French industrial giant Thales believes that its aerospace and defense business will continue to grow profitably in the coming years. In a recent presentation to financial analysts, the group—which specializes in avionics, radar and air traffic management (ATM)—announced a sales growth target of 3 to 5 percent over the period 2018-2021.
The defense and security division, which accounted for around 50 percent of 2017 sales (€16 billion/US$18.6 billion), will grow at an average rate of 4 to 6 percent while the €6 billion aerospace division will grow at 2 to 3 percent.
In terms of EBIT margin, aerospace will go from 10 percent in 2017 to 10.5 to 11 percent in 2021. The Defence and Security business unit will reach 11.5 to 12.5 percent compared to 10.9 percent last year, the company forecasts.
“Our turnover has grown 20 percent since 2014, and we are on the same path for the near future,” said Patrice Caine, Thales CEO. “We want to grow profitability in a sustainable way and grow faster than the market.”
Thales (Chalet D7, Innovation Zone 3699, and Hall 1, Stand 1102) puts innovation and new technologies at the top of its priorities. A further 25 to 30 percent growth of its self-funded R&D investments is scheduled to reach around €1 billion (US$1.6 billion) in 2021 (compared to €797 million/US$925 million in 2017). “We have top priorities to face digitalization challenges," said Caine, listing connectivity, big data analytics, artificial intelligence, and cybersecurity among those challenges. Most of these domains could concern the group’s aerospace and defense activities. For example, Thales wants to accelerate its R&D in air traffic management (ATM) and to optimize the insertion of the UAVs into commercial air traffic. This goal will need big data and artificial intelligence (AI) technologies, it believes. The new systems will be able to recalculate trajectories in real time by exploiting all the data generated by avionics and ground-based facilities.
Thales, which is showing its recent ATM and UAV insertion developments at Farnborough 2018, has a turnover of around €800 million in ATM and other IT solutions, accounting for 10 percent of its global Defence and Security business unit.
Connectivity and autonomous flights are also topics for the Farnborough show. The company will showcase some new developments in single-pilot operations (SPO) systems, which could allow operators to reduce the number of pilots in commercial aircraft to one instead of two.
“SPO is a very important revolution,” said Caine. To reach this goal, the CEO thinks it will be necessary to combine a human brain with the AI, while keeping a second pilot on the ground to cover for any failure of the pilot in the cockpit (a heart attack, for example). The future SPO aircraft will be capable of autonomous remoted flight, believes Thales. “All the technologies are mature, and if airframers launch a call for tender, Thales will be able to answer by the end of 2018,” said Caine. Thales forecasts that SPOs and UAVs could generate €3 billion (US$3.48 billion) in new business by 2030.
Number Two in IFE
In-flight entertainment (IFE) and connectivity will also be important topics for Thales at Farnborough. It wants to emphasize its worldwide number-two ranking in this business (after Japan’s Panasonic) with its InFlyt360 and FlytLIVE solutions. The group has a turnover of €760 million (US$929 million) in the IFE sector last year, which was 23 percent of the total avionics business unit turnover. Thales sees an average growth rate of 3 to 4 percent in IFE deliveries up to 2021. Higher single-aisle aircraft production rates and lower twin-aisle aircraft production growth, has affected demand, however. The company anticipates that growth in the connectivity sector (internet on board), will be three to four times higher than that in the IFE field, due to a strong demand from the passengers and a faster adoption of Ka band technology versus Ku band, said the company. By 2025, it forecasts new revenue of €1 billion (US$1.6 billion) with connected IFE platforms and services.
Cockpit avionics and other aircraft equipment and services, which account for 63 percent of the avionics business unit’s turnover, will be highlighted at Farnborough as well. Thales will show its Avionics 2020 cockpit to emphasize “the use of digital in avionics for a more versatile, connected, cyber-secured avionics solution,” a Thales spokesperson explained to AIN. The commercial transport market remains strong with the ramp-up in production at Airbus and Boeing, and 4 to 5 percent growth in deliveries up to 2021. In the business aviation sector, Thales is supplying most of the relevant OEMs with full fly-by-wire systems, satcom equipment, and electrical systems. The French group sees slow and steady growth in deliveries, with a 2 to 3 percent rate up to 2021.
Future growth will be rather lower in the military arena (0 to 1 percent) and helicopter segment (1 to 2 percent). “There’s a slow market recovery in helicopters, with a rise of the super-medium segment and a fall of heavy ones,” commented Gil Michielin, executive v-p avionics.
Regarding Brexit, Caine said that the impact will be “marginal for Thales; most of Thales UK’s customers are from the UK or from outside of the EU. And most of our suppliers come from the UK or Middle East and Asia.”