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#The ATR side has actually performed fine, and we're going to continue to see things like A350 pick up, so that's going to be a benefit to us.
The biz jet side and commercial helos should I would suspect are going to continue to be a market drag for us next year.
When we put all that together, aerospace is still going to be an important performer for us overall.
You saw a fair amount of the restructuring also occur there, and we think it's going to be a good performer for us in the long term.
But 2017 is still going to be little bit tougher overall, I think when you put all that together.
Are you talking about growth in the business overall.
For 2017 we want to go through the AOP planning to make sure that we understand all the pieces, but at this point I think we're probably going to plan this more conservatively than less.
So I'd say overall probably lower sales next year than this year will be the way that we'll plan for it.
We haven't ---+ we really haven't gone through all our planning process yet.
Yes, in rough order of magnitude we're probably a $400 million or so business currently, and that continues to grow nicely as we've said.
I mean it's more right now mobile air conditioning, which is a brand new segment for us, but as we continue to progress through it, we get into buildings and blowing agents and other things.
So it's ---+ it becomes a broader application for us.
As far as the new regulation, it remains to be seen how that agreement will impact us, but our forecasts are not dependent upon anything that happened this past week.
We do see it as potential opportunity, but we need to sort through and fully understand those impacts close to 2020.
I would say though, <UNK>, it's clearly a good development, and world's focus on low global warming potential products makes a difference.
If you take a look at the HFCs that our product replaces, HFCs are up over 1,300 times worse than a single-molecule CO2.
If you take a look at HFOs, our invention, it's actually 0.8 molecules of CO2, so like 1,500 times better than what you would see from HFCs.
So it's a significant new product.
There's a recognition that HFCs do have a big impact, negative impact on global warming potential, and Solstice, our HFO is just a tremendous solution for it.
And the faster it gets adapted, the more quickly governments will actually be working to stem the tide of global warming.
So we think it's going to be quite important.
So <UNK> let me clarify that.
The incentives become due and are recorded and recognized in our financials when the milestones that govern that incentive are reached.
The milestones are generally development or performance-related milestones.
They vary by customer.
So for example, if you hit the first test flight or entry into service or other types of engineering milestones, those could trigger an incentive being owed and due and it's recognized in our financials.
When you look at 2016, our P&L has been significantly burdened by, to the tune of $0.25 as I said earlier of EPS, by incremental OEM incentives.
Next year ---+ this is the peak year and it starts to tail off next year.
We get a modest tailwind, and then it really accelerates into 2018 and 2019 in terms of the tail wind, yes.
It's not a direct connection because, I mean the incentives for us are largely based on the development process and bringing the aircraft to production.
And so while you might incrementally get to faster production, you still have to have orders, you still have to have selling, and those cycle times generally are unaffected by ---+ or incentives are generally unaffected by those activities.
<UNK>, I should add these are good investments for us to be making.
We expense everything as incurred.
We don't put it on the balance sheet, so we take our hits as they're occurring, unlike others who put it on the balance sheet and you see it over time.
So for us while it's painful in the short term, it sure as heck helps where you're going in the long term.
And these were decisions that we made several years ago to make sure that we were on the right platforms with the right kinds of products and services going forward.
So this is pretty smart money.
It's painful in the short term, but it's smart money and positions us extremely well for the future.
Well, this is one that's always kind of interesting when you look at aftermarket versus flight hours, because while flight hours develop pretty consistently over time and they tend to go up 3% or 4% a year; even in a bad time, they'll go down for a single year and then pop back up again.
So that trend is always relatively smooth.
The aftermarket stream associated with it, though, bounces around in sometimes crazy directions.
If you recall the recession, for example, where flight hours were down 3% or 4%, aftermarket was down something like 20% or 30% in that same year.
So the long-term trend is generally consistent with what those flight hours are.
In the short term it can bounce around quite a bit, so being able to explain the difference between say 3% and 1% is easily within the realm of typical variability.
The other thing I'd add to that, <UNK>, is that you've got a combination of both air transport and business jets in that 1%.
We talked a little bit about the slowdown on the business jet RNO activity.
I was going through the slides, and that has contributed to this.
Yes, it will.
Wow, that's a level of specificity, <UNK>, I'd have to say we'll have to get back to you on that one.
Yes, it's one I always kind of wonder so what date are they looking at when it comes to ---+ I assume this is the market share question, <UNK>.
Yes.
Because if you look at the dater, it actually looks very good for us.
And to your point, we are selective on the platforms that we pick.
I've always been shocked at the investor reception when one of our competitors says that they've won 32 of the last 25 competitions, and when you say, geez, now they're winning over 100% of all the competitions out there, how is that possible.
And I think they're getting a little carried away with what do they count and what do they not count.
If you take a look at our avionics performance, it's quite good and there's future stuff that we'll end up talking about at some point.
If you take a look at the concessions that we're paying right now, for example, that you would look at that and say, oh, that yielded a bunch of good platforms also.
When you look at the amount of R&D that we spend in aerospace it's kind of ---+ I don't know what the heck they're pointing to when they say it.
It's one thing to be able to say some of this stuff.
It's a little different when you actually have to back it up.
I just have a tough time seeing it.
I don't know where they're getting it from.
Well, it's always tough to predict, as we've said before, and we're going to continue to do both the divestitures and acquisitions in a way that causes us to improve the overall growth profile of the company.
The problem of course is you can't predict them.
You can't say it's $2 billion a year, $5 billion a year.
It's going to be 0 one year, $6 billion another.
You just don't know.
So we have to take our opportunities as they arise, and we'll continue to do that.
We do have a good balance sheet, like having that.
We think that gives us the opportunity to be smart when it comes time to doing a deal or when it comes time to having the capability to repurchase, and we'll continue to be opportunistic on both.
Are you saying from an acquisition perspective, <UNK>.
Yes, there's ---+ well the nice thing about having so many opportunities and so many places for us to go, all the stuff you talked about is interesting, whether it's technology, software, stuff that does a better job of connecting the digital physical world.
So there's a lot of places for us to run here.
It's really a question of what's available and is the price right.
We're still always going to be very conscience that price makes a difference.
If you pay for a strategy because the strategy is right, what ends up happening is the seller is the one who made all the money on the strategy, not you.
We're going to continue to be thoughtful about how do we do that.
Thanks.
Thanks <UNK>.
Wow, I was prepared, <UNK>.
I was prepared for that and for someday for them to actually pronounce your last name correctly.
Yes, well, you can start <UNK>, with aerospace.
You know that over the course of the year because of the volumes as well as driving HOS, we've deployed a fair amount of restructuring to that business, and a lot of that is pretty quick turnaround kinds of paybacks.
When we did the desegregation of ACS we also went through a significant management spans and layers exercise, so what we try to do is limit and reduce the number of layers that we have from the top boss down to the lowest level person in the organization.
We've also tried to increase the span of control for each of our managers.
That also took up a bunch of the capacity that we spent in the third quarter.
And I'd say thirdly, in our supply chain we continue to have lots of opportunities, whether it's continued integration of acquisitions that we've done or just addressing legacy sites.
We've found opportunities and still have more ahead of us to invest in restructuring and attractive payback projects.
So it's a combination of the reorganization that we've done as well as the continuing ---+ continual addressing of our ISC, our supply chain.
And then the third thing I'd say is the acquisitions that we've done to achieve the cost synergies that we talk about, you do have to apply restructuring.
Again, those do deliver anywhere between 6% and 8% percent of cost synergies on the acquisition.
A bunch of that comes from just leveraging our sourcing agreements.
But some of it is from restructuring as well.
And so those are the three principal areas, and as a result you're seeing that 2017 tailwind from the pool of funded projects that we have, as I said.
I'm sorry, <UNK>, I'm not sure I followed that one.
Hard examples of what exactly.
Got it.
I understand and yes you're correct, and of course we expense all our R&D as we go along.
We don't put any of that on the balance sheet either.
So we take the hits for the R&D, which can be substantial if you're trying to develop software, but once you do and you start selling the software packages and the upgrades, so whether it's weather radar or a runway incursion or excursion, possibilities, the JetWave.
As you start to get into that it is substantial.
The margin rates are significantly better.
I wouldn't put any numbers on it at this point, but your concept is absolutely correct.
The ---+ that is definitely the ---+ let's say the direction of the Company and it's why we focused as much as we do on software, and I think puts us in position for a very good future for the entire Company.
We've got a bigger advantage here than anybody else with almost half of our engineers focused on software today.
It puts us in a much better position.
Thanks, <UNK>.
Hey Jeff.
Yes, the way I would think about it, Jeff, is you probably noticed that over a long period of time we do a lot of restructuring.
If we've got some kind of unusual gain, we usually use it to restructure.
We take a lot through operations generally every quarter.
It's one of those things where we want to constantly be investing.
We're not going to run out of ideas.
I wouldn't want to go into too much detail until we've had a chance to go through all our AOP planning, but I would be surprised if next year we didn't also have additional restructuring ideas as we went along and that we'll find a way to fund them.
Well, in 2016 of course we had a big boost as we figured out how to do the additional restructuring in the third quarter.
I wouldn't anticipate that we'd do something that big again next year, but you never know.
I don't want to ---+ as you know, I never say never on any of this stuff, but the whole ideas of how do you just constantly have a good pipeline of ideas and find a way to fund the really good ones so that you do the seed planting for the future, that's something we're going to continue doing.
Yes, the ---+ I guess there's a couple of things that we end up looking at.
I won't put a specific number on the return because that's ---+ I just don't think that's a good thing to have public out there.
But this has to be a high return project.
The same sort of thing that we look at for any internal investment because that's what it is.
And that's why we pay so much attention to what platform is it and what do we really think is going to happen.
So we don't just take an external look or the customers look at what do they think it's going to be, but we really go through this ourselves to say what do we really think is possible here, and how do we make sure that this is going to generate a good return for the Company.
Our guys do a pretty good job of this so that we pick the right platforms.
And when you see the concessions that we are paying, it's been so that we could do that.
So these are going to be high return very good IRR projects and platforms that we're on.
We're pretty confident of that based on what we've done and what we see.
Jeff, the way I think of it is we have a very disciplined process when it comes to considering whether we compete for a new platform that's a potential opportunity for us.
It's as disciplined as an M&A process, so we consider all of the investments.
These incentives are one aspect of that.
I mean there's a lot of engineering time and project management time that also goes into the outflows or the investments that you're making.
And then of course you consider all the future revenues and the models and so forth.
It's as disciplined as M&A.
And as <UNK> said, we have internal returns that we look to as the hurdles.
We'll go ahead with the ones that do meet those attractive rates.
And for what it's worth, Jeff, we're very conscious of the time value of money.
Thanks, Jeff.
Hey, <UNK>.
I would say we've done our ---+ we think we've provided a lot of color commentary on 2017 at this point, more than we normally ever would.
And I would just say stay tuned for the December outlook call.
We'll go through a lot more detail then with Darius and <UNK> to be able to explain what will we see and why.
And we're going to be very conscious of having gotten burned on the macro environment this year, and as conservative as I thought we were being in the beginning we weren't conservative enough.
So we're going to want to make sure that as we pull together a plan for 2017 that it's one that never ends up with the kind of snail surprise that we ended up taking this year.
Yes, well, first if you look at the ---+ I mean the deals that we've integrated this year, most of them were closed in the fourth quarter or the first quarter.
And yes, you had a lot of startup costs in particularly the first three quarters of this year.
Intelligrated, which we closed in late August, will add to those one-time startups.
But net/net when you consider amortization and inventory accounting and the other things, the year-over-year impact will be favorable on those deals.
But the more important thing is that the operations and the cost synergies that we get typically start to ramp in the second half of the first year into the second year.
And that's where you start to see the margin rate improvement.
So we'll go through the in details in December, but this should be a nice contributor to what we had for 2017.
Yes, on the first one on salespeople, a lot of those have been deployed to what we refer to as high growth regions.
And the reason for highlighting it, of course, is that when you hire salespeople there's training and familiarization that has to go on.
So they're not immediately productive.
It's the sort of thing that shows up in the future.
I won't ---+ difficult to quantify at this point what that's worth to us say next year and the year after.
But it's another investment that ---+ where we take the expense up front, because of course you've got to pay them while the sales numbers they deliver aren't quite enough to pay for themselves in those first years.
So this is a good thing for us to be doing, a good way for us to expand our high growth region presence, but it's the sort of thing that's another investment for the future for us.
On the restructuring side, I don't ---+ I know we've shared some data, not restructuring, the ---+
Purchase accounting, yes.
<UNK>, I don't know that I want to go too much more than what we've already disclosed here.
Yes, I think we keep it at an overall contribution.
For 2016 M&A is ---+ we guided at $0.05 to $0.15 of overall contribution to EPS.
And that is an all in number that takes into account all of those one-time costs as well as the pure operations.
In 2017 you can expect that to be a bigger number as a result of a lot of those costs going away.
You can kind of calibrate it when we provide that in December.
All right.
Thanks, Chris.
Yes, thank you.
On October 7 we went out of our way to be transparent.
With our focus on transparency, I lost sight of how important it was to also convey our confidence in the future.
Hopefully our confidence in that future came across today.
We look forward to sharing more with you in our December outlook call.
Thank you.
