Specialist
Former VP at Meggitt Aircraft Braking Systems Corp
Agenda
- Servicing behaviour and revenue model across Meggitt's (LON: MGGT) business units
- Pricing negotiations on aftermarket contracts and power by the hour impacts
- Install base age and retirement risks
- Original equipment pricing in a recovery
Questions
1.
Could you estimate Meggitt’s EBIT margins on equipment sales, aftermarket servicing and aftermarket spares and how that changes across the major product lines?
2.
Why can Meggitt achieve an OEM EBIT margin on engine systems but only sell at cost in other parts of the business?
3.
Could you estimate an OEM EBIT margin for engine systems?
4.
What would you say is a usual aftermarket margin for Meggitt on engine systems? How does that roughly break down between servicing and the spares?
5.
Why do you think Meggitt’s aftermarket servicing share is so low? Do you expect it to stay low for the foreseeable future?
6.
Could you outline Meggitt’s exposure to wide-body vs narrow-body and to Airbus vs Boeing? I believe deliveries will disproportionately come from Airbus over Boeing in narrow-body over wide-body in the coming years.
7.
Why do you think Meggitt has been so strong in the narrow-body, and weak with Boeing across braking and wide-body? Is there a reason for that focus?
8.
What are your predictions for Meggitt gaining or losing share in models where it’s a dual supplier due to the coronavirus?
9.
What pricing reductions do you expect the OEMs to ask for? How might those conversations go?
10.
How many years would you expect it to take for prices to return to pre-coronavirus levels?
11.
Could pricing changes differ across designs depending on whether Meggitt is single- or dual-sourced for them?
12.
Could you elaborate on aftermarket servicing of spare parts across braking and engine systems?
13.
Why is Meggitt attempting to end relationships with smaller distributors and keep hold of the bigger ones in braking systems?
14.
Can you give some examples of distributors you’d consider to be big vs small?
15.
What do you think is a good target for the share of engine aftermarket services which Meggitt insources vs outsources?
16.
Could you outline how contracts work with distributors? Are there any minimum hours flown, if that’s possible to do through distributors, or minimum amounts of parts to be taken? Are the contracts purely demand-driven?
17.
How do you expect stocking and destocking behaviour to play out during the coronavirus period?
18.
Would you say Meggitt’s aftermarket sales are purely driven by usage, or are there any time-dependent parts that will need replacing given that planes are grounded? Does wear and tear still occur if planes aren’t flying?
19.
Do you think there’s any way to significantly cut costs on the spare parts business, given that most of the distribution costs are already outsourced?
20.
Would Meggitt be able to create more power-by-the-hour contracts if it went direct to end customers?
21.
What are your expectations for pricing over the coronavirus period, given likely volume reductions and the double impact from the destocking effect? Could contracts be significantly renegotiated?
22.
How long might the delay be before passenger jet flights coming back online feeds through to MRO [maintenance, repair and overhaul] for whole planes, and for that to feed through into restocking behaviour in the aftermarket?
23.
How do you think Meggitt’s focus on smaller regional planes affects its performance? Would you expect it to perform better here than other tier 1 providers with more aftermarket exposure to international flights?
24.
What would you say are the biggest retirement risks in Meggitt’s fleet? You mentioned that some larger aircraft might not come back into service.
25.
Why do you think Meggitt’s fleet is so much more focused on newer aircraft than some of its competitors?
26.
Could you outline how the end-of-life contracts work?
27.
Do you think there’s a significant risk of the second-hand market for Meggitt’s components being flooded with spare parts?
28.
Could parts be transferred from retired planes recovered by aircraft lessors? If a plane which is similar to older models in Meggitt’s fleet were retired, could spares be taken off from it?
29.
What are your thoughts on product development over the coronavirus period for Meggitt and its competitors? Could they experience any risks associated with R&D budget cuts?
30.
Do you expect significant volumes to be coming through on the five new platforms Meggitt introduced in 2019? Could this be a significant CAPEX item with no associated revenue?
31.
What do you think are the most crucial areas of Meggitt’s business? We talked earlier about the aftermarket and how challenging it is to cut costs. Is there any significant CAPEX that can be cut, particularly in new programmes?
32.
Can you give us a sense of the cultural issues pre- and post- the high-performance culture programme Meggitt introduced?
