enhance capabilities by getting rid of some redundant resources or bringing together resources in new ways (Simon and Hitt, 2003).

Other important concept that has evolved from RBV is the distinctiveness of organisation’s resources that confer competitive advantages Kay (1993). These distinctive capabilities are classified into three

25 areas – architecture, reputation and innovation. Architecture refers to a company’s relationships and contacts that exist inside and outside the firm.

Within the framework of RBV various other research have related to resources. These include resources and diversification (Harrison, Hitt, Hoskisson, & Ireland, 1991), organisational identity as a resource (Fiol,1991), key executives as resources (Castanis & Helfat, 1991)

Key resources include intangible assets that include patents, copyrights and client trust, relationships. Also, the capabilities such as skills and knowledge are intangible resources. (Hall 1993, Barney & Wright 1998; Smart and Wolfe, 2000). Here even competitive advantage is explained by superior customer value that is translated into competitive advantage.

According to (Wernerfelt, 1984; Barney 1986) with the recent development in RBV of the firm, the assumptions that strategy implementation process can be looked into out of the context of content of the firm’s strategies is not appropriate. The strategy implementations skills have to be related to particular strategies that implemented by the firm. Resource based view highlights the importance of behavioural and social phenomenon in helping firms to formulate and implement their strategies (Barney 1986b, 1991).

According to Schein (1985), culture is defined as a ‘’pattern of basic assumptions – invented, discovered, or developed by a given group as it learns to cope with the problems of external adaptation and internal integration’’. Cartwright and Cooper (1992) noticed the significance of organizational culture. According to them organizational cultural contributes in understanding the merger phenomenon both in terms of its impact on organizational performance and on the managers and employees involved.

RBV explains Competitive advantage, from the RBV perspective is achieved by focusing on and exploiting the firm’s internal characteristics, specifically its resource profile (Rumelt, 1994; Hamel and Prahalad, 1994).

RBV approach identifies human capital, in which the Ž firm invests as the potential source to create superior performance. Thus, the RBV of the firm offers an explanation for possible link between success of the company and HRM ( Wright et al., 1994, 1998; Lado and Wilson, 1994; Kamoche, 1996; Mueller, 1996; Boxall, 1996; Guest, 1997; Barney and Wright, 1998)

Competitive advantage is normally created by natural resources, technology, economies of scale, creates value, and may be easy to imitate vis a vis employment systems (Becker and Gerhart, 1996:

781). A good HR system may particularly impart sustained competitive advantage (Lado ae al, 1994; Wright et al., 1994).

Study – Comparison of Rolls Royce and Meggitt PLC

Rolls Royce

Rolls Royce is a leading company that offers power systems and services in civil and defence industry. The company designs, engineers and markets commercial and military aero engines as well as aftermarket services. The company ranks second largest provider of defence and aero engines.

Products/Services to the Government

The Engines that are developed by Rolls Royce are made in a time of about 3-5 years, and an engine could be in service for about 30 years. (rollsroyce.com, 2012)

Rolls Royce is the leading engine provider for military transport aircraft, Rolls Royce provides engines for C-27J, C-130J and V-22 Osprey and supports 2800 fixed and rotary wing aircraft with the US army. Within civil aerospace, Rolls Royce has 34% market share in business jet engines. (rollsroyce.com, 2012)

Rolls Royce derives very small revenue from the UK, with Europe constituting only 30% of its revenue. Emerging economies of Asia and Middle East represent higher chunk of order book.

(Source- Rolls Royce Data pack 2012)

Effect of Defence Cut

Rolls Royce (RR) is not worried about US defence cut of $487billion. With 18000 operational engines globally RR holds solid portfolio of products. Only 20% of RR business resides in defence aerospace and rest in Civil aerospace. Also civil aerospace has project growth for next few years for which services by RR will be required. RR is working on 2 US Air Force engine development projects: the Embedded Turbine Engine and Adaptive Versatile Engine Technology, and see no need to cut jobs in present scenario. (defesenews.com, 2012)

Rolls Royce revenue performance has been good, reflecting higher engine deliveries and services opportunity provided by the installed engine base. Although, the impact of defence cut can be felt by decline in order book. ((Source- Rolls Royce, 2012)

The defence cut in the UK has mainly been in personnel rather than equipment. The UK defence spending is currently around $21.8 billion. Defence cut in the UK may not have an impact on Rolls Royce given the fact that it derives more revenue from international markets.(cnbc.com, 2012)

Analysis _Rolls Royce

Values and Culture

Built on trust, driven by performance

 Rolls-Royce has built and maintained its image with integrity, reliability and innovation. Irrespective of country and people, RR gives utmost importance in maintaining good relation with its customers and considers it as a platform on which the reputation is built on and maintained.  Delivering high performance and making their professional fulfilment a priority are important steps by which RR creates trust and delivers excellence to clients. Rolls-Royce has gained the trust because of its performance. It has created high expectations and unlocked potential ideas. Rolls Royce always recognises exceptional contributions and inspiring others to reach the same heights.

 RR culture has always supported continuous personal and professional development. In 2010, more than 34,000 Rolls-Royce employees, from 55 countries, attended up to 94,439 hours of training. Also provided over 2,400 learning solutions related to health, diversity and ethics, to safety and the environment and corporate and management responsibility.  Rolls-Royce encourages everyone to create their own tailored development programme ,which includes professional accreditation and support with professional membership. (rollsroyce.com, 2012)

Strategy

Strategy- Due to vision and continuous pursuit for excellence over the past 20 years, RR have secured consistent growth in four long-term markets: marine, energy, and civil and defence aerospace, by following this strategy over the next 20 years, RR is positive that the total business opportunity available in the markets will be over $2 trillion. (Rolls Royce, 2012)

Rolls Royce has a solid revenue stream through aftermarket services, around 2/3 of aftermarket revenues are due to long-term services agreement and 1/3 is from T&M. In Civil about 3/4 is from aftermarket and about 1/4 of it comes from time and materials

Global markets- The 4 Global markets for RR are Civil aerospace. Defence Aerospace, Marine and Energy. As per the business reach RR is catering to large customer base with respect to each of the markets. With large product and service portfolio and presence in more than 100 counties explains the reach of RR.

Revenue (£m) 2012 HY

3034

1134 1070 445

Civil Aerospace Defence Marine Energy Aerospace

The International Air Transport Association (IATA) calculates that global air transport revenues increased by 9.3% to $597 billion in 2011. However net profits halved from 2010 with the net profit margin narrowing to 1.3% in 2011 from 2.9% in 2010.

In 2012, global revenue is forecast to continue rising – by 5.7% over the year mainly due to rising passenger numbers. (Barclays.co.uk, 2012)

China-US aviation cooperation program research indicated that till 2015, China will need 1,997 general aviation aircrafts, 1,415 aircrafts for training and private flying, represented a compounded growth of 21%. CAAC (Civil Aviation Administration of China) forecasts that, the general aviation aircrafts will grow at a compound rate of 22% and exceed 10,000 at 2020, - (General Aviation, 2012)

As there will be demand and market growth for civil aerospace sector but doubt has been raised on the net profit increase. So it would be challenging for RR to increase its market share and also increase the profit margin. (Damodaran, 2012)

Industry Name Growth in Sales Aerospace/Defense 9.41% Heavy Truck & Equip 7.38% Maritime 5.93% Oilfield Svcs/Equip. 17.02% Power 43.06%

Scale

2011 2010 2009 2008 2007 Revenue 11277 10866 10108 9147 7817 Order Book 62.2 59.2 58.3 55.5 45.9 Engine Deliveries 1853 1657 1600 1621 1439 Installed Thrust 400 382 367 348 334

(Source- RollsRoyce.com)

Rolls Royce has very high scale in terms of number of engines delivered. Within the Engine market, Rolls Royce has the second largest producer of aircraft engines after General Electric. According to Rolls Royce, aircrafts powered by its engines take off every 2.5 seconds. (economictimes.com, 2012). The company intends to double its Trent engine production over the next five years. (seekingalpha.com, 2012)

Order Book

Rolls Royce felt the pinch of the defence cut, according to the latest order book as on July 2012. Order book as on 2012 declined by 8% due to budget cutbacks by customers in North America and Europe. The company reported order cancellations of £0.40 billion, as the US DoD cancelled C27J aircraft.

H1 12 H1 11 Change Order book (£bn) 5.5 6.0 -8% Engine deliveries 393 330 +19% Underlying Revenue (£m) 1134 1088 +4% Underlying OE Revenue (£m) 559 504 +11% Underlying Service Revenue (£m) 575 584 -2% Underlying profit before financing (£m) 196 219 -11%

*Source (rollsroyce.com, 2012)

R&D Spending

500 463 422 450 403 400 381 379 350

300

250 £m 200 150 100 50 0 2007 2008 2009 2010 2011

*Source (rollsroyce.com, 2012)

Opportunities within the market

DREAM (ValiDation of Radical Engine Architecture systems) is a large multinational FP7 R&T project that is the response of the engine community to reduce CO2 emissions and militate against any future shortages and increased cost of Jet A1 fuel. The objectives of DREAM are to reduce SFC (Specific Fuel Consumption) and CO2 by at least 27% and community noise by 9dB cumulative compared with the current Y2000 turbofan engines. Rolls-Royce has allocated total budget of 40 million Euros to DREAM in three years’ time period. DREAM has over 44 partners (OEMs, SMEs, Universities and Research establishments) in 13 countries from within the EU, Russia and Turkey.(RollsRoyce.com, 2012)

U.S. Air Force’s Adaptive Engine Technology Development (AETD) program, intends to bring forth fuel-saving features for future bombers, sixth-generation fighters and tactical aircraft. It has become the point of attraction for many defence companies. General Electric, which was formerly in partnership with Rolls on the cancelled F136 – the alternate F-35 engine – also is bidding for AETD. Rolls and GE compete neck to neck on the Highly Efficient Embedded Turbine Engine (Heete) program, that offers extreme high-pressure-ratio core technology which saves fuel by 35% compared to the existing engines.(Aviationweek.com, 2012)

According to the report by UK trade and Investment, UAE is seen as the potential customer for Defence and Security Market. Potential suppliers are USA, France, Germany, Switzerland, and UK. The key customers are Bahrain, Jordan, Tunisia, Oman, and Kuwait.(UK Trade & Investment,2012)

Core Competence – Rolls Royce

Prahalad and Hamel contend that sustained advantage is achieved by core competencies that involve ‘’ "the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology" (cited in Smith, 2008)

For Rolls Royce, its core competence is offering engines that power the civil, defense, marine and energy sectors globally. Rolls-Royce’s success against GE Aircraft Engines is based on a strong product range and superior technology. Rolls-Royce has the largest portfolio of engines and most civil aircrafts use Rolls Royce compared to any other company. Rolls Royce powers more than 13000 engines and 300 types of Commercial Aircraft the world over.

 Offering Engines within transport – Aerospace & Defence. The company is the second largest provider of defence and aero-engine products globally – transport, combat, training, helicopters, reconnaissance, and unmanned aerial vehicles. (rollsroyce.com,2012)  Submarine propulsion- design, supply and support of nuclear steam raising plant (NSRP)

Trent Engines.

Trent family of engines of Rolls Royce are a differentiated family of engines that power over 50% of the modern day aircraft. The unique feature is the hollow titanium fan blades that produce strong propulsion (85% engine trust) while minimising engine noise.(RollsRoyce.com, 2012)

Competitiveness

Rolls Royce has high competitiveness, for Airbus A 380, Rolls Royce Trent Engine faces competition from GP72000 offered by the General Electric as well as Pratt & Whitney Alliance. Here as the aircraft engine market is protected from any monopoly with an intention that no supplier gains a dominant market position to dictate engine price. Therefore, the competitiveness is determined by

33 technological advancements. Given the cost of engine development, technological breakthrough is sought to gain market share.

The differentiating factor for two engines is based on cost efficiency. The differentiating factor for Trent Engines is the fact that it has slightly higher thrust of 3.0% (www.ktwop.wordpress.com, 2010)

Technology

Rolls Royce’s present competitiveness in the industry is attributable to its superior technological capabilities – three shaft architecture of its turbofan engines. ‘’ Moreover, three-shaft engines are simpler, shorter, lighter and more rigid than competing engines based on two-shaft architectures three-shaft engine to sustain high levels of performance throughout its life, thus resulting in low maintenance costs’’ (Williams, 1995). During 2011 alone the company filed 475 new applications for patents. (rollsroyce.com, 2012)

Path Dependency: The technology used in Trent is difficult to replicate as it has taken over ten years of development to reach the current state of offering (rollsroyce.com, 2012). Rolls Royce engines power mission critical aircrafts in defence – RQ-4A Global Hawk, MH-6 Little Bird Helicopters with the US army. Rolls Royce engines power helicopters used by 160 militaries in 130 nations. Rolls Royce is part of the Joint Striker Fighter (JSF) world’s largest ever fighter program.

 RR engines power over 23% of US military aircraft  Over 4500 current and planned US military aircraft and ships  About 1200 of Rolls Royce powered rotorcrafts serve the US Army (rollsroyce.com, 2012)

Technology on its own cannot be a core competence. Technology along with tacit learning of the whole organisation is what constitutes core competence. It is the ability of the firm to harmonise multiple technologies. (Prahalad et al, 1993)

Major performance benefits as below give an edge over competitors by creating superior customer value. (rollsroyce.com, 2012)

 Weight reduction of about 30%  Engine health monitoring , with complex software to transmit data while aircraft is in flight  Long on-wing life and low maintenance costs

The installed Engine base is very high to drive aftermarket services business (Rolls Royce Annual report, 2011)

Other Affiliation Programmes

 US Air force Adaptive Versatile Engine Technology (ADVENT), the company continues to invest in mission ranges that reduce fuel consumption  Development of Electrical and thermal management system for US Air Force Research Lab (AFRL) and Integrated Vehicle Energy Technology (INVENT) – (rollsroyce.com, 2012)

Technology Framework

Rolls Royce is an organisation driven by technology. Rolls Royce has continually invested in development of technology through a structured framework. The study found that in Rolls Royce information systems help in Technology Road Mapping and Risk Management. This enhances collaboration across global businesses. (Foden et al, 2010)

Technology Management Framework for Rolls Royce

Capabilities Perspective

Capabilities that allow sustaining a competitive advantage in the face of changes in external environment. Dynamic view of resources explains how dynamic capability confers an adaptive change to given resources. These capabilities are important to sustain rent streams. (Ambrosini et al, 2009) Overall, resources can be disadvantageous if resources are not refreshed (Barton, 1992). Firms need to look at new ways to create extend and modify resource base (Helfat et al, 2007)

Resources

Resource based view translates competitive advantage into financial, physical, human and technological capabilities (Hofer and Schendel et al, 1978),

 Financial Resources – Invest in research programmes, attract the right people, collaborate and acquire other companies  Physical Resources : Testing, training facilities for developing and testing products and IT  Intangible Resources : Skilled People, Integrated teams with technical skills  Innovation : In house (internal) and external (acquiring companies)

Research Centres Rolls Royce does not own any if its research centres. Its research is conducted through university, and some of the wold class academics and research teams. Partnerships with leading academic staff globally - combustion and aerodynamics to noise and manufacturing technology. The continuous research and investment in technology is what differentiates Rolls Royce.

Rolls Royce’s investment in low carbon technology should serve the company well, as particularly governments are encouraging such technologies. Particularly the US DOD – EIO (Energy Initiatives Office) has reiterated that the army has a goal of attaining 25% of Energy needs from renewable sources by 2025.2 (c2es.org, 2012) The UK also has supported the low carbon technology as; HM Government seeks to reduce greenhouse emission by 80% by 2050. Defences accounts for 10% of emissions in the UK.3 (decc.gov.uk, 2012)

Financial Resources *Source (rollsroyce.com, 2012)

2011 2010 2009 Debt/Equity Ratio 0.26 0.51 0.92 Current Ratio 1.2 1.6 1.3 Quick Ratio 0.9 0.9 0.9 Interest Coverage 5.2 10.3 32.9 Leverage Ratio 3.2 2.9 2.9 Book Value/Share 22.74 27.79 27.4

2 http://www.c2es.org/blog/wurzelmanns/strong-defense-low-carbon-innovation-and-low-carbon-innovation- strong-defense 3 http://www.decc.gov.uk/assets/decc/What%20we%20do/A%20low%20carbon%20UK/1358-the-carbon- plan.pdf

Human Capital

The company continually invests in developing the employee base. As it is the company attracts highly talented engineers and researchers from around the world. In 2011 alone the company invested £38 million on their learning. Besides the company has 3500 online learning centres in 2011. The revenue per employee was as high as £27400, indicating skilled labour force. (rollsroyce.com, 2012)

Intangible Resources – Relationships and Innovation

Heskett et al., 1994 identify Customer satisfaction is the key to achieve customer loyalty. Customer satisfaction on the whole is recognised as a better predictor of intentions to rebuy than overall or inferred service quality (Liljander and Strandvik, 1995a).Certain technical features of the product or supporting services when added to the basic solution in order to enhance the value of offerings to the customers. (Christopher et al, 1991)

Architecture

Exclusive Contracts Customers

 Trent XWB – Exclusive contract for Airbus 350  Trent 700 for Airbus 330 Civil  Trent 900 engine for Airbus (selected by 11 out of 16 airlines)

 EJ200 Engine for the Eurofighter programme  Renewed contract with US Navy – Adour F405 Support

Contract 2011  AE2100Engines for Lockheed Martin C-130J  AE2100 Engines for Alenia C-27J Transport Defence  11 year Contract with the UK Ministry of Defense (MoD) for nuclear reactor in Derby, UK  TP400 Engine for Airbus A400M large military aircraft

 MT30, world’s most powerful turbine engine to power US Navy Littoral Combat ships Marine

 MoU with EDF, world’s largest utility operator  EDF program on world’s largest reactor upgrade

programme Energy  Agreement with Rosatom, Russian state owned company for global civil nuclear programme  25 year service agreement with EDF to modernise safety critical systems. Until 2048

Supplier Partnerships

About 70% of the company’s business is conducted in house within the supply chain. As the company continues to develop intellectual property.

Joint Ventures

Rolls Royce has collaborated with many companies to further develop on and research on its world leading technologies and products

Joint Venture/Partnership Purpose Unique Proposition

Rolls Royce and Snecma (50:50) Research on next generation Affordable and UK and French combat engines efficient/affordable solution in military propulsion

Rolls Royce and Daimler, Create world leading high- Complimentary technologies to acquired Tognum speed reciprocating engines create design, power, propulsion systems in the marine business.

Rolls Royce and Pratt & Whitney Develop advanced engines for Continued long term future mid-sized aircraft relationship with Pratt on technology and collaboration

Reputation

Fombrun (1996) explains reputation to be constituted by credibility, reliability, responsibility and trustworthiness. Clark and Montgomery (1998) add that observers’ perceptions and interpretations shape reputation. Reputation serves as an intangible resource and enhances competitiveness where forms can signal key characteristics to maximise economic profit (Fombrun et al, 1990). Hall (1992) argues that reputation is critical factor in gaining competitive advantage as competitors may not match up to fame and esteem created by it. Several empirical research by (Yoon et al, 1993; Nachum, 1996). Dollinger, Golden and Saxon (1997) contend that reputation is a resource even in terms of being targeted for joint venture.

Rolls Royce is involved in designing and supplying nuclear reactors for the Royal navy for 50 years. Rolls Royce is Ranked 372 by the global 2000 companies in Aerospace & Defence 2012. Rolls Royce is a constituent of the FTSE 100 (2012). Included in Fortune’s (2011) list of the 350 most admired companies in the world. Included in the 2012 Times Top 50 Employers for Women. However, lawsuits damage RR’s brand image. The suit stated that RR deliberately cheated Carnival Cruise Lines about problems with the Rolls-Royce Mermaid propulsion system. In January 2011, Rolls Royce was found guilty and had to pay $24 million to Carnival Cruise Lines. In December 2010, Qantas Airways filed a suit against Rolls-Royce for supplying defective superjumbo engines. In June 2011, the company paid $100 million settlement with Qantas Airways.

In terms of brand Rolls Royce Ranked number one in the Centre for Brand Analysis business super brands official top 500 in 2011. Ranked 403 in the 2011 Brand finance top 500 most valuable brands.

Innovation

Innovation has become important for every firm due to emergence of Knowledge, economy, fierce global competition and advancement in technology. Here innovation plays an important role in increasing competitiveness. Firms do not compete on new products, but rather on a deeper factor — the capacity to develop new products (Prahalad & Hamel, 1990). Leading innovators have always encouraged and reward innovation from everywhere within the organisation — not just research and development. This connects organisational learning and knowledge to products with processes, technologies and mainstream capabilities. These companies do not consider innovation as just a user of scarce resources for uncertain outcomes, but rather as a pathway for generating new knowledge and competitive advantage.

While the resource-based view of strategy (RBV) is useful for all Žfirms, but it proves more suitable for small ones. One of the major problems that such Žfirms face in innovation is lack of resources and the need to obtain them through collaboration with other Žfirms or organizations. According to the findings of M. Hitt & H. Kim international diversification is positively related to R&D intensity. This explains the importance of innovation in development of the firm.

Trent Engines are very innovative, in which over 3 types of titanium are fused, through technologically advanced diffusion bonding. This process has 60 patents registered by Rolls Royce.

Other innovative products to enter the market

 Joint Strike fighter and marine gas turbine, MT30 for the US Navy  Engine BR75 that powers Gulfstream is scheduled to enter service later in the year

Diversification of resources into new markets

Rolls Royce has resources in terms of technological superiority, reputation and customer relationships that can be spread across markets. According to the RBV perspective, firm can optimise its resources better by diversifying across related businesses. This would enable the firm to achieve better returns (Barney, 1997). Although this has to be done in the right measure, as it could be challenging to manage a very diverse portfolio ((Hill & Hoskisson, 1987; Grant, Jammine, & Thomas, 1988, Jones et al, 1988). As pointed by Rumelt, the success of related diversification is based on economies of shared factors of production. Overall when resources are bundled together the firm can ensure that it can sustain competitive advantage for a long time (wan et al, 2011)  Rolls-Royce engines support helicopters of 160 military forces in 130 nations. (As the company is able to use its technological competence an resources across markets)  Rolls – Royce has also been able to diversify its resources into the marine by acquiring capabilities through strategic transactions. (In 1999 Rolls Royce acquired Vickers PLC, a key player in marine market to become world leader in Marine systems. Currently Rolls Royce has about 15% of its revenue from marine with the potential to achieve 30% over the next ten years)4  Rolls Royce has also been able to boost its sale of engine parts to airlines that service and maintain aircraft. This is derived from Rolls Royce’s core capability in the new engine market.

4 http://www.rolls-royce.com/Images/acquisitions_tcm92-11185.pdf

Resources – VRIN Framework

Barney (1991) highlighted that the development of tools to analyse external opportunities and threats has been more rapid than the development of tools to evaluate a company’s internal strengths and weaknesses. According to (Andersen, 2011) VRIO criteria examines the organization’s activities and identifies the capabilities that may enhance a firm’s competitive position in the market place. VRIN framework helps to identify firm’s most critical capabilities, which are the value creation drivers of the firm. Second, the framework employs fuzzy set of theory to allow quantification of hard- to-quantify resources as intangible assets that involves uncertainty. Also VIRO based framework could alleviate the shortcomings of traditional SWOT analysis and providing more perceptive, reliable and actionable insights.

Perfectly Non Financial Resources Valuable Rare Imitable Substitutable Free Cash Flow     Access to debt-equity      Physical Research Centres University Technology Centres    

Research & Technology (Applied programmes supported by UTC)    

Intangible Technology     Fuel Cells (Fossil Fuels)     Carbon Capture & Storage     Patented technology    

Trent Family of Engines     Partnerships R&D Collaboration     Joint Ventures      Exclusive agreements    

Human Resources Employees     Training/Learning Programmes    

Most of Rolls Royce core competence is centred on Trent engines. The technology is patented and not imitable and is better than its competitors by offering value to customers. The Resource Based View of the firm is explored in academic literature as ability of the firm to provide customer value through superior production systems, low cost structure and customer service (Clulow et al, 2007)

Technology that is not imitable and protected by patents such as Low Carbon Technology, Fuel Cells, and Carbon Capture & Storage is what differentiates Rolls Royce. The intangible resources are strengthened and served by its physical resources and technology centres, while its joint ventures and exclusive service agreements further preserve the uniqueness of these resources. Human resource is another important resource that is at the forefront driving innovation.

Resources such as technological capability and patents are creators of customer value, barriers to duplication and thus serve as resources of the firm. Fahy (2000) highlighted resources of the firm confer a competitive advantage as reflected in the superior performance (Amit and Shoemaker, 1993; Fahy et al, 1999). The competitive advantage is in turn is measured by financial terms, increased market share (Montgomery et al, 1995; Hunt et al 1995; Wilcox-King at al 2001Fahy, 2002).

Meggitt PLC

Introduction

Meggitt PLC is an engineering company that offers sub-systems and extreme environmental components to the Aerospace, Defence and Energy markets globally. Within the defence market, the company provides components for military aircrafts, land and naval systems, marine threat simulation and weapons systems.

Headquartered in the UK, Meggitt PLC has operations in Asia, Europe and North America. The company has regional presence in Brazil, India and the Middle East. (meggit.com, 2012)

Government Business Meggitt relies on government for its business; US DoD is its largest customer. The US accounts for about 27% of its revenue.5 Therefore, Meggitt’s defence unit is dependent on the US defence cuts. (meggit.com, 2012)

5 http://sobic.co.uk/wp-content/uploads/2012/04/Meggitt-Report.pdf

Effect of Defence cut

Meggitt- In first 6 months Meggitt saw the increase of 19% in its revenue. In second half order book is up by 8% as compare to 2011. The reason for this increase is investment in cap-ex and R&D, which in turn supported to win various contracts. (meggit.com, 2012) (More information in Appendix 6)

Sensing the change in the business environment the group has undertaken transformation program from last 3 years. Meggitt was awarded with five-year agreement from Sikorsky Aircraft Corporation worth $129m.

Good organic growth was augmented by the acquisition of Pacific Scientific Aerospace. The ability of Meggitt to invest and to diversify the product portfolio has helped the firm to win contracts in US as well as in UK which ultimately strengthen its revenue growth.

Scale 2011 2010 2009 2008 2007 Revenue 1455.3 1162 1150.5 1162.6 878.2 Order Book 1524.8 1212.4 1096.2 1152.9 912.1

(Source- meggit.com, 2012)

Order Book

The order book of the company remained robust with 26% increase recorded in 2011. A strong order book translates into an opportunity for Meggitt to generate aftermarket services. Most of Meggitt’s orders are on a sole source basis

R&D Spending

Meggitt is primarily a component manufacturer and most of its spending is in development activity after a contract has been won. As a percentage of revenue Meggitt’s R&D spending accounts for about 6-8% of its revenue.

Revenue and R&D (£m)

Revenue R&D

1,455.30

1,162.60 1,150.50 1,162.00

878.20

70.256 79.0568 85.137 83.664 110.6028

2007 2008 2009 2010 2011

(Source- Meggitt Annual Report)

Values and Culture

Meggitt has developed a set of values to realise its ambitions and guide decision-making at all levels of the business. Meggitt considers integrity as the core part of their culture. Either the firm is focusing on long term investment, striving for performance excellence or establishing global team for customers. Meggitt plans to do it with integrity. By such action Meggitt is aiming to increase the stakeholder value.

Work culture of Meggitt gives importance to individuals and encourages a diverse and inclusive work environment. From past 60years they have achieved success through pure dedication, commitment, and expertise of its employees. Meggitt promotes Trust, Respect, Accountability, and Community Involvement while promoting a healthy balance between work, personal, and family life

Strategy

 Improvement in components and sub-systems for harsh environments  Invest in products with high technology content and aftermarket value  Deliver growth through organic investment and acquisition

Target is mainly on aerospace and defence, primarily, and specialist positions in energy.

Meggitt aims to achieve its strategic objective by developing and investing in people, facility, operations and strategy-led technology development. Below are the growth steps for each business segment that is considered by Meggitt as reinforcement for strong organic growth. Control System- - Deliver weight-saving aerospace products with precise control that can sustain higher engine temperatures, meet low emission regulation, optimise industrial power generation plant efficiency, Implement low-cost manufacturing and optimise sourcing.

Areas of Operation Status

Secure position as a sole source on new aircraft program, develop market-leading technologies specially in electric braking and Aircraft Braking Systems innovative, long-life carbon heat sink materials

Maintain and increase the contract for aircraft fuel cells , become the leading supplier of sealing solutions and energy-conscious Polymers & Composites electro-thermal ice protection for fixed wing aircraft

Invest in high-performance sensing technologies and Focus on growing energy market by expanding geographical presence and Sensing Systems marketing highly targeted solutions and to Re-establish market leadership in test and measurement

Major focus would be on Fire protection, Power, Heat transfer, Avionics, Combat systems, Live-fire and simulation training, Equipment Group Automotive and industrial control. Develop products that could serve in these fields

Core Competence

 Design and manufacture of components and sub-systems for aerospace & defense - Control and braking systems, - Sensing systems

Resources for Dynamic capabilities

Technology

Meggitt continues to invest in R&D. As the components are suited for new aircraft programme. This also ensures that the company is able to meet the demand for aftermarket products and services. Increased air traffic growth with economic recovery should boost the demand for aftermarket services

Meggitt has a leading engine vibration monitoring technology that is offered through its group company vibro-meter. This technology offers distinctive capability to predict pre-event engine bearing failure. This reduces chances of in-flight shut down. Meggitt is industry leader in engine vibration monitoring.

Customer Value: This technology creates customer value by lowering flight shut down while enhancing efficiency of engines

Electric Brakes

Meggitt was a pioneer of electric brakes and was the first and only company to have successfully tested them on a commercial demonstrator aircraft in 2008 with no hydraulic back-up

Meggit’s e-braking system is used by Bombardier. According to the company the Meggitt braking system has 50.0% of the market in world-wide jet wheels, brake and control market.

Military Aircraft Fuel cells

Meggitt Polymers & Composites are highly innovative in the industry, here Meggitt has number one position in the industry (meggit.com). The features of these innovative offerings are unique

 Flexible, ballistic ally resistant – These products have reduced fuel spillage and death and injury in crashes to almost zero  Long life light weight bladder fuel cells based on polyurethane technology  Meggitt has further enhanced on fire detection and control capability with the acquisition of Pacific Scientific Aerospace business  Meggitt is a market leader in live-fire and virtual simulation training products

Architecture

Meggitt has very good reputation and contracts from major customers such as Boeing, Bombardier, EADS, Finmeccanica (Agusta Westland), General Dynamics, General Electric, Honeywell, Lockheed Martin, Rolls Royce and United Technologies

 Meggitt has very good presence in aftermarket services market as it is the only company that is permitted to provide servicing and equipment that are certified on the aircraft. Although, Meggitt does provide the original equipment manufacturers at below cost price  Meggitt presence in aftermarket service is quite good as the margins are high and the entry barriers are high. As switching equipment once installed is protected by contractual and regulatory barriers.  Pacsci, the company it acquired in 2011, follows a similar business model and has strengthened Meggit’s aftermarket business as well  Through the acquisition of Whittaker Corporation (California) Meggitt has increased presence in aftermarket business acquiring major OEMs as customers

Military Revenues by sector Fixed Wing Rotary Wing Land Vehicles 28% Traning and Other 41%

25%

(Source- Meggitt ’s annual report ,2011)

Customers

 Department of Defense (DoD) is its largest customer  Thermal management for Hamilton Sundstrand on Pratt &

Whitney’s turbo fan engines  Cooling systems for Boeing 787  Sensor packages for General Electric’s Leap X Engine

 Braking systems for Bombardier’s Global 7000/8000 aircraft  Fuel bladders were delivered to BAE system’s ground vehicle  Meggitt Sensing Systems a primary supplier for Pratt &

Whitney Pure Power geared turbofan  Components for Boeing and Airbus jets

Exclusive Contracts  Multi-year agreements, position on key platforms in service – Black Hawk, Apache and Rafale  Supplier to UK Chinook Fleet  Advanced Airborne Vibration Monitor (AAVM) on Boeing 737 aircraft

 Meggitt won contract for fire protection system for Airbus A320 neo, that will be in service from 2015

 Multi-year $1 billion contract for Hamilton Sundstrand Recent Agreements thermal packages for Pratt & Whitney  £13 million contract with UK MoD – relationship in virtual and live fire training systems  Meggitt was selected among five suppliers to offer live-fire training range at US army installations ($475 million) over the next five years

Strategic Transaction Purpose Unique Proposition

Acquisition of Pacsci  Enhanced capabilities in aircraft Low cost manufacturing electrical power Aircraft Electrical Power  New centres in Mexico and Vietnam

Innovation  Innovative product in terms of the heat exchanger  Innovative long life carbon heat sink material  For military the products optimise industrial power efficiency  Weight saving, reliable electro-mechanical devices to replace hydraulics in military ground vehicles.  Engineered light weight  Contact less sensor technology

Resource Based View – VRIN Framework

Perfectly Non Financial Resources Valuable Rare Imitable Substitutable Free Cash Flow     Access to debt-equity   

Physical     Research Centres    Offshore centres     Research & Technology    

Intangible    Technology     Engine Vibration Monitoring Technology     Meggitt Polymers & Composites     Electric breaking system         Acquisition of Pacific Scientific Aerospace     Acquisition of Whittaker (aftermarket )         Human Resources    Employees     Training/Learning Programmes    

Resources to be applied to other markets

The RBV talks about leveraging the resources across markets in which those resources can contribute competitive advantage. This is determined by resource specificity with specialized resources such as expertise and technology. (Collis et al, 1995) Meggitt has very well established presence as components supplier to business jets, with customer relationships with Boeing and Airbus.

The business jet utilisation in the US is expected to go up. The business market for jets is expected to grow at 6.9% to USD 30.70 billion in 2020.

European market also presents growth opportunities. Resources can be used to drive higher aftermarket services of carbon brakes. The company has 40% military revenue – out of this 61% is OEM and 39% is aftermarket. The UK MoD continues to enhance its Chinook fleet. This presents opportunity for Meggitt, as the company already has large chipsets on the helicopter

Despite the defence cut and reduction in budget Aerospace and defence sector still remains the important sector for the firms who are providing services in this area. Due to the nature of this sector which is sensitive both politically and national security wise, will be of main concern to every nation.

Comparison of Rolls Royce and Meggitt

Rolls Royce’s core competence is engine technology with Trent Engines offerings. The company has established several long term exclusive contracts with Airbus, Euro fighter etc. Trent family of engine offers unique customer value proposition by lowering noise and reducing the weight of engines. Patented, industry leading technology, continuous investment in research, long standing customer relationships and skilled human capital are the resources that are going to differentiate Rolls Royce. The competence of Rolls Royce stems from its technological competence than its scale. Its investment in research & development is the backbone of Rolls Royce’s competence.

From the analysis of Rolls Royce we found that Rolls Royce is the strongest player in this sector in terms of providing defence needs (aerospace, marine, defence sector equipment and services) and also involved in long term services contracts with its customers (department of defence country wise). Rolls Royce has achieved and maintained its top 3 positions due to its huge product portfolio which are based on providing latest technology, enthusiastic innovation drive and ability to make

51 investment in order to develop in this activity. Due to which Rolls Royce has now become the trusted source for many parts around the globe. While analysing on RBV framework we found various capabilities and resources which had made Rolls Royce most successful and rapidly growing firm. But it also brought to our notice that has and could weaken Rolls Royce’s position in future.

Firstly being the primary supplier any downtrend in the industry sector will affect Rolls Royce first. At present due to defence cut Rolls Royce has saw reduction in its order book. The huge investment that Rolls Royce has undertaken for R&D and business development can weaken the firm financially. Here its strength could turn out to be Rolls Royce constrain if such situation persist for long term.

Secondly due to rising concern around the globe about defence spending by various countries which has ignited the series of consolidation in aerospace and defence sector could turn out as one more constrain for Rolls Royce. As Rolls Royce has been very active in M&A, now for large entity it would be difficult to compete and get contract order of the size which could show revenue growth for RR.

Finally from RBV analysis it is evident that Rolls Royce is leading provider of defence, marine, aerospace technologies. But as the customers of this sector consider it as long term investment they expect various services and facilities along with it. So Rolls Royce might now have to divert its focus and develop itself in servicing sector where it could bundle various services and maintenance facilities along with its products (jet engines, submarine propulsion system, etc) so that RR could meet all requirements of its customers.

From RBV analysis we found that Meggitt has developed its self as strong player in component manufacturing for aerospace and defence industry and catering to equipment manufactures. Meggitt derives much of its competitive ability due to its ability to manufacture at a low cost and its outsourcing abilities. The company does not invest much in research & development.

Due to investment which was mainly focused on increasing the quality of product and reducing the production cost as compare to its competitors has helped Meggitt to up the ladder within less time. Also Meggitt has got good range of products and technologies, which strengthen its product portfolio.

But along with the strengths RBV analysis also reflected some of its weakness. Begin the component supplier Meggitt falls at the second level where any changes in defence cut will affect the business of Meggitt. But Meggitt could turn this weakness into opportunity if it is able to increase its customer base so that whichever manufacturer gets the contract Meggitt should be its component and service provider.

Also along with the investment in product development Meggitt should consider to bring about development in its customer management system. As consolidation is lowering the number of players in aerospace and defence industry this could be favourable for Meggitt as there will be less number of customers to focus on.

Moreover if Meggitt considers acquisition of some firms in component manufacturing sector this could help Meggitt to reduce its competitors and add facilities for new product development. Consider the requirement of customers in this sector, the after sale services and facilities must be the aspect, which Meggitt should also consider and make investment in this direction.

Conclusion from RBV Analysis

In conclusion for big entity like Rolls Royce it is important for the business to increase its services along with its product so that it could satisfy its customers and compete with its competitors (but competition would be fierce as industry sector is becoming concentrated) and survive and grow in the business.

For company like Meggitt it has to concentrate more on developing and maintaining relationship with its customers (major player who are main contractors for defence departments) along with its product and service base. This will help Meggitt to win business order as however wins the defence contracts Meggitt should be its preferred component manufacturer. This can help Meggitt to survive and grow in the business.

Limitations of RBV framework

The common criticism made on RBV is that it does not describe the important issues of resources development and change over time and it is limited in terms of applicibility. It applies only to firms striving to attain Sustained competitive advantage. Firms which are satisfied with their competitive position, the RBV does not provide deep insight, as its relevance follows directly from managers’ vision and intentions. Also the dynamic role played by the individual within organization is not given much importance. RBV has no managerial Implications. It invokes the illusion of total control and exaggerating the limit up to which managers can control resources and predict their future values.

Lockett et al. (2009) and Priem and Butler (2001a, 2001b) argue the RBV does not contain the law- like generalizations that must be expected. Rather, it stands on analytic statements that are tautological, true by definition, and not able to be tested.

Sometimes the successful strategies can remain unchallenged for long time as identification or resources helps to keep the work on track but it does not tell when changes in these strategies are required and how to work on new strategy. Resource Based View does not consider concern with processes of building strategic resources through innovation and redeveloping such resources.

As the nature of business changes with time due to changes in demand and supply, entry of new competitors with time and various other external factors. RBV clearly explains what is present or already exist, rather than tackling the tough questions of what can come into being. Only analysing internal resources and focusing on strength, neglecting external competition can weaken the strategy. Resource Based View neglects how resources help to create value, How resources should be combined, in which way to yield maximum value. These are important implementation issues that are currently outside the purview of the RBV.

The VRIN framework applied helps us to access the position of the firm and its competitiveness. But the assessment process does not stop here. One has to also consider the strength and weakness of other competitors so that the actual position of the firm can be determined. Furthermore RBV does not consider the demand side of the market. The company might have resource and capabilities to produce competitively but who is the consumer?

Strategy Formulation to remove RBV Limitations

Organization’s most valuable resources and capabilities have unique characteristics, which are they are difficult to identify, imperfectly transferable, and difficult to imitate, and in which it has clear ownership. This strategy is used to expose these resources and capabilities, which limits its activities to where it possesses a competitive advantage. Below is the five stage model which helps the organization in their strategy formulation. The focus is on the internal capability of the firm.

Also this resource based approach can eliminate the limitations of RBV analysis by taking the analysis further and determining the future strategy. After determining the core resources and capabilities of the firm, management could formulate the next course of action so as to sustain and grow in changing business environment. Also by implementing this strategic approach one could access the extra inputs that would be required in order to attain those strategic objectives. The key to resource based approach to strategic formulation is to understand the interrelation between resources, capabilities, competitive advantage and profitability. This in turn requires the design of strategies which exploit to maximum effect each firm’s unique characteristics. (Henry A, 2008)

For Rolls Royce For instance RBV does not capture the data on future strategic plan of a company. This means that the RBV of the firm has not taken into consideration the following. On weaknesses, Trent has slightly lower fuel efficiency. With Trent 1000 engines Rolls Royce has invested in overcoming this shortcoming (rollsroyce.com) 6

6 http://www.rolls-royce.com/Images/competition_tcm92-11184.pdf - Rolls Royce competing with the changing world.

For Meggitt Effect of Defence Budget Cut on Meggitt ( Appendix)

Company Analysis

Finmeccanica- Case Study

Ranked among the top 10 players in Aerospace, Defence and Security the company is Italy’s leading industrial player in high technology sector. The group has great presence internationally with 350 companies, partnerships and joint ventures worldwide

The company derives about 73% of its revenue from three sectors – Helicopters, Defence Electronics, Security & Aeronautics. The company has a strong presence in Space, a pioneer in satellite services. The company manages all these segments through over 20 companies that are held under Finmeccanica. The Group Structure is as follows.

Defence and Security market is the key market for the company, where the company has shifted its focus more towards homeland security. However, the reliance of the company on Defence spending entails that reductions in military spending word wide will have an impact on its business. For instance, Finmeccanica registered a 22.0% decline in new orders.

Challenges  Social and Political situation in North Africa has impacted the company, as this is the major market. There was interruption in major civil and military programmes  New Order in 2011 declined by 22.0% overall. Within the Aerospace segment a whopping 33.1% decline and 27.5% in defense2011. On the whole order backlog was down by 5% - Causes are - delays in approval from the US government on defence budget

Lower orders are not only impacting the company’s revenue, but its margins as well as they are not higher margin business therefore not as profitable. The order book of the company declined quite a bit in 2011, as many programs are lower margin businesses. This is evident in the fact that the operating margin of the company is way below the industry margin. During 2011, Finmeccanica had margins of -1% while the industry average was 8.24% while S&P averaged 12.87%.The company has restructuring programs in place from 2012 to 2013 to achieve EUR 440 million in cost savings by 2014. Within the Defense Electronics segment the restructuring plans are on to bring Selex entities together to form a single entity. The company believes that all the cost saving initiatives is key to the company being able to be profitable to be able to do business and enter new markets.

Margins are way below industry standards, due to unprofitable programmes.

For margin improvements and cost efficiency programs the company has reiterated the need for collaboration within defense. Recently, the CEO of the company reiterated the need for European competitors to come together to be profitable in the defence industry. (Avionnews, July, 2012). This trend presents opportunities/need for IT systems/platforms for collaboration between entities. Within the Defense Electronics segment the restructuring plans are on to bring Selex entities together to form a single entity. The company believes that all the cost saving initiatives is key to the company being able to be profitable to be able to do business and enter new markets.

Presence in INDIA-

India has been on Finmeccanica’s radar for over 40 years. In 2007, the company signed a memorandum of understanding with Bharat Heavy Electrical (BHEL). The company has provided control equipment to Indian Navy, Communication systems for Indian army.

In 2010, the company specifically announced its plan to strengthen its presence in India through partnership with key local players. In line with this the company seeks to extend its collaboration with government companies (Eg: BEL, HAL, BHEL and BDL).

Although the company has not specifically stated a strategy for India in 2012, Finmeccanica is open to expand into emerging markets, including India.7

Recommendations

As Finmeccanica actively seeks to improve its margin performance, TCS could offer services around Enterprise Resource Services (ERP) and custom IT solutions to track costs for the company. In addition, TCS can offer outsourcing services to offshore some of the administrative and back-office services of TCS to India

Finmeccanica is going to be more focused on collaboration with competitors in the industry to share research cost base). This trend presents opportunities/need for IT systems/platforms for collaboration between entities. TCS can benefit from this by leveraging its IT solutions expertise to develop a collaborative platform.

Finmeccanica has a relationship with Tata and this relationship can be leveraged by TCS to offer aircraft design and other end-to-end engineering services to Finmeccanica. (For details on TCS engineering services offerings please refer appendix) Intent to enter Emerging markets presents a good entry point for Tata to start on collaboration talks, other outsourcing services, and engineering services to enable Finmeccanica to establish its presence in India.

7 http://www.finmeccanica.it/EN/Common/files/Corporate/Interviste/2007/Intervista_CorrieredellaSera_18_02_2007_uk.pdf

QinetiQ- Case Study

The company is headquartered in Farnborough, United Kingdom. It has major sites in the UK at Farnborough, Hampshire, MoD Boscombe Down, Wiltshire, and Malvern, Worcestershire, each of which are former DERA site. World's 52nd-largest defence contractor measured by 2011 defence revenues, and the sixth-largest based in the UK. The main market for QinetiQ is UK (54%) and North America (39%). But it is now building its large operation base in Norway, Australia, Canada and New Zealand.

Business Strategy

Set a clear direction which reduces the span of focus and matches both customer needs and core QinetiQ strength.  Upgrade leadership to ensure a commercial, value-oriented mindset  Establish a lower level of cost base to ensure future competitiveness;  Ensure a more unified approach Group wide to exploit key opportunities;  Drive for cash generation to strengthen the Group's balance sheet.

Under the challenging market environment and its impact on the business growth and profitability, in May 2010, QinetiQ set out a 24 month self-help programme to restore value, to strengthen the foundations, and build a path to future sustainable and profitable growth. The following priorities have been put in place:  Focus - Extracting value from the portfolio  Cultural transformation - Building a more competitive culture  Strengthen the balance sheet - Enable longer-term options - Extracting value from the portfolio This programme is created to increase the operational effectiveness, introduce more lean and agile process and to strengthen the balance sheet of the company.

How objectives are achieved-  Full integration of the US Services businesses is underway to reduce duplicated overhead, improving the ability of the division to compete effectively  The Group completed the disposal of the S&IS business and acquired Sensoptics Ltd to support development of the OptaSense® business

Challenges- Description Measures

A change in demand Planning to carry on innovative research on the areas which is not from reduced military conflict related like aerospace security and intelligence and portfolio operations in Iraq diversification and Afghanistan A change in either US or UK Planning to diversify the portfolio by providing more services in Government spending on security and intelligence sector. As UK Gov. Is planning to spend defence and security 650m on cyber capability, QinetiQ is seeing this as an opportunity.

The recent funding valuation of the Scheme, as at 30 June 2011, Funding of the defined resulted in a deficit of £74.7m.The group is taking external advices to benefit pension scheme solve this problem. It has considered next 6 years recovering this deficit. An increase in the deficit gives an indication that the Group to increase the cash contributions to the scheme, which would reduce the Group’s cash available for other purposes. Fixed-price There is a possibility that the costs required to complete contract contracts could be higher than those agreed in the contract as a result of the performance of new or developed products, operational over-runs or external factors, such as Inflation. The management try to review the bids and fixed prices to avoid the cost overrun.

Opportunities

 The company seeks to develop a US/UK cyber platform to exploit opportunities – principally it is focusing on ‘five eyes’ markets (UK, US, Canada, Australia, New Zealand) – which has developed due to government commitments to additional cyber security funding.  The company secured new contracts from the Scandinavian region including a Swedish defense administration contract. (New Opportunities from Scandinavia, including a £9m managed services contract to operate the flight physiological centre for the Swedish defence administration and a £4m order for the Norwegian Andoya Range System was added in 2011 revenue growth.)

QinetiQ is focusing more on aerospace security and intelligence services and trying to diversify the product portfolio in this segment. The recent acquisition and divestment activity gives clear indication that the company don’t want to relay on business where demand is uncertain and based on certain conflict condition. In order to fulfil this QinetiQ wants to strengthen its cyber security services and planning to expand in new market.

Change for the Future Prospects-

QinetiQ’s revenue is in the Test for Value category. These are businesses with proven technologies but that have yet to prove commercial viability.

According to the business model of QinetiQ i.e. core, explore, and test for value. To expand and strengthen the cyber security services QinetiQ is will stress more on explore part. The reason is QinetiQ has acquired to firms Cyveillance® and OptaSense® which delivers cyber intelligence solutions and fibre-optic sensing business. As the company considers the explore category business as core business for future, it can be predicted that major investment will be done on this part.

Recommendations

Based on our analysis- QinetiQ is now focusing on developing cyber security product and services at large scale in various countries like UK, US, Canada, Australia, New Zealand. So this could be the opportunity for TCS to establish relation with QinetiQ and provide solution in IT and consultancy sector. As TCS provides solutions in various sectors, some of this like IT services & solutions and technical consultancy services could attract QinetiQ to establish business relation with TCS.

Limitations of data

Most of the data for the research is obtained through publically available sources and company websites. The accuracy of the data that is available cannot be validated. Furthermore, most of the findings are subject to interpretations of data.

The top layer of companies in the world is made up of large corporations with international markets, internationally based production and a broad international shareholder base. These corporations provide a large amount of information on financial performance as well as non-financial aspects of their activities—such as measures taken to ensure environmental and social ‘sustainability’—in their annual reports, company profiles, and press releases. However, scant information is provided on the value and volume of arms and military production.

Only a few companies has provide comprehensive information about their future developments and R&D in technologies related to arms, military and security division on a regular basis and in a format that is comprehensible to the general public. The data related to technologies or research for

63 general public will use industrial development and that are relative easy to access. Valid information provided on a voluntary basis directly by the industry or by single companies or by industry associations—is even more limited. In general, information is provided on an ad hoc basis, in a format that seldom facilitates international comparisons or comparison with civilian industrial activities.

The companies we analysed are top players in the world. These companies have vast product portfolio, which includes aerospace and defence sector. Any information on civil aerospace and technology was easily available along with description and details. But there was very less information about defence product portfolio. The information about the cost of project, R&D partners, end user of products and suppliers of raw material were not displayed on any company’s website. We were also able to locate few problems, which companies in A&D sector are facing like pension deficit, reduced order book and employee reduction. But any further information regarding these problems was unavailable. Like the reason for pension deficit was not described in any of the company’s annual report. The main reason could be the degradation in value of the financial product in which companies have invested. But this was not illustrated in any form in any of the companies report.

Due to these limitations about gathering data, we tried to find the recent trends and short-term opportunities in A&D sector and compared it with the core competence of every company. This helped use to forecast and predict the near future plan for the companies and know the fields in which the companies are interested.

Disadvantages of secondary data

 One of the main disadvantage of secondary data is inherent in the fact that it was not collected for answering our specific research questions  Finding the appropriate data has not been straightforward.

Most consultants are inside the company to analyse the company to find its strengths and weaknesses. However, with TCS we were outside these companies trying to find the weaknesses, and problems. Here availability of information is an issue. Furthermore, if there was a contact with the company one would be in a better position to assess what exactly are the solutions the company needs.

For instance TCS can leverage its expertise in providing IT solutions to address a company’s problems. However, just using the secondary sources one cannot get details of IT spending, procurement budgets and also any future IT investment the company may undertake. To top that information on various suppliers of the company is not readily available. This data could help TCS to analyse if TCS can approach these companies with a better solution or low cost offerings.

Data around key people, relationships and company’s IT contracts is not available publically.

Most of the analysis at times is based on inferences drawn from available data set. Here interpretation and extrapolation of data may not be accurate.

Our Learning from the project with TCS

As it was a group work it created awareness of the dynamics of working in a team.For the first time we were working on such project which was live business plan for TCS. This Experience of working on a large-scale project couldn’t be achieved alone given the schedule and complexity of the assignment. While working on this project as a team we got the opportunity to exchange our ideas and inspire others to work together. This helped us in developing professional behaviour such as finishing the work according to the time schedule, taking responsibility. The meetings and conversations with TCS personnel also added to it.

Thus group work created the atmosphere of excitement. Various arguments, brain storming, work pressure led us to formulate the solutions to the problems in our project.

From academic prospective we got to learn basic and main factors that one should consider while performing in such kind of project. The main requirement of TCS from this project was to get the business case related to all companies under analysis. The business case which describes the problem the company is facing and new business plan under company’s consideration. This would create an opportunity for TCS to approach these companies and provide business solutions, which in turn will help TCS to develop in A&D sector.

While working on this project we realized that it is not only the financial factor that effects or plays an important role in business development. With reference to A&D sector the factors like GDP, government deficit, political stability, terrorist activity, occurrence of war, economic and financial stability of nation holds importance and can have substantial amount of effect on this sector. So this project has developed our understanding and thinking and given us an experience which will be

65 helpful for us while working on such sensitive sector. Now we consider ourselves as a candidate with the knowledge who can analyse the on-going business process and suggest future development plans for the same.

The overall development of structured thinking, teamwork, professionalism, critical analysis, thinking beyond the numbers and interpretation of others perspective are the skills we have gained while working on this project.

References-

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Appendix

1. PESTLE Analysis

Analysis of the Industry (PESTLE)

Political Factors impacting the Industry

Countries still continue to spend on military and defence operations, as political and security tensions mount. The world military spending has constantly risen since 1988.

There is still a concentration of military expenditure, in terms of few countries spending the largest share. For instance in 2011, 15 countries with highest spending account for 81% of the total global spending. Although NATO countries including Japan, South Korea and Australia alone account for 70% of the world total. However, with the rise of emerging economies – Indian, Brazil and China their military spending is also increasing proportionate to their economic growth. This in turn reflects the geo-political interests – “rising military spending for the USA, as the only superpower, and for other major or intermediate powers, such as Brazil, China, Russia and India, appears to represent a strategic choice in their long-term quest for global and regional influence; one that they may be loath to go without, even in hard economic times”, (SIPRI )

Among the emerging markets, India has become a key revenue driver as a result of high demand for advanced military hardware. As concerns of insurgencies and hostility rise from neighbouring countries. South Korea, Singapore, Taiwan and Hong Kong are identified as developed regions with highest growth potential. (Electronics Research, 2012). Other emerging opportunities are in the Middle East and North Africa region (MENA). Political instability in Tunisia, Egypt, Bahrain, Libya and Syria has encouraged higher defence spending by these countries. This in turn presents revenue expectation from these regions in 2012. (Electronics Research, 2012).

Military decisions by major powers and geo-political tensions do have a strong impact on company’s pipeline and stability of operations.

Global Distribution of Military Expenditure

Economic Factors Impacting the Industry

The global defence spending accounted for about 2.6% of world GDP in 2011. In real terms this represented an increase of about 0.3% from 2010. This represents a slight decline compared to rapid increases in military spending from 1998-2010. On the whole, the military spending is impacted by budget cuts and austerity measures in many countries resulted in greater push for civilian spending. Fewer jobs and slower GDP growth have particularly led to defence cuts particularly in the US and Europe. The impact of recession on jobs has hit the army too with US government alone cutting 27000 jobs by 2013. (Appendix (iii) for more details)

The Year 2012 has brought in a heightened sense of uncertainty with European debt crisis and Arab spring. Consequently the environment in the debt markets has been tough to access capital. The first half of 2011 saw the leverage/loan market open up, but the second half was a different story. As a result the market will see a lot of restructuring with UK leading the way. (Market Outlook, 2012)

These factors imply that the companies that still have large orders due in couple of years may face challenges in terms of financing those deals. This could result in delays and cost overruns.

Sociological factors Impacting the Industry

Changing gender distribution of the workforce will continue to evolve towards a greater participation of women. Part of the explanation lays in the changing nature of the major contractors,

76 but the main reasons are due to the overall change in the nature of the supply chain and the greater involvement of civil and international companies.

More female executives are rising to the top levels of the largest defense companies, setting a standard that industry officials say may help encourage more women to enter the field- The Boston Globe 12 July 2012.

Changing geographical imperatives Changes in the nature of defence companies and the increasing use of global outsourcing make it likely that defence-dependent communities will suffer as facilities are relocated. Increasing internationalisation of the supply chain will continue to bring about changes in the organisation and location of production.

Security Clearance Requirement Security clearance is mandatory due to nature of business in defence industry sector. Most of the suitable candidates are not selected as they fail to clear security checks or according to nationality criteria are not able to qualify. More than 50 percent of the engineering doctorates awarded in the U.S. are attained by students who are ineligible for security clearances, e.g. non-U.S. citizens.- How can the U.S. gain the lead in STEM Education? By Maxine Bleich (http://www.seenmagazine.us/articles/article-detail/articleid/2024/how-can-the-u- s-gain-the-lead-in-stem-education.aspx)

These sociological factors necessitate the need for skilled labour in the near future. So technical skills and delivering ability of the firm have gained importance.

Technological factors impacting the Industry

Barriers to entry are high for major contracts, but they will become less important because of the increase in joint ventures and in the use of COTS (commercial off-the-shelf) products, and growth of outsourcing.

Department of Defence Conversion Commission defines the conversion as the process by which the people, skills, technology, equipment, and facilities in defence are shifted into alternative economic applications. This has emerged due to rapid and dramatic cuts in defence budgets in various nations. -Defense Conversion and Dual-Use Technology: The Push toward Civil-Military Integration

Journal article by Linda Brandt; Policy Studies Journal, Vol. 22, 1994

Growth of dual-use technologies- This once seemed to be a significant development, but in reality it has not become important and is unlikely to do so in future, given the increased use of civilian

77 technology. Eg, Weight is considered as one of the major issue in aircraft. With help of new technology lighter seats for aircrafts has been developed which can save huge amount of fuel. – Technology focus is on saving fuel by Philip Butterworth-Hayes The Wall Street Journal 10th July 2012.Communications and control technologies are becoming increasingly important in the field of operations. Network-centred warfare is changing the nature of demand and leading to what has been called the Revolution in Military Affairs. Internet which was originally developed by US military has now become the important mode of communication. But these are potential threat on security based on it. For example recently the group of unknown hackers exposed the data containing the information about defence and intelligence officials in UK and US. –(The Guardian ‘Hackers expose defence and intelligence officials in US and UK -Security breach by 'hacktivists' reveals email addresses of 221 British military staff and 242 Nato officials’ on 8th Jan 2012 )

Environmental Factors

Factors impacting the environment such as air pollution, noise pollution have meant that the industry has come under scrutiny for the same.

I. Fuel Crises:

The Obama administration has allotted only $75.3 billion towards the defense research and development (R&D) for the year 2012 defense budget, down 7.4% from 2011 as a curtailed R&D will be carried out especially along the lines of fuel efficiency and as fuel is becoming a limited natural resource day by day.

Environmental factors could mean that the companies’ operations can come under scrutiny in terms of compliance to clean technologies.

Legal Factors

The A&D companies face a host of regulatory compliance rules such as DCAA cost audits, ITAR (International Traffic in Arms Regulations), FCPA (Foreign Corrupt Practices Act), and the False Claims Act, Pwc(2012).

Given the wealth and security concerns in emerging markets the demand for defense exports is increasing. However given the security concerns associated with arms, each country has its own rules. As the defense industry has gone increasingly global there is a push for an international arms treaty. (CITS, University of Georgia). On another angle, the US which is the largest market for defense exports does have a very bureaucratic export control (US ITAR). This in turn has meant that the American defense companies may not be as competitive. Canada’s recent announcement in July 2011 on a defense modernization program excluded American Technologies from key areas. (Defense Industry Daily, 2011)

In line with the need for reformed export control, On April 20 2012 then-Secretary of Defense Robert Gates outlined the administration's vision for overhauling the country's export control system. This reforms plan to manage the operations of the company in A&D sector in streamlined manner.The reformed export control system would include following process which will ensure effectiveness and secure operation of the company in other countries.

 A single control list  A single primary enforcement agency  A single information technology (IT) system  A single licensing agency

The new rule will take effect on August 15, 2011. These developments could help the US defense companies to preserve their attractiveness as exporters of defense.

2.Porter’s Five Forces

Porter’s Five Forces

Barrier to Entry

The Aerospace and Defense industry is highly capital intensive with capital and expertise needed to succeed. The investment on R&D is heavy and the time required to deliver the finished product is long which is from 2-3 years. This requires flow of capital for longer period of time. A firm must gain technical ability and then prepare proposals. Boeing spent three years acquiring the competence needed to develop the Saturn 5 first stage. Grumman spent $2 million for its research and proposals besides the sum it invested in facilities. And the money a company like Grumman must spend is probably less than for an outsider to the industry. (Generalatomic.com, 2012)

Companies have to comply with various legal requirements to satisfy strict regulation. Compliance with strict liability laws and regulations is a central element of doing business in this environment. The companies constantly face legal challenges in rapidly changing, fluid and reactive global environment. The abundance in number of patents and the highly specialized equipment being manufactured. (dotstoc.com, 2012 analyzed by Steve Comolli). Some technologies and services, such as intelligence

80 gathering equipment, are highly classified. In these cases, users are unlikely to switch vendors based on cost savings as this will subject the classified information to unnecessary dissemination. Incumbency in existing products is an important barrier to entry for parts suppliers. In many instances, it is not possible to substitute parts, components or even entire products as, in addition to having been designed and manufactured for specific uses, products are frequently certified through rigorous tests that cannot be quickly replicated, or the cost of substitution is otherwise very high. (Moody’s Investor, 2012)

Need for Economies of Scale

The US defence market has a large market to cater domestic and international both. So defence contractors enjoy the benefits of economies of scale. The fixed production line and tooling cost adds to economies of scale. But as due to defence budget cuts now the procurement budget on European countries has fallen down so it has created grave situation for the producers on maintaining the economies of scale. USA is roughly covering the 50% of market share so for non-US producers the competition has become more intense and an economy of scale has become the essential factor for them. (The National Academic Press, 2012)

Threat of substitutes: Low Substitutes for an effective combat aircraft take many years to develop (eg. 10+ years) and whilst buyers are budget-constrained, they are not price-sensitive. (Braddon et al, 2012) The products or technologies are complex and are patented. Due to limited number of producers and customized product choices, it becomes difficult to replace these products within less time. Also most products are order specific. Overall, the threat of substitutes is low.

Bargaining Power of Suppliers: Moderate

Due to very complex special-purpose systems intended for unusual and extreme operating environments advanced technology used in parts, which requires long lead time and highly developed technology. So supplier of these components is important for the buyers. But as the requirements are customized the supplier doesn’t enjoy the broad customer platform. Here buyers are less and concentrated. The buyers rely on the suppliers for high quality product but in very less quantities for their final product.

Within the aerospace and defence market supplier are represented by companies that provide raw materials and components for manufacturers. Quality and availability of materials, input in turn determines the quality of output. Furthermore, the suppliers are not solely dependent on the aerospace & defense companies. Other customers include companies in railway and automotive, so supplier risk is diversified. However, as the number of suppliers in the industry is too many, their bargaining power is diluted as they can easily be replaced by the players.

Also due to financial downturn there is effect on the supplier base as it is linked with the defence cuts and the ability of Department of Defence in procurement of new defence services. (National Defence University,2010)

Bargaining Power of Buyers-Moderate

The companies/players in the industry are large multinationals with integrated companies. Although the contract size and financial resources of the government can somewhat offset this power. Consolidation has led to increasingly smaller numbers of players. In 2011 there were many mega deals where many firms of Aerospace and defence industry were acquired. According to PWC due to defence budget cut this process will continue in 2012. The large size of these competitors, due to past merger activity, means they have potentially strong bargaining power with buyers. The buyers in the defence segment have good financial position as they are mostly government organization. This power is diluted somewhat as aerospace and defense products and systems are highly important to buyers. Companies like Lockheed Martin not only provide military aircraft and hardware like missiles, but also cater for the repair and logistics needs of their buyers, which increases switching costs and decreases buyer power. Rolls Royce provides maintenance and services for jet engines and provides various types of fuels to more than 30 types of air craft. The Manufacturers are able differentiate their products through innovation which weakens buyer power further. Overall buyer power is moderate.

Rivalry – High

Within the Aerospace and Defence market rivalry among the present industry is strong with large organizations competing intensely for government and commercial contracts. This is a market dominated by large multinationals which provides various services and defence equipment i.e. they

82 are highly diversified in terms of the products they manufacture. Also due to their presence in many countries the aerospace and defence industry is concentrated and major share of market is owned by few top most players. According to PWC forecast on A&D industry sector, in terms of revenue top 5 players enjoy 36% of total revenue on A&D sector. Factors such as the rising threat of global terrorism have led to the defence sector being the most lucrative, with the market growing steadily. Competition is also intense in terms of winning defence contracts and companies use innovation and new technology to differentiate their service. Rivalry in this market is strong.

The duration of contract has increased the rivalry among the industries as the contracts are long term, companies invest heavily on marketing and R&D to present the best product and services and win the contract which is of high value. Rivalry has further increased due to moderate market growth, government spending on defence sector, high strategic stakes, and high exit barriers.

3.Large M&A Deals of 2011

Source : TCS.com

Tata Consultancy Services is part of the Tata group, one of India’s largest industrial conglomerates and most respected brands. Tata Consultancy Services is an IT services, business solutions and outsourcing organization that delivers real results to global businesses, ensuring a level of certainty that no other firm can match. TCS offers a consulting-led integrated portfolio of IT and IT-enabled services delivered through its unique Global Network Delivery Model™ (GNDM™), recognized as the benchmark of excellence in software development. TCS has over 238,583 of the world’s best-trained IT consultants in 42 countries with revenue of $10.17 billion (fiscal year ending March 31, 2012).

TCS has strategic partnerships with major global technology players like Alcatel- Lucent, Cisco, EMC, Google, HP, IBM, JDA, Microsoft, NetApp, Oracle, RIM, SAP, Sun, Xerox.

Solution Partners are Adobe, BMC Software, CA, Informatica, Ingres, iTKO, Jaspersoft, MicroStrategy, Netezza, Pegasystems, Quest Softwaer, Red Hat, Salesforce.com, SAS, Software AG, Symantec, TIBCO

TCS has the depth and breadth of experience and expertise that you need to achieve your business goals and succeed amidst the fiercest competition.

 Banking & Financial Services

 Energy, Resources & Utilities

Industries  Government

 Healthcare

 High Tech

 Insurance

 Life Sciences

 Manufacturing

 Media & Information Services

 Retail & Consumer Products

 Telecom

 Travel, Transportation & Hospitality

 Assurance Services

 BI & Performance Management

Services  Business Process Outsourcing

 Cloud Services

 Connected Marketing Solutions

 Consulting

 Engineering & Industrial Services

 Enterprise Solutions

 iON - Small & Medium Business

 IT Infrastructure Services

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Software  TCS BaNCS

 TCS MasterCraft

4. University Funded Research & Development Centres

- June 29, 2012 Rolls-Royce sold its shareholding in IAE, manufacturer of the V2500 engine, to Pratt & Whitney. The relevant agreements remain subject to various closing conditions including regulatory approvals. Rolls-Royce will remain a key supplier, responsible for the engineering support and manufacture of high-pressure compressors and the final assembly of 50 per cent of the V2500 engine. Orders for over 150 V2500-powered aircraft were taken in 2011.

5. Acquisitions of Meggit PLC

Meggitt bought Insley, a cutting tools distributor, for £2.5 million in stock and cash in September 1984.Meggit bought diversified aerospace engineering firm Negretti for £16 million

1998- Meggitt acquired Microsystems Group for £33 million, guiding the electronics business into the higher margins of ticketing machines, taxi meters, and telephone-logging systems.

Meggit’s Mergers &Acquisitions (M&A) activity

April 2011  Pacific Scientific Aerospace, a leading supplier of equipment for critical military systems, commercial transport aircraft, business jets and general aviation January 2008 Ferroperm Piezoceramics A/S, the Danish producer of advanced piezoelectric ceramic materials for sensing products July 2007 K&F Industries Holdings Inc, a supplier of wheels, brakes, brake control systems, flexible bladder fuel tanks, helicopter interiors, ice guards and sealants October 2006 Firearms Training Systems, a provider of simulation products for firearms training September 2006 Keith Products, a supplier of compact air conditioning systems for business jets and general aviation aircraft August 2006 Radatec, a US start-up with breakthrough turbine tip clearance measurement technology November 2005 ECET, an ignition systems and airborne electronic equipment specialist November 2005 Sensorex, a sensors and electronics specialist July 2005 Avery-Hardoll, a manufacturer of aerospace ground refuelling equipment December 2004 Wilcoxon Research, a specialist sensors manufacturer December 2004 Schreiner Canada, unmanned aerial and marine targetry August 2004 The design and manufacturing division of Dunlop Standard Aerospace. Dunlop Aerospace Braking Systems and related aftermarket services

(Dunlop Aerospace Services) form a new, stand- alone operating unit. Dunlop Ice.Protection & Composites, Dunlop Precision Rubber (merging with Bestobell. Aviation to become Dunlop Bestobell, now Meggitt Polymer Solutions), Dunlop. Equipment, Serck Aviation and Stewart Warner South Wind are integrated into Meggitt’s then aerospace equipment division December 2003 Meggitt Western Design, a designer and manufacturer of automated ammunition- handling equipment and environmental control systems December 2003 Meggitt Airdynamics, a designer and manufacturer of pumps, fans and compressors for ground, naval and aircraft applications March 2003 Caswell International, a supplier of ground-based live fire training equipment systems January 2003 General Electric turbine clearance control valve product line November 2002 Lodge (ex-Smith’s Group plc) temperature and speed sensors July 2002 BAE Systems’ military air data and data acquisition computers April 2002 Kaman Aerospace Corporation high integrity radio frequency cables

6. Effect of Defence Budget Cut on Meggitt

The military market of Meggitt Plc contributes 40 % of the company’s total revenue in the year 2011. Of this 40 % contributed by the military market, 67% of the total military revenue is contributed by business carried out in North America, through an over dependence on government contracts. Meggitt mainly generated its military revenues from the US Department of Defense, which is a high risk of overdependence on a single revenue channel and remains the company's biggest customer, and development partner. The defense budget cuts by the US government will impact the

89 company’s revenue and growth especially from the military market due to the uncertainty arising in the near future and many of the and defense programs may be cancelled. A decrease in the government spending may result in drastic reduction in the volume of contracts awarded to the company. Meggitt also has resources applied to specific government contracts and if considering the uncertainty of any termination in contracts, the company will incur substantial costs redeploying those particular resources. Mount Vernon Mills and Meggitt Polymers each have nearly 1,200 employees and are overwhelmingly the leading employers in Chattooga and Polk counties which will also be majorly impacted by the defense cuts. Doug Walker (Rome News-Tribune)

Overall Meggitt has a diversified risk and a global presence spread across the world. It has its manufacturing facilities setup in US, UK, France, Switzerland, Denmark, and China and major established operations in Europe, North America and the rapidly growing economy of Asia. It is one of the leading players in the civil aerospace equipment (revenue 46%), sensing systems, combat support and defense systems training. Meggitt’s diversified geographical presence ensures protection against macroeconomic risks associated with operational presence in one location and one particular market.

Meggitt Plc achieved a good growth during the first six months of 2012. Their underlying profit before tax increased by 15% to £168.5m and revenues increased 19% contributing mainly from their commercial and military markets. They increased the dividend by 12.5 % to 3.60 pence per share and are assertive about its future prospects, despite uncertain defence markets. As Airbus and Boeing are their main customers, they have strong order books to sustain for the next 3 years which inturn is a growth for Meggitt. These major plane makers are ramping up output and are targeting more than 1,100 deliveries in 2012, as there is a growing demand by airlines for new fuel-efficient planes and rapidly growing economies. Meggitt’s Ceo, Terry Twiger expressed his concern for the Military market and stated that they are self-sufficient in meeting the growing demands but growth from the military market will remain uncertain until the U.S. presidential elections are carried out

Meggitt was awarded two contracts from BAE Systems plc for its range of cockpit display equipment and electro-mechanical instrument and supply of the nose and main wheels, brakes and brake control systems added spares both valued at £5 million and £8 million in the year 2011. Also in 2010 it won a $3.2 million training system upgrade contract from the Singapore Police Coast Guard.

Meggitt believes in acquisitions as a key part of their growth strategy and are intended to enhance Meggitt’s core growth and business expansion which includes new technologies, additional products and geographical spread-out. In 2011, Meggitt decided to acquire Pacific Scientific Aerospace

90 business from Dahaher Corporation which has enhanced meggitt’s product portfolio, having created integrated fire and smoke detection and suppression offerings plus electrical solutions to support the hydraulic/pneumatic technology in aircrafts. Meggitt further plans to acquire their Artus business in the next 12 months, which would help in diversifying their sensors and anti-icing products. The company will enhance its low cost manufacturing capability with the addition of factories in Mexico and Vietnam. LONDON | Tue Aug 7, 2012 7:59am BST (Reuters)

The airlines are buying new fuel - efficient aircrafts so as to cut the ever growing fuel costs and the Gulf and Asian carriers are looking to expand their businesses whereas the US airlines seeks to replace their ageing fleets. All these factors serve as a positive outlook and opportunity for Meggitt, who is a major producer of wheels, brakes and other parts for Airbus and Boeing. Meggitt’s civil aerospace business accounts for 45% of their total revenue and there has been a 16 % increase in sales this year whereas the military represents around 45% of Meggitt revenues and currently is estimated to have only a 2% growth due to the uncertain defense cuts. Meggitt’s finance chief Mr. Stephen Young was assertive about the large jets markets due to the growing demand world-wide, as well as the military business grew 5 % in 2011. Wednesday March 7, 2012 By Daily Express Reporter. Meggitt also expects Eurofighter Typhoon to fall by about 40% in 2012 and 2013, F-35 production could flatten over the same period. Overall Black Hawk utilization could reduce by up to 55% by 2014 due to the end of the Afghanistan operations. http://www.guardian.co.uk/business/marketforceslive/2011/dec/06/ftse-wavers-retailers- fall?INTCMP=SRCH

Meggitt should also look into the Cyber and IRS (intelligence, surveillance and reconnaissance) as they are the only real growth areas in the defense sector at the moment and the big players are looking to move into these areas. Rhys Jones and Andrea Shalal-Esa FARNBOROUGH, England (Reuters).

7. TCS Submissions

 Presentation (9th August 2012)  Company Analysis Pack

Finmeccanica

Company Information

A leading company in Aerospace that is involved in development, delivery, and leading edge solutions based on innovative technologies. The company is a global tier two subsystem partner for OEMs, Prime contractors and governments.

For more than 75 years the company has been offering services and products around communications systems, land, and sea and air platforms. The company’s product range mainly consists of circuits, high-tech components or subsystems that are mostly used in military equipment.

Business Segments

The company primarily operates in three business segments – Aerospace and Security, Defense Systems and Mission Systems

Revenue by segment

Aerospace security is the largest segment of the company

Aerospace and Security Division

Cobham is a leader within this division in strategic communications, military, security surveillance systems and communications. Within this segment the company has four strategic business units – Aerospace Communications, Antenna Systems, Commercial Systems, Tactical Communications and Surveillance

Defense Systems

Through this segment the company offers radar products, specialist antennas as well as microwave subsystems. Its platforms were used in world’s major systems such as Aegis radar system, F-35 Lightning II Joint Strike Fighter and Standard Missile. Through this division the company provides scientific, systems engineering and technical assistance (SETA) to intelligence agencies.

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Mission Systems

Through this segment the company designs, develops and offers technology for Air-to-Air refuelling, Weapons, Life Support and robot applications. The company maintains 150 aircrafts on specialist operations around the world. This division maintains over 150 fixed wing and rotary wing aircraft for government agencies worldwide. Strategic business units include Aviation services, Life Support and Mission Equipment

Ranking

As of June 2012, Cobham was 51 on the list of Top 100 Defence contractors on the Defense List. Cobham has been excluded from the Washington Technology’s list of Top 100 contractors in 2011.

Headquarters

Wimborne Minister, UK

Geography (Key Markets)

The company’s international presence is in US, UK, Mexico, Sweden and Finland. Cobham has over 100 partners and customers. The company derives more than half of its revenue from the US.

Employees

5285 (as on Dec 2011 end)

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Organisation Structure

Name Title Profile

J Devaney Chairman A career in Engineering companies A qualified Chartered Engineer, who also served as Managing Director in

A Stevens Chief Executive Officer Rolls Royce MBA from INSEAD, has held senior financial positions in British Airways, Euro Disney and was Deputy Group Financial Director W Tucker Chief Financial Officer of Cable and Wireless.

Formerly Prime Minister's envoy for reconstruction in Southern Iraq. Serves as a Chairman of the Iraq Advisory Board for G4S plc. He is Economic Development Adviser to the M Wareing Non Executive Director Government of Afghanistan

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Formerly served BAE systems as Strategic Development Director. She was responsible for corporate strategy A Wood Independent Non Executive and M&A.

Former US Marine Corp that served the Marin e corp for 39 years. He served as Commanding General and Executive Assistant to the Director of Central M Hagee Independent Non Executive Intelligence.

Culture

The culture of the company is rooted in business ethics that strives to manage risk and minimise liability. Cobham is always focused on investing in technology to always build on better innovative products that are differentiated. Compliance is taken very seriously and employees are trained extensively on key principles of prevent, detect and respond

Business Strategy

Future Strategy

 Selective investments in markets where Cobham has technical differentiation  Enhance growth inorganically through acquisition activities  Continued investment in technologies in fast growing markets  Focus on markets where Cobham has scale and differentiation  An export driven strategy to compensate for the slowing US defence market  Hold top 3 position in key markets by investing in technology

Drivers

 USD 14 million investment in a new product ‘Radio and Audio Integration Management System’ is expected to generate about USD 250 million in revenue over the product’s life.

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 Design of new ERP system to enhance operational performance is underway  £25 million in cost savings anticipated for 2012  Additional supply chain improvements in place by 2013, to result £75 million in savings

Challenges

 During 2011, the core business declined by 7.0%, as the US Department of Defence budget declined  US Defence market accounts for nearly 44% of revenue

Opportunities

 Emerging market opportunities and international business. During 2011 non US defence business grew by 5.0%  Cobham has seen increased activity in air fuelling and electronic subsystem exports  Emerging markets of India, Brazil, Middle East and parts of South East Asia.

Cobham has managed to achieve better net income margins than the industry average, despite sluggish top line performance. Furthermore, the company appears to be concerned with supplier optimisation as well. To achieve these initiatives the company has plans to implement an ERP system.

Cyber security: The Company abides by strict regulatory and compliance requirements. For instance the company has to follow the United States Lobbying Disclosure Act. Cobham has strict environmental priorities to adhere to. Risk is at the heart of its focus even as Cobham chooses suppliers based on social and environmental risk. This can be explained by the fact that the company outsources the manufacturing of components while it only assembles products in house.

Strategy in India

India is an attractive market for Cobham. Cobham expanded its presence into the country in 2010 by opening offices in Delhi and Bangalore. The company remains committed to investing in India in the long term. In line with this Cobham wants to invest on having a dedicated sales force, account management and Supplier management while leveraging Indian Indsutry.

 Cobham seeks long term growth by partnering with Indian companies and develop local solutions  Industrial co-operation through Indian Industry Joint Ventures  Deliver long term benefit to India by transferring leading edge technologies through industrial co-operation  Foster strategic links with local technology universities

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Research and Development

Cobham spent about £69 million on R&D in 2011, representing a core investment of £129 million. The company’s investment in R&D is linked to market opportunities through Private Venture

Order Book

For 2011, the Company had an order book of £2.5 billion (£1.1 for aviation business)

Key News and New Orders

Other Key News/Press Release

During 2011 Embraer of Brazil selected Cobham to provide advanced flight display system for (14 EMB-312 Tucanos), Columbian Air Force in early 2012. In addition, Embraer selected Cobham for the development of Wing Aerial Refuelling Pod for the KC-390 Tactical Military Transport and Tanker for USD 60 million

In 2011, the company completed the first ever integrated radar subsystems for the Apache Block attack helicopter for the US army. New Contracts

August 2, 2012 : Boeing selected Cobham to provide On Board Inert Gas Generating system for the new KC-46A Tanker Aircraft of US Air Force.

July 16, 2012 : Cobham was awarded a long term agreement for 18 months with Astrium to produce fixed waveguides in a deal valued at £14 million

July 11, 2012 : Cobham secured an eight year contract from Oil Spill Response Ltd (OSRL) to offer services on oil pollution detection and surveillance in the UK.

Products

Defence and Security Electronics

Cobham offers some of the complex rotating electromechanical sub systems, microwave and mmWave antennas for radio frequency, Infra-red and Electro optic platforms.

 ‘’Electronic warfare antennas including jammers, radar warning, direction finding (DF) and signal intelligence (SIGINT)  Communication, navigation and identification (CNI) antennas – line-of-sight communication and data links, SATCOM and GPS, IFF, TACAN, marker beacon, altimeter  Radar antennas – fire control radar, weather radar, synthetic aperture radar

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 Radomes and advanced composites  High-precision positioners – sensor positioning systems, antenna positioning systems’’ (Cobham, 2012)

Mission Systems Division

Life Support

As a preferred supplier of pilot oxygen regulators for the US military Cobham has a good positioning within this segment. The company also offers On Board Oxygen Generating systems (OBOGS) - Cooling Systems : Infra Red (IR) cooling in the Javelin, EKV and THAAD programs - Actuation & Control : Electro-explosive actated valves, gas storages devices - Space Systems : Pyrovalve and electro-explosive actuation technology for major launch vehicles

Mission Equipment

Air-to-air refuelling to facilitate man machine interface right from avionics equipment in tanker aircrafts to refuelling probes in receiver aircraft. - Air-to-air and air-to-ground systems employing both pneumatic and pyrotechnic ejection systems

Competitiveness - Defence and Security Market

The core competence of Cobham that sets it apart from competitors is that it offers fighters, satellites and unmanned vehicles that have lower weight yet provide greater functionality.

Cobham has a solid position with KC-46A aerial refuelling tanker aircraft and the CH-53K heavy lift helicopter. The company has a strong position with its legacy F-16 and the F-18 fighter aircraft. Cobham has strategic product within the European market with Eurofighter Typhoon fighter aircraft and the NH90 utility helicopter.

Unmanned aerial Vehicles (UAV) are some of the leading in the world, supported by Cobham’s increased investment in technogy. What differentiates Cobham from its competitors is the superior technology

Cobham through its Mission Systems provides 95% of refuelling systems for both receiver and tanker aircraft. Also, Cobham is the world’s largest supplier of tactical linear Stirling cycle for infrared and other optical equipment. Furthermore, Cobham is the market leader in Air-to-Air fuelling within defense systems.

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Products

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Financials

Competitor benchmarks

Growth Rates of Industry S&P Company Sales 8.36% -7.36% Net income 4.30% -314% Debt/Equity Ratio 0.85 0.74 Current ratio 1.20 0.98 Liquidity Ratio 0.80 0.70 Return On Equity 36.2% -50.80%

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Cobham maintained the same revenue level as last year as challenging conditions in the US defence/security market was mostly offset by strong growth in world defence markets. Order intake for the year increased by 16.0%. Cobham’s cost efficiency programmes enabled the entity to realise £25 million in savings. Overall the operating margin improved by 2.0%. Despite a sluggish top line the company managed to enhance its net income by 22.8%

Debt-to-equity ratio of the company improved much as long term debt was paid by the company. Return on equity improved significantly as well on account of improvement in net income.

Key Events

M&A activity – Restructuring within the Group

Cobham is active in M&A activity where the company has acquired over 50 companies in the past decade for over £1.5 billion.

The company is very open to strategic transaction to fuel growth. In 2011 the company invested about USD 280 million. Further Cobham divested Analytics Solutions Business (non core asset) for USD 350 million.

In January 2011, The company acquired Telerob GmBh, manufacturer of advanced bomb disposal robots and threat response vehicles based in Germany.

On June 26, 2012, Cobham completed its acquisition of Thrane &Thrane A/S. Earlier in April 2012, Cobham presented a formal offer to buy the above company. Thrane & Thrane A/S is a company based in Denmark that manufactures infrastructure solutions, equipment for global mobile satellite as well as radio communications on air, land and sea.

On July 9, 2012 Cobham divested its non-core US rescue beacon business to J.F Lehman for USD 73 million

Regulatory compliance

The company has lot of regulations to comply with as the government is the largest user of its products. Cobham has to comply with the United States Lobbying Disclosure Act

Environment

For environment the company has set up the following priorities. In 2010, the company decided to reduce energy use (water and waste) by 10%

 ‘’Increase energy efficiency from 1,499 MWh / £m to 1,049 MWh / £m  Reduce waste from 4.8 tonnes / £m to 3.7 tonnes / £m  Increase water efficiency from 259 m3 / £m to 113 m3 / £m’’

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Financials

In terms of financial performance, the revenue of the company has been on an upward trend. The revenue in 2012 increased by 14% driven by increased activity within submarine, and warship programmes. Contract wins in infrastructure, year-on-year growth within support services aided top line growth. Growth in top line together with cost synergy benefits, and improved contract margins aided the improvement in operating margin.

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Liquidity ratio of the company has been pretty healthy while the current ratio improved. The Gearing ratio has improved on account of significant reduction in long term debt. Long term debt declined considerable by 8.0%. Return on Equity improved due to net income on an enhanced shareholders’ equity base.

Key Events

M&A activity

October 6, 2011, The Group acquired a controlling stake in Careers Enterprise (Futures) Limited and acquired net assets after allowing for negative value of joint venture. Total transaction consideration was £nil.

July 8, 2010, The Group acquired 100% stake in VT Group PLC for consideration of £1.47 billion in both share and cash. This business was later disposed off in 2011. See news section for more details

September 27, 2010, The Group acquired Evergreen Unmanned Systems, USA for a cash consideration of £8.9 million.

Company- GKN PLC

Company information-

GKN is a British multinational automotive and aerospace components company founded in 1759. The company was formerly known as Guest, Keen and Nettlefolds.

GKN is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

Business segment-

GKN is global engineering group which produces the components for vehicles and aerospace. GKN operates in four divisions GKN Driveline, GKN Powder Metallurgy, GKN aerospace and GKN land systems. It has joint ventures in more than 34 countries.

GKN is first tier supplier of to manufacturers of aircraft, aircraft engines and equipments. Its aerospace business comprises of 58% of civil and 42% of defence aerospace.

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Sales (£m)

Sales

Other Business 106

Driveline 2795

Powder metallurgy 845

Aerospace 1481

Land Systems 885

Ranking-

Has been ranked 1370 among global 2000 by Forbes.

Headquarter-

Redditch, Worcestershire, England, United Kingdom.

Also have presence in Thailand, Germany and North America. In India GKN have offices in Faridabad and Dharuhera (Haryana) and in Chennai (Tamil Nadu).

Key Market-

The businesses comprise reach from the US West Coast to the eastern shores of Japan, from northern China throughout Europe to South Africa, Argentina and Australia, India, Thailand, Malaysia.

*(http://www.gkn.com/aboutus/Pages/Where-we-operate.aspx)

Employees- 41900 (As on Dec 2011)

Aerospace Segment- 8500

Drive Line- 21,100

Powder Metallurgy- 6400

Land Systems- 5900

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Organization Chart

Name Position Michael Turner Chairman Former President of the Aerospace & Defence Industries Association of Europe. Fellow of the Royal Aeronautical Society. *Member of the Government’s Apprenticeship Ambassadors Network Nigel Stein Chief Executive Officer President of The Society of Motors Manufacturers and Traders Ltd and Member of Automotive Council. Marcus Bryson Chief Executive Aerospace *Vice President of Aerospace of ADS group and Land Systems

Tufan Erginbilgic Independent non-executive Director Shonaid Independent non-executive Former non-executive Director of Havelock Jemmett-Page Director Europa plc. * * Independent non-executive Director and Chair of the Audit Committee of APR Energy plc. Richard Parry- Senior Independent Director Former Chairman of the Welsh Assembly Jones *. Government Ministerial Advisory Group

Andrew Chief Executive Automotive Former Chairman of the CBI Manufacturing Reynolds Smith and Powder Metallurgy Council and former member of the Ministerial * Advisory Group for Manufacturing. *Member of the Government's Green Economy Council. William Seeger Finance Director

John Sheldrick Independent non-executive Director Judith Felton Company Secretary Non-executive Director and Trustee of Young Enterprise UK. Roland Seidel Managing Director GKN Driveline Trier- company contact

Rob Rickell global engineering director GKN Driveline

Business Model- Value is created by achieving the strategic objective through Market Leadership, Growth, Operational Excellence, and Sustainability. The group always focus on finding new business opportunity and achieve the best result through lean manufacturing. The superior technology and outstanding employees , leveraging the global footprint and commitment to corporate responsibility are considered as the key capabilities of GKN.

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Strategic objectives:

Market leadership

 Achieve a leading market share in our chosen markets.  Develop superior technology and quality in all our businesses.  Deliver exceptional customer service. Growth

 Achieve above market growth in our chosen markets.  Leverage and extend our global footprint to increase market share.  Accelerate growth through value-enhancing strategic acquisitions. Operational excellence

 Develop a world-class enterprise, using Lean manufacturing techniques.  Be an employer of choice with a high performance culture, motivated people and outstanding leaders.  Achieve preferred status with our strategic customers and suppliers. Sustainability

 Develop products and processes to help reduce emissions.  Maintain a world-leading health and safety record.  Have a positive impact on the environment and the communities in which we operate.

Business in India-

GKN currently manufactures only constant velocity joint (CVJ) systems across its three facilities in India and is in the process of setting up a new facility at Pune at an investment of Rs 130 crore.

GKN has invested €20 milli and has created an innovative system concept, the first of its kind in the world. It will improve safety; it introduces fully-automated flow lines; will minimise energy consumption; and allow us to be more responsive to the customer. The main forgings of the new systems will be precision-formed up to 950°C, cooled, descaled, cold formed, washed and then treated with corrosion protection before quality control and despatch.

Two acquisition in 2011 has provided GKN growth platform in new and existing market. GKN has acquired Getrag Driveline Products , global leader in All Wheel Drive Segment (AWD) and Stromag , market leader in power management .

Joint ventur with Stromag India pvt.Limited for aerospace division and GNK Sinter Metals Pvt Ltd in Powder metallurgy division and GNK Driveline India Ltd for Automotive division.

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Products-

GKN Driveline-

GKN Driveline is a leading global producer of CVJ Systems, AWD Systems, Trans Axle

Solutions and eDrive Systems and operates in 23 countries at 57 locations employing

22,000 people.

-Constant Velocity Jointed system including CV joints and side shafts -All wheel drive system( AWD) Including prop shafts, couplings, and final drive units -Trans-axle solution including open limited slip and locking differentials and electronic torque vectoring product. -eDrive systems including electric rear axles and electric transmissions. Sales by Customer

Toyota 7%

Others Ford BMW 8% 23% 5% Tata Group 2% Mitsubishi Volkswagen 6% Group 16% General Motors 9% Renault/Niss an Group Fiat/Chyrsler 13% 11%

GKN Aerospace-

-Integrated Aero structures, including wing and flight control surface sub-assembles and fuselage structure s and surfaces -Fixed and rotation propulsion products for aircraft engines fan case, exhaust, blades and nacelles. -Transperences including specially coated cockpit and cabin window -Niche products such as ice protection , fuel systems and floating devices.

Operational in 27 Location across 5 countries

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Other Products- GKN Land Systems- -Electro-mechanical power management devices -Single and multi pieces steel and aluminium wheels -Aftermarket parts for cars, trucks, and agriculture and construction vehicles.

GKN Powder Metallurgy- -Sintered components for engines and gearboxes -Sintered bearing and filters , -Metal injection and moulding components -Soft magnetic components for use in electric motors.

Challenges & Measures taken by GKN - A) Technological Advancement- GKN is concern about losing its customer to competitors offering new technologies. Also difficulty in adapting to market development such as changes in legislative, regulatory, and industrial requirements. Therefore focus is on development and investing more on research and development.

Measures undertaken-  In January 2012 have opened a joint venture with Rolls-Royce at Isle of Wright, UK for the production of composite fan blades for aircraft- engines.  From 2012 GKN is planning to open Aerospace facility at Orangeburg, South Carolina, US. This facility will mainly focus on the assembly operations of composite fuselage for the Honda jet.  . In Filton plant, GKN manufactures advanced carbon fibre wings spares for new airbus A350XWB. GKN is investing heavily at Filton site

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B) Supply chain disruption- Caused by lack of availability of raw material, components ,Services has impacted GKN and its relation with customers. GKN aim to solve this problem by reducing dependency on single supplier, monitoring financial viability of key suppliers.

Measures undertaken-

 GKN PLC has bought the aircraft engine division of Swedish truck maker Volvo AB for SEK6.9 billion. ($1 billion). Volvo Aero designs, engineers and makes components for major aero- engine manufacturers such as the General Electric (GE), Safran SA joint venture CFM, Pratt & Whitney, and Rolls-Royce Holdings PLC. They all equip Airbus and Boeing aircraft. (The wall street Journal July 5 2012-GKN Buys Volvo Aero for $1 Billion as Supply-Chain Worries Grow-http://online.wsj.com/article/BT-CO-20120705-704259.html)

C) Pensions and post employment obligations- in UK the accounting deficit at 31 Dec 2011 were £259m which was £188m higher than at the end of 2010. The overseas pension obligation rises mainly in US, Germany and Japan. The deficit increased to £ 539m due to discount rate reduction in US and Europe. The total deficit of group totalled £868m at the end of Dec 2011 while it was £600m in 2010 end.

Measures undertaken-  At 31 Dec 2011 the group has the net borrowing of £538m. In addition, it has undrawn but available committed UK borrowing facility totalling £642m.

OPPORTUNITES-  The multiyear programmes such as the UH-60 Black Hawk Helicopter (5 years), F/A 18 Super Hornet (7 years), F-15 Eagle (7 years) and C-130J Super Hercules (5 years) from US provide strong production base for the business.  Around $200m of new business at Filton which include Bombardier C-Series ailerons. $600m long term agreement with Pat and Whitney to supply forward fan case for joint strike fighter F135 Engine.  At 31 Dec 2011 the group has the net borrowing of £538m. In addition, it has undrawn but available committed UK borrowing facility totalling £642m.  Civil aircraft production is expected to grow well with Airbus and Boeing continuing to project the procurement of new single aisle and wide-bodied aircraft at between 26,900 and 33,500 by 2030.

Due to increase in demand in civil aerospace market and reduction in defence spendings by important countries. GKN is now focusing more on civil aerospace (68%) which was (58%) earlier and reduced the defence aerospace to (32%) from (42%)

Competitors-

Dana Holding Corporation, Meritor Inc.

Dana Holding Corporation engages in the design, manufacture, and supply of driveline products, technologies, and service parts for vehicle manufacturers worldwide. It provides light axles, driveshaft, structural products, sealing products, thermal products, and related service parts for light trucks, sport utility vehicles, crossover utility vehicles,

129 vans, and passenger cars. Also provides agricultural, mining, forestry and material handling equipment, and a range of non-vehicular and industrial applications.

Meritor, Inc. designs, develops, manufactures, sells, markets, distributes, services, and supports integrated systems, modules, and components to original equipment manufacturers (OEMs) and the aftermarket for the commercial vehicle, transportation, and industrial sectors. The company operates in three segments: Commercial Truck, Industrial, and Aftermarket and Trailer.

Other competitor’s are-

American Axle & Manufacturing Holding Inc Detroit

BorgWarner Inc, Auburn Hills, MI

Corning Incorporated, Corning, NY

Relationship With TATA-

GKN Driveline has worked in partnership with Tata to focus development on

unique side shafts for the emerging sub-mini, low cost Nano platform.

The Tata Nano’s innovative side shaft is being manufactured at

GKN Driveline’s factory at Dharuhera near Delhi and supplied to Tata’s plant at Uttranchal.

GKN Driveline has long been a major supplier to Jaguar Land Rover

for high-performance XFR sports saloon. GKN Driveline also supplies

the propshafts that transfer power from the engine to the rear axle and

the side shafts that transfer power to the wheels.

GKN Westland Aerospace has selected TATA Technologies to supplement its business models. GKN intend to cut cost and enhance product quality by adopting the fundamental changes suggested by TATA technologies.

Financials-

Particulars 2011 2010 2009 milli GBP milli GBP milli GBP Turnover 6,112 5,429 4,223 Net Interest -42 -40 -114 Operating Profit 374 411 39 Net Income 306 326 -39

Profitability Ratios EPS(Pence) 22.6 20.7 5.7 Return on Equity 0.24 0.25 -0.04

Leverage Ratios Debt-to-Equity 1.7 1.4 2 Profit margin (%) 5.74 6.69 -1.28 Liquidity ratio (x) 0.65 0.95 0.89

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Current ratio (x) 1.08 1.44 1.39 Gearing (%) 184.9 142.65 205.49

Cash Flow Cash From Operations -133 206 203 Free Cash Flow 147 188 136

Balance Sheet Shareholders' Equity 1,252 1,313 948 Retained Earnings 194 308 -36 Assets 5087 4421 3946 Net Debt 538 151 300

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KPI Target (Financial)

 To achieve growth rates at both a Group and divisional level in excess of the growth in our major automotive, aerospace and land systems markets.  To achieve absolute growth in EPS each year and in the longer term, recognising the nature and cyclicality of our major markets, to achieve average annual compound growth of at least 6%  To generate positive free cash flow sufficient to cover dividend payments and provide funding resources to support organic and acquisitive earnings growth.

In Japan, GKN Driveline was affected less than the market generally by the earthquake in 2011 and is therefore not benefiting from the significant bounce back in production volumes.

Trading profit increased to £121 million by June 2012 (2011: £94 million).

World-wide defence spending remains under pressure, largely driven by cutbacks throughout

Europe and likely reductions in the U.S. Defense Budget. GKN’s position on key multi-year programmes such as the UH-60 Blackhawk helicopter, F/A-18 Super Hornet, F-15 Eagle and C-

130J Super Hercules provide a stable production base despite potential budget pressure and delay in the F-35 programme ramp-up. Aerospace sales of £770 million were £47 million higher than the prior period (2011: £723 million). The overall aerospace market remains positive in 2012 driven by a growing civil aircraft market partly offset by a more subdued military market. The division has increased its sales for civil aerospace to 63%, with defence representing 37%.

With plan to remain ahead in terms of technological advancement GKN has made huge investment through M&A, Joint Ventures, and product devlelopment plans at various sites. Also due to reduction in defence bugdet in USA and UK and pension deficit which rised due to weak market return. Also this factors in increas in debt and decreasein free cash flow for GKN.

All the measures and developmental plans undertaken by GKN suggest that, the company is focusing on increasing the global footprint through joint ventures and aquisitions. Also strengthening is products by investing more in R&D and upgrading the main sites.

News-

10/07/2012- GKN Aerospace to open composite aerostructures manufacturing facility in Mexico The new site will be situated in the PIMSA industrial park. The site’s first products will be structures manufactured for the Sikorsky BLACK HAWK helicopter, with first parts scheduled to be delivered by the end of 2012. 09/07/2012GKN Aerospace selected to provide key composite and metal structures for Bell Helicopter's new 525 Relentless. . Manufacture will begin in late 2012 with initial deliveries scheduled for 2013 and continuing through to the end of 2015. 05/07/2012 GKN acquires Volvo Aero for £633 million

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02/07/2012GKN Driveline Trier invests €20 million to build world first flow line. The latest investment automates the production of precision forgings used in the production of CVJ Systems.

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QinetiQ Public Limited Company

Profile

QinetiQ was formed from the greater part of the former UK government agency, Defence Evaluation and Research Agency (DERA). 2001 Defence Minister Lewis Moonie announced the creation of QinetiQ and made it British Company based in UK. The ownership structure is as follows – Ministry of Defence (MoD) 56%, Carlyle Group (US Private Equity Firm) 31% which was acquired in Feb 2003 and 13% by staff.

Headquarters

The company is headquartered in Farnborough, United Kingdom. It has offices in North America and Australia. Major Sites: It has major sites in the UK at Farnborough, Hampshire, MoD Boscombe Down, Wiltshire, and Malvern, Worcestershire, each of which are former DERA site

Ranking

World's 52nd-largest defence contractor measured by 2011 defence revenues, and the sixth-largest based in the UK Recipient of Washington Technology Top 100- QinetiQ North America ranked 38rd on Washington Technology’s Top 100 list of government contractors in 2012. Organizations that make the list are ranked according to prime contracting revenue in government fiscal year 2011. *(http://www.qinetiq-na.com/company/awards/) QinetiQ is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.

Key Markets

The main market for QinetiQ is UK (54%) and North America (39%). But it is now building its large operation base in Norway, Australia, Canada and New Zealand.

Employees

10,180 (As on 31/03/2012) Organization Chart

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QinetiQ Group Executive

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Leo Quinn- Chief Executive Officer Group Committee memberships Member of the Compliance Committee, Nominations Committee and Security Committee. Skills and experience Leo was Chief Executive Officer of De La Rue plc between 2005and 2009. He was previously Chief Operating Officer of Invensys plc’s Production Management Division and before that spent 16 years with Honeywell Inc., in a variety of senior management roles in the USA, Europe, the Middle East and Africa. He was formerly a Non-executive Director of Tomkins plc.

David Mellors -Chief Financial Officer Committee memberships Member of the Compliance Committee and Security Committee. Skills and experience David was previously deputy Chief Financial Officer of Logica plc. He was also Chief Financial Officer of Logica’s international division, covering operations in North America, Australia, the Middle East and Asia and, before that, was the Group Financial Controller. His earlier experience includes various roles with CMG plc, Rio Tinto plc and Price Waterhouse. He is a member of the Institute of Chartered Accountants in England & Wales.

Michael Harper Deputy Chairman and Senior Independent Non-executive Director Appointed Non-executive Director in November 2011. Appointed Deputy Chairman and SID in February 2012.

Michael was appointed Chairman of BBA Aviation plc in June 2007, having joined the Board in February 2005. He is an engineer by training and has a wealth of experience gained as a director of Williams plc where, on the demerger in 2000, he became Chief Executive of Kidde plc. Michael is Chairman of both the Vitec Group plc and Ricardo plc.

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Colin Balmer Non-executive Director Appointed Non-executive Director in February 2003. Chairman of the Security Committee. Member of the Compliance Committee, Nominations Committee and Remuneration Committee.

Colin served as Managing Director of the Cabinet Office from 2003 until his retirement in 2006. Previously, he was Finance Director of the MOD, with responsibility for QinetiQ’s privatisation and the subsequent investment by Carlyle as part of the PPP Transaction. Colin has extensive experience across the MOD and is currently a member of the Foreign and Commonwealth Office’s Audit and Risk Committee and he is currently on the Board of the Royal Mint, chairing its Audit Committee. The Board considers that Colin’s extensive knowledge of the development of QinetiQ throughout its public-private partnership, and his in-depth understanding of the working of Government, particularly the UK MOD, provides the Board with a unique insight into the issues facing Government in delivering its procurement objectives and partnering with industry suppliers.

Noreen Doyle Non-executive Director Appointed Non-executive Director in October 2005. Chairman of the Remuneration Committee; Member of the Audit Committee.

Noreen sits on the Board of Credit Suisse Group (Zurich) and is a Non-executive Director of Newmont Mining Corporation (Denver), where she is chair of the Audit Committee, and Rexam plc where she is chair of the Finance Committee. Prior to her appointment in 2001 as First Vice President of the European Bank for Reconstruction and Development (EBRD), Noreen was head of Risk Management. Previously, Noreen had a distinguished career at Bankers Trust Company (now Deutsche Bank) in corporate finance and leveraged financing, with a concentration in oil, gas and mining. The Board considers that Noreen’s extensive international business experience, particularly in the areas of corporate finance, risk management and banking, is of significant benefit to the Board.

Admiral Sir James Burnell-Nugent Non-executive Director Appointed Non-executive Director in April 2010.

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Member of the Compliance Committee, Remuneration Committee and Security Committee.

Sir James commanded the aircraft carrier HMS Invincible and three other ships and submarines during a 37-year career in the Royal Navy which culminated in his appointment as Commander-in- Chief Fleet. In-between operational duties he served in several appointments in the Ministry of Defence and gained cross-Whitehall experience while on secondment to HM Treasury. The Board considers that Sir James’ expertise in the Government contracting domain, particularly with the UK MOD and HM Treasury, to be highly beneficial in the context of QinetiQ’s Government sourced operations.

Paul Murray Non-executive Director Appointed Non-executive Director in October 2010. Chairman of the Audit Committee. Member of the Compliance Committee.

Paul is currently a Non-executive Director and Audit Committee chair at Royal Mail Holdings PLC. He also holds directorships at Knowledge Peers plc and Tangent Communications plc and is a Trustee of Pilotlight, a charity for the disadvantaged. He was previously Senior Independent Director of Taylor Nelson Sofres plc, a Non-executive Director of Thomson SA and Tangent Communications plc, and has also been Group Finance Director of Carlton Communications plc and LASMO plc. The Board considers that Paul brings a broad range of experience in finance and corporate governance from a cross section of industries, all of which leverage technology.

Key Executives Colin Balmer, Non-Executive Director, served as Managing Director of the Cabinet Office from 2003 until his retirement in 2006. Was finance director to the MoD and was also secretary to MoD for procurement. Served as MoD material in Washington DC,US

Leo Quinn, Chief Executive Officer of QinetiQ. Main role in defining the business sector and diversifying the operations. Main role in decision making of the company’s operations.

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Culture QinetiQ’s culture is rooted in innovation, deep domain knowledge, rigorous independent thinking and technical expertise. The company provides solutions that save life, reduce cost, ensure and offer competitive advantage. QinetiQ is the UK’s largest research and technology organisation, and more than 85% of our people carry high-level national security clearances. QinetiQ is guided by core values of Care, Integrity, Teamwork, Commitment to Success and Excellence.

Business Strategy

This programme is created to increase the operational effectiveness, introduce more lean and agile process and to strengthen the balance sheet of the company.

Business in India-

OptaSense a QinetiQ company providing services for Oils and Gas Industry, Transportation Industry, Defence and Security industry has delivered its services to India. It has mainly provided services which improves the production process and reduces the overall cost of recovery. Also it provides

139 monitoring and security for distribution pipeline network. Recently a new contract with Crain India for Mangala Development Pipeline project has extended QinetiQ reach in India. In Transportation sector with the project The Reduced cost Li-Ion (RED-LION) project QinetiQ has 2 years contract with India for Battery and Electric vehicles.

Products-

QinetiQ provides industrial expertise in Aerospace (Military & Civil), Defence (Land, Sea & Military Aerospace) and Security (Critical Infrastructure protection, Enterprise Security, Government and Law Enforcement). Along with this core sectors it provides significant problem solving contribution in Energy & Environment, Transport, Space, Clinical trials and Human factors. The group is recognised as a leader in the field of electro thermal chemical guns, thermal and blast management, projectile and airframe design and payloads, guided and corrected munitions, internal and external ballistics modelling, platform recoil management and gun dynamics. It has also developed programs in ferroelectric thermal detector materials. The group is also developing CMOS and radar sensors for UAV.

Global products -Remote ID- Helping the police to Identify friendly asset -Unmanned Aerial Vehicle- Zephyr -RPG Defeat Protection – Light weight RPG armour for Tactical vehicles -Instant GPS Anti-Jam Protection - Vehicle Arresting Systems -Robotics -Ocellus- GPS/GPRS tracking asset where conventional device cannot work

New Technologies -Tarsier-Runway hazard management system with FOD detection capabilities. -Tip Timing System-Eddy current sensors for gas turbine health monitoring -Defence GPS-Q20 High Dynamics GPS Receiver Module -Energy from Waste-Decentralised waste management and energy-from-waste -Smart Technologies-A UK sovereign capability in stealth materials across the three major signature control domains -Ocellus®- GPS/GPRS tracking products S100 & T100

OptaSense®- A Qinetiq Company -Linear asset protection and perimeter detection  Applications- Third party Interface, Pig Tracking, Leak Detection -Oil Field Servicing -Infrastructure Security and Monitoring -Rail and Road -Technical and Data Services

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Analysis of Business Segments

USA Services

Delivery of technical services in aerospace operations and systems, engineering and lifecycle management, information solutions, mission solutions, cyber and software and systems engineering.

Analysis- Successful completion of Iraqi flight training project Seven new contracts for mission- critical services by key intelligence customers totalling US$25m.Five-year, US$36m contract to provide a full range of training development and delivery services to the Tactical C2 Engineering Division by the US Navy’s Space and Naval Warfare System Centre Atlantic (SSC-A). But there was decrease in revenue by 7% due to currency impact by US government in sourcing and transfer of some business to small business contractors.

UK Services

Provision of technical services in aerospace engineering, test and evaluation, training and simulation, cyber security, information and intelligence and procurement consultancy.

Analysis-QinetiQ UK services won £11m contract to provide technical and information services for a national police unit. Also due to few more contracts on approximately £40m of multi-year orders and a £31m contract associated with the Ministry of Defence’s Defence Training Rationalisation (DTR) programme provided support to the revenue growth. Also Weapon Technology centre has increased the funding which helped QinetiQ to manage their complex weapon pipeline.

But the final revenue declined by 10% due to pressure on customers’ budgets and delays in spending approvals. Budget uncertainties had the greatest impact on the provision of technical and information services, where manpower utilisation has a direct correlation with profitability. Due to higher pension service cost of nearly £5m has created pressure on revenue growth. Also due to restructuring programme employee headcount was reduced by 662 in 2011.

Global Service

Focuses on the exploitation of intellectual property through the rapid development of concepts into proven products and solutions, complemented by contract-funded research and development to support the creation of the next generation of products for the international market.

Analysis-In the UK, the trading environment was impacted by further contract delays and cancellations from the MODMRAP Lite vehicle, TALONTM robots and Shoulder-Worn Acoustic Targeting System (SWATS) individual gunfire detection systems were in demand.

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£26.5m contract with Shell on The OptaSense® fibre-optic sensing business, a project for Cairn Energy PLC to protect the 700km Mangala development pipeline in India and a £12m contract from Force Protection Europe to design on the modular armour kits for the Light Protected Patrol were main business contributors.

Challenges

Description Measures

A change in either US or Planning to diversify the portfolio by providing more services in security UK Government and intelligence sector. As UK Gov. Is planning to spend 650m on cyber spending on defence capability, QinetiQ is seeing this as an opportunity. and security

The most recent triennial funding valuation of the Scheme, as at 30 June Funding of the defined 2011, resulted in a deficit of £74.7m.The group is taking external advices benefit pension scheme to solve this problem. It has considered next 6 years recovering this deficit. An increase in the deficit may require the Group to increase the cash contributions to the scheme, which would reduce the Group’s cash available for other purposes.

Fixed-price There is a risk that the costs required for the delivery of a contract could contracts be higher than those agreed in the contract as a result of the performance of new or developed products, operational over-runs or external factors, such as Inflation. The management try to review the bids and fixed prices to avoid the cost overrun.

Opportunities

 The company seeks to develop a US/UK cyber platform to exploit opportunities – principally in ‘five eyes’ markets (UK, US, Canada, Australia, New Zealand) – generated by government commitments to additional cyber security funding.  The company secured new contracts from the Scandinavian region including a Swedish defense administration contract. (New Opportunities from Scandinavia, including a £9m managed services contract to operate the flight physiological centre for the Swedish defence administration and a £4m order for the Norwegian Andoya Range System was added in 2011 revenue growth.)

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Change for the Future Prospects- Revenue Breakdown

Core Explore Test for value

90%

Approximately 90% of QinetiQ’s revenue is generated by proven businesses that have sustainable competitive advantage. Approximately 8% of QinetiQ’s revenue comes from fully commercial businesses in its Explore category. These are businesses that have a proven technology and customers, but have yet to prove that they can achieve significant scale. Approximately 2% of QinetiQ’s revenue is in the Test for Value category. These are businesses with proven technologies but that have yet to prove commercial viability. According to the business model of QinetiQ i.e. core, explore, and test for value. To expand and strengthen the cyber security services QinetiQ is will stress more on explore part. The reason is QinetiQ has acquired to firms Cyveillance® and OptaSense® which delivers cyber intelligence solutions and fibre-optic sensing business. As the company considers the explore category business as core business for future, it can be predicted that major investment will be done on this part.

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Number of Employees 15,000

10,000 Number of 5,000 Employees

0 2009 2010 2011 2012

But in order to achieve the objective of self help development program, the company has undergone restructuring in number of employees. From graph it is evident that the company has reduced its work strength nearly by 3,500 from 2010 till date. This indicates that QinetiQ is affected by defence budget cut, Government In sourcing, change in demand (Afghanistan and Iraq Operations), and pension deficit. So if the company is planning to increase its business, it raises question on its ability to deliver the project within given time schedule.

Competitors – Company Market Cap P/E

Boeing Co 1.59b 0.36

Honeywell International, Inc. 112.30b 49.64

Rolls-Royce Group PLC 15.86b 1,333.59

BAE Systems PLC 10.04b 845.78

Meggitt PLC 3.04b 1,640.76

QinetiQ Group PLC 1.09b 427.66

Financials

Particulars 2011 2010 2009 th GBP th GBP th GBP

Turnover 17,02,600 16,25,400 16,17,300 Overseas Turnover 10,78,900 9,05,400 8,44,400 UK Turnover 6,23,700 7,20,000 7,72,900 Net Interest -30,800 -34,600 -24,800 Operating Profit 54,700 -25,300 1,31,500 Net Income 5,000 -63,300 93,600

Profitability Ratios

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EPS(Pence) 14.2 11.1 15.9 Return on Equity 1% -13% 16%

Leverage Ratios Debt-to-Equity 0.61 1.12 1.31 Profit margin (%) 1.56 -4.07 7.05 Liquidity ratio (x) 0.86 1.17 1.71 Current ratio (x) 0.94 1.36 1.85 Gearing (%) 117.03 155.57 160.49

Cash Flow Cash From Operations 2,55,800 1,69,200 1,52,400 Free Cash Flow 2,55,918 1,69,357 1,52,402

Balance Sheet Shareholders' Equity 4,57,400 4,73,600 6,02,600 Retained Earnings 2,41,500 5,000 -94,900 Assets 14,83,300 16,34,000 20,40,500 Net Debt 2,60,900 4,57,400 5,37,900

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The positive effects of 2 year self-help program which was initiated by the company with the view to reduce the debt and strengthen the balance sheet can be seen from above financial data. The net income was able to remain on positive side in 2011 after huge loss in 2010. Earn per share was increased by nearly 30% in 2011, which would help the company to gain the confidence from investors. The self help program which will end in 2012 has shown its effectiveness by increasing the retained earnings by 47% and reduce the net debt by 43%. But the reduction in discount rate and weak market performance has created pension deficit for the company which is of major concern for the company. Otherwise due to long term contracts and new business opportunity the order book of the company remains intact. The company’s wanted to maintain the target of keeping gearing ratio less than 2xEBITA. With the successful implementation of self-help program, the management is able to increase its EBITA by keeping the amount of interest paid under control. This could help QinetiQ to attract more investment for future development plans and increase its credit rating. EBITA vs Net Interest Paid

5,00,000 4,00,000 3,00,000 2,00,000 1,00,000 0 th GBP th GBP 2009 th GBP 2010 th GBP 2011 2012

EBITA Net interest Paid

th GBP th GBP th GBP th GBP 2009 2010 2011 2012 EBITA 1,97,400 1,24,600 1,32,000 4,24,800 Net interest 24,800 34,600 30,800 43,000 Paid

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Relationship with TATA

QinetiQ is working closely with TATA Industrial Services Ltd to jointly develop new and exciting opportunities in both Indian and International Aerospace markets. TATA Industrial Services and QinetiQ will work together the leverage the manufacturing base and Industrial network of TATA Industrial Services with India Inc. and QinetiQ's technology expertise to create projects of national significance to meet Offset demand and the supply needs of Aerospace & Defence. *(http://www.india- defence.com/reports-5010)

Key News and New Orders

 24 May 2012-The Group has made a solid start to the 2012 / 2013 financial year. Two key orders, with a combined value of $44m, were for Navistar’s MaxxPro® MRAP vehicles operating in Afghanistan and for the US Army’s Heavy Expanded Mobility Tactical Truck (HEMTT) – the first time Q-Net has been fitted to a large haulage vehicle.  20 July 2012- The new QinetiQ Training Innovations facility was opened on their headquarters site at Farnborough, Hampshire  QinetiQ North America’s Mission Solutions Group has been awarded a contract by Abacus Technology Corporation to support information management and communications activities for the National Aeronautical and Space Administration's (NASA) Kennedy Space Centre. The contract will run for up to nine years, with a potential value of $225 million. *(http://www.qinetiq.com/news/PressReleases/Pages/qna-wins-nasa-contracts.aspx)  17 May 2012- QinetiQ has won the prestigious Cyber Security and Electronic Security of the Year award for 2011. The award was given at the first Counter Terrorism and Specialist Security award ceremony  25 May 2012- US elections delay QinetiQ contracts- Qinetiq, which used to be the Government's military gadget-maker, yesterday warned contracts are being delayed in the US because of this year's presidential elections. *(http://www.independent.co.uk/news/business/news/us-elections-delay-qinetiq-contracts-7786215.html)

M&A activity

QinetiQ Plans To Enter First-Ever Joint Ventures, Telegraph Says QinetiQ Group Plc (QQ/) is planning joint ventures for the first time to develop simulation and training projects and a fibre-optic cable product called OptaSense®. QinetiQ’s Chief Executive Officer Leo Quinn is seeking to split the company’s business into three units, according to the newspaper. The core division will focus on defense and aerospace technologies, such as remote bomb-disposal devices, while the other two will carry out more experimental research, the Telegraph said * By Grant Smith - May 20, 2012- http://www.bloomberg.com/news/2012-05-20/qinetiq-plans-to-enter-first-ever-joint- ventures-telegraph-says.html

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