TGI
#At this point, as we've talked before, we have a defined contract that takes us out through a specific ship set.
That said, we've also been working with Boeing on defining the transition to their facility in Macon, Georgia, as well as supporting their efforts of moving other elements through the supply chain.
I'd like to comment as well, <UNK>.
We have a strong partnership with Boeing.
They represent some 7 out of the top 10 programs at our Aerostructures group, and many of our Systems group as well.
I've been on the phone with senior leaders at Boeing over the last few weeks, as I started my new role, and we've talked about the Boeing partnership for success.
And they understand that we want to make a decision that is in the interest of Boeing, their customer, and Triumph, and we would like to invest our discretionary funds in helping them win new business.
I like the level of dialogue we're having.
And while there is working teams that are assessing the best plan to make the transition on 747, we are having a broader discussion with Boeing about how we can partner in the future.
It's really a couple of things.
We are seeing a little bit increased spending on the development programs, as we are applying the resources required to ensure that we are driving success on those programs.
We're also seeing shifting in some of the working capital improvement that we have been targeting that I would generally define more as timing than anything else.
The answer is yes, from what I've seen.
Granted, I still want to see all the sites, and finish the forensic, but we have a number of sites with sort of a common capability or addressing a similar market, and this is where we need to look at whether we can gain both cost and go-to-market synergies.
I don't think it's a matter of centralization, <UNK>; I think it is more a matter of standardization.
There are a number of things that occur out in the businesses that I think are duplicative, and I really want my businesses to be outward-facing, engaging customers, developing solutions, and executing on their commitments.
And a lot of sort of the back-office infrastructure processes, I think, can be made common, and achieve both higher quality of service and more affordability.
This is a bit of a shift in the operating philosophy.
It is something I'm going to be engaging all of my leaders in talking about and moving forward on.
I think we reached a point where we have grown, and we have the scale or the size, but we don't have all the benefits of scale.
So, that is what I'm after.
Sure ---+ as mentioned, facts and data.
When we have the information on all of the companies, all of the sites ---+ we are looking at utilization, occupancy costs, whether or not they're in markets that are growing or contracting.
What's been their performance on programs.
It is a really rich data set, so that we make the decisions that take the Business in the right direction.
We'll have this data in the March time frame, and be working towards recommendations to the Board in the April time frame.
We have the data.
It's a matter of bringing it into focus, and then doing the trades in terms of which areas have the potential for the highest returns and which divisions are the most competitive in their markets.
That's the way I intend to approach it.
And having met with my senior leadership team at our first off-site after the first week here, they are on board and already thinking about the best way to reshape the Company.
So, <UNK>, the $3.9 billion is at the bottom end of the range that we have been providing during the year.
It is reflective of the continued softness we have seen in commercial rotorcraft, as well as in broader aftermarket, primarily seeing it in our third-party aftermarket business, where we thought we would see more growth there and recovery during the year.
We've also seen some impact, although it's not as significant within our Business, in non-aviation sales, which primarily is a direct impact with oil and gas.
So, those things, all combined, are driving us to the lower end of the range.
We are seeing a strong fourth quarter, which is historically in line with what we've seen, where you'll have roughly $1.1 billion brought in during the fourth quarter.
<UNK>, I'll only add that this is why I made increasing our organic growth one of my top three imperatives, because we can do better.
We have been contracting in that category.
We have a lot of great capabilities, and the overall market that we participate in does have a positive growth rate.
We ought to be growing as well, so you will see a laser focus on that.
I don't see a multi-year headwind on organic growth.
There is some process improvements that we can make in defining opportunities, shaping the pipeline, doing very rigorous capture reviews, and then making sure we start programs on the right foot.
But the first path to growth is through execution.
And we have a number of programs that we need to improve our performance; and when we do, these customers have follow-on work to give us.
I have met with the head of procurement at Airbus, at Boeing, my counterparts at Gulfstream, Northrop Grumman, and they all want to see Triumph deliver on our commitments and have more work for us.
And of course, acquiring new customers or going to farther adjacencies is always more difficult than just working and partnering with the customers you've got.
So, that's my initial focus, and there is work out there to be captured.
It starts with performance.
It's all about execution on the development activity.
As I look at it, we are completing a number of the milestones on both the Bombardier and Embraer program, one of which we announced with the delivery of the first joint fuselage in Embraer.
It is paying close attention to the progress, to the completion through a number of checks through the process.
And I think, as we go forward, we're going to be paying very close attention to it.
And at the same time making sure that we bring the right resources to bear, so that we get it right on those programs.
They are both roughly neutral from a spend being offset by milestones from customers.
We are a large Company with ---+ generating good op margins, so we are not a broken company.
But what I will say is that, after the Vought acquisition, the Company had a great three-year run as some of those programs came to completion.
There hasn't been a rapid enough replacement of that revenue, and that has contributed to some of the sales and margin pressure that Jeff has outlined.
Having said that, we have good franchises in Aerostructures.
The transition out of Jefferson Street to Red Oak was the right thing to do.
It is a very modern plant.
We are putting in new practices there that allow us to be more efficient.
The programs that we are going through are more in the development phase, so we have had a mix change from the traditional 747, C-17, V-22 production work, towards development programs like Bombardier, G7000 and Embraer.
So, it is natural that there is some margin pressure there.
But we are excited about our role on the 7000.
I don't know if you have looked at any of the marketing data on that platform, but it is an amazing aircraft that is really going to change that segment, and we're glad to have the key role of producing the wing on that.
Similarly with the Embraer E2, I walked the line, looked at all the initial hardware on that, and we are excited to be on that platform.
But we have got to do more to grow that business.
I also view that the Company has now matured, now some 22 years on, and created this very broad set of capabilities, that we have the opportunity to create some synergies that maybe didn't exist before.
This is my change in the operating philosophy to really drive a one-company approach, drive out some cost, and start to win together, rather than to go into customers as separate divisions.
I think it's more a matter of bringing the Company into alignment, as opposed to fixing it.
It's a fair question.
What are the synergies within our three segments today.
And we are looking at that closely.
Today, they have different customer sets in some of the aftermarkets from maybe the Systems and Aerostructures, which have more of a common customer set.
And we'll look for opportunities to do cross-selling, to do more aftermarket support to systems, but this will be part of the strategic review and I'll provide more comment on that on our next earnings call.
But my first focus, <UNK>, is to make sure that they're performing to their potential.
Then we assess their markets, and then we will make the right decisions on portfolio after we've got them running properly and we have a good outlook of the future.
I think we are pretty well lined out with Gulfstream as to projections on rates going forward.
We've been experiencing a year-over-year decline there, and we've also built that into our forward view of the Business.
Matt, we haven't guided to cash for FY17.
But specific to forward-looking cash tax rates, we will burn through the NOLs during FY16, and become a full cash tax payer in FY17, which we still believe is a rate between 28% and 30%.
On the pension side, any contributions to the pension plan currently would be discretionary.
There are no required payments.
This year, we had looked towards a potential contribution, but it's all driven by the cash generation and other parts of the Business.
We'll take the same approach next year.
And depending on the strategic evaluation of the Business, how we're deploying capital, pension is one of those things that ---+ it's a choice we can make of whether to contribute or not, if it makes more sense than other deployments.
<UNK>, first, maybe a clarification: Aftermarket within Aerospace Systems was stronger year over year, where we saw total revenue of roughly 18.4% of the total versus prior year, which was in the 17%s.
So, year over year, we did see a little bit more volume there within the aftermarket.
That does benefit the margin.
But it's also definitely benefiting from some of the cost reduction initiatives that we've been undertaking through the year.
And as we continue down that path, I think we'll continue to see opportunities to expand margin across the Business.
Sure.
Even though the product sets are different between building gear systems, hydraulics, fuel systems, whatnot, compared to some of the large structures, the underlying processes of business development, of doing engineering development and design, supply chain management, factory efficiency ---+ those processes convey.
And one of the initiatives that I've launched is building what I call the Triumph Operating System that will capture the standardized best practices on how we will operate through the whole value stream.
And today I'm seeing best practices at some locations that I think we can lift, as mentioned.
And even though Aerostructures might apply that to the production of a Global Hawk wing or an E2 fuselage or the Bombardier 7000 wing, the underlying operating process can be the same.
This is something that has not been the case.
All of these companies have different heritages.
They required a different timeline, and there hasn't been a singular push to drive standardization, and I think that is a real upside for the Business.
I certainly saw it at Raytheon.
Raytheon had, I think, one of the tightest operating systems of the tier 1 primes.
I feel very fortunate to have worked there, and been immersed in it and contributed to it, and I see parallels with the Triumph Group.
Good morning.
Sure.
It is a mixed scorecard.
I will be straight with you, <UNK>.
Some of the customers that got on my calendar right away have concerns of things they want us to address head-on.
There's a reason why I traveled on my first trip to Aerostructures to make sure we are doing the things necessary to recover on red programs there.
Some of the calls were very encouraging.
Gulfstream is very happy with the transition of the wing in Tulsa, even though we have a few challenges on one of our Airbus programs.
They have additional work that they would like to partner on us with.
Honeywell was very complimentary of our support.
So, it is a mixed scorecard, and that is directly to my point about getting all parts of Triumph to fire on all cylinders.
It's been my experience that you can make your most difficult and disappointed customer your biggest advocate if you'll perform to your commitments and adopt their agenda.
And for some of our big OEM customers, their agenda is quality with no traveled work and supporting their ramp-up rates.
For others, it's providing high reliability of the components that we provide in the aftermarket.
So, we are going to get aligned with these customers, and we are going to measure it.
It's not just going to be based on sort of a qualitative assessment.
I have a process I use to measure customer engagement and support on a quantitative scale, and the breadth and depth of that relationship.
But it does start with performance.
I'm optimistic.
Most of the customers I've talked to have said ---+ we like Triumph; we want to work with Triumph; you can do better on a number of programs.
One of my first acts was to do a call for all red and yellow programs across the Business, so that we know what they are and we can begin to triage them.
And I'm personally reviewing about 10 red programs every week.
We are doing 30-minute run-throughs to make sure that the recovery plans are in place, the dates for return-to-green are partnered with the customer, and we're taking the actions required.
And I think that's a new operating approach for the Company.
It will help me learn more about where the strengths and weaknesses are.
It will also set the tone of how I want to operate, and my expectations on accountability.
Certainly, many of our contracts have terms and conditions that require us to coordinate with customers, should we choose to transition the work.
But they all understand this is a dynamic market.
And as we did with a recent conversation with Airbus on one product transition, we explained to them that we're going to create a true center of excellence for that product, and invest in a new building and new equipment.
So, they can expect higher performance out of that division.
And we've got to manage the transition and mitigate the risks, but they were on board with it, and I expect to have those kind of conversations with a number of customers.
As far as Airbus in the US, it's been a great conversation because their Head of Procurement has an automotive background, and we've talked about what BMW and other companies have done in the US ---+ what we can learn from commercial supply chain management techniques.
So, I think we will learn from our customers and from some of our suppliers.
I don't have the notion that I or the Triumph Company has the corner on all the best practices, and so we will learn from other industries, and quickly incorporate them into our habits.
Through the interview process, I got to know the Board.
We have a really strong and capable Board that has run organizations much larger than Triumph.
And we talked about culture, and where the legacy Triumph Group has been, where the Vought division acquired in 2010 has been.
What I'm excited about is building a new culture that builds on the best elements of both, but is not the same as either.
This will be part of this Triumph Operating System that we'll deploy.
There are things happening in both businesses that are areas of strength, but there are also areas that both can improve.
So, culture will be part of it.
I've worked in both decentralized and more centralized cultures.
There is no perfect model; it really does relate to the unique circumstances of the business.
But it's pretty clear that Triumph has been more towards the decentralized model.
I view that as an opportunity, <UNK>.
If I came into the Business and they had already done some of the things that we are going to do, I'd be in a much more difficult spot.
But the fact that there is opportunity to build on what has already been created, which is quite remarkable, because you look at Triumph Group growing from $60 million in 1993, 40 acquisitions, a 25% CAGR, and all the amazing capabilities under one roof, it's a great Company.
But it can be better, and that is why I'm emphasizing capturing the benefits of our scale.
I don't think feather in maybe is the right term.
I would say accelerate and expand.
And we will be looking at the decisions that we need to take over the next few quarters to favorably impact our future.
And some of these have been discussed in prior earnings calls; things that we have been waiting to see how certain programs played out.
So, many will not be a surprise to you.
But we are going to go broader and deeper with the change.
And we'll be disclosing the cost and timing of any restructure-related charges with you over time, as well as the anticipated benefits.
So, I think it's more building on what's been done, and going farther.
Rob, it's all about getting past a lot of the headwinds we've experienced over the past few years.
And part of what we're doing through the T-3 effort is really looking at all of the levers that we should be pulling to generate cash in the Business.
And definitely driving towards a much higher conversion rate, as we get out to a run-rate basis.
We don't have a number yet, Rob.
As you know, there are some implied nuances with some of the fair value of accounting running through revenue and earnings.
So, there are some difficulties to get to 100% there, but we are going to drive and pull all the levers that we see in front of us to get that number as high as possible.
And I'll add that we've done some benchmarking on how Triumph compares to our peers in accounts payable, accounts receivable, cash-to-cash conversion, and we lag.
One of the work streams within the Triumph Transformation Team is improving our cash management and margin, so you can expect to see progress in that regard.
Our largest content on those programs is in our Aerospace Systems business.
And we believe we are fully supportive of both Airbus and Boeing on achieving their rate desires within those facilities, with little or no additional capital required.
It's a good question.
The facts are: Airbus, especially the A330 and the A340 ---+ it represents a substantial part of our backlog in Aerostructures.
So, we are a player.
They have given us some additional work now in the A350.
And in my conversations with their senior leaders, they want to give us more.
They do want to see lower cost, but certainly competitive expectation.
But they are also looking for areas where they leverage some of our design capabilities.
Maybe unlike some of the military platforms where you either get in at the beginning, and there's not much of an opportunity to get on the platform, Airbus has the strategy of multi-sourcing many assemblies to reduce risk, to increase capacity.
I'm traveling to Toulouse in the next few weeks to meet with their senior leaders.
I'm optimistic that we can build on what we have, and grow more.
Thanks, Cat.
Thank you, everybody, for your insightful questions and your interest in Triumph.
I'd just like to reinforce a couple of points.
Triumph really has demonstrated an amazing growth rate over the last two decades, and now we are focused on right-sizing and capturing the benefits of our scale.
You heard my top three priorities: delivering on commitments, improving our financial performance, and accelerating organic growth.
And we're going to do this with a focus on the highest-return opportunities.
All of these are driven towards our goal of predictable profitability.
We're going to build on the improvement initiatives already under way.
And as part of our top-to-bottom review of our markets and our businesses, we'll provide the insight we need to transform the Triumph Group and position the Company for the next decade of growth.
My leadership team and I look forward to providing updates in the coming months on the changes we will be making to better serve our customers and shareholders.
Thanks for dialing in.
Have a great day.
