Transatlantic Trends and Opportunities

LISBON, Portugal, Friday, October 12, 2012

Pratt & Whitney President David Hess, in his role as chairman of the Aerospace Industries Association, spoke at the ASD Annual Convention and Technology Forum in Lisbon, Portugal, on October 12. ASD, European Industry Associations for Aerospace, Security and Defense, is the counterpart of the American Aerospace Industries Association.

In his remarks - "Transatlantic Trends and Opportunities" - Hess spoke about the importance of transatlantic collaboration, opportunities in the supply chain and acknowledged the important contributions Europeans have made in aerospace innovation.

Full text remarks:

Good morning and welcome. I'd like to thank Michael von Gizycki for the gracious invitation to address you today, and it's a pleasure to see a number of my friends, colleagues and partners.

It was 40 years ago this month that the Airbus A300 made its maiden flight, in what was then viewed – in the words of historian Tom Crouch – as a threat to "American hegemony" in the commercial aircraft industry. That was in 1972, but by the mid-1980s, the Airbus A300 family was using parts from 500 American companies in 35 states. Hardly a threat, but the beginning of a new partnership.

It speaks to an essential truth that collaboration is a powerful weapon in our arsenal against the technological, environmental and market-driven challenges faced by our government and commercial customers.

None of us are strangers to these challenges. The demand for solutions that increase fuel efficiency, lower operating costs and increase range with less noise and environmental impact have existed since the beginning of the jet age, if not before.

Today, these challenges are heightened by pressures from a global economic downturn that is forcing governments on both sides of the Atlantic to make tough choices.

Military budget cuts have become a fact of life. Since 2008, two-thirds of European countries have cut military spending. Of those, 18 European countries have seen reductions of more than 10 percent, and 8 countries have enacted cuts of more than 20%.

In the U.S., we are bracing for potentially massive military budget cuts starting in January 2013. Unless an alternative is found in the U.S. Congress, we're just a few months away from a $500 billion-dollar budget cut that will indiscriminately slash funding for American defense and aerospace programs.

Whether in the name of austerity or deficit reduction, our industry is grappling with a new reality as countries on both continents strive to put their fiscal houses in order.

On the commercial side, tenuous economic conditions only add to the pressures created by rising fuel costs and regulatory threats.

In 2011, the cost of jet fuel consumed 35 percent of total airline operating expenses, up from 30 percent the year before. Operating revenue was up 13 percent, but offset by expense growth of 16 percent. The current forecast for 2012 says that air transportation will clear a $3 billion global profit this year on revenues of $631 billion – just a .5 (point-five) percent margin.

Meanwhile, the European Union's Emissions Trading Scheme threatens the industry with additional costs that could reach $3.5 billion by 2020.

While no one questions the need to control CO2 emissions, there is a better way.

The International Civil Aviation Organization has developed environmental standards for the certification of aircraft and market-based measures to reduce aviation's impact on the environment. And ICAO has worked closely with industry on a set of global standards that will make compliance feasible and affordable, and acknowledges the progress already achieved through advances in aircraft technology.

These advances include composite materials, innovative design and more efficient engines that don't compromise on power and range. But we know that these solutions are not cheap. Development costs are high, and the risks are great, but we must have ongoing investment in new solutions if our customers, and we, are to remain competitive in this evolving marketplace.

For these reasons and many more, transatlantic cooperation will continue to light the way forward.

The F-35 Joint Strike Fighter is just one example of the international commitment to reaching the next step in aircraft technology, despite global economic headwinds. Along with our partners at Rolls-Royce and suppliers in partner countries across Europe we are proud of our engine for this program, the F135, which to date has powered 2,700 flights and logged 3,800 flight hours.

Another great example of 21st century technology innovation is our work on the PW1100G-JM engine for the Airbus A320neo. That engine for the neo is being developed globally, with our partners in Germany and Japan.

Over the past 20 years, Pratt & Whitney has invested more than a billion dollars to develop technology for its family of next-generation Geared Turbofans. These engines deliver a step change in fuel-burn advantage – as much as 16% better – while lowering noise, emissions and maintenance costs.

It helps meet the high bar for engine performance on the Airbus A320 family of aircraft, which is promising a 15 percent reduction in fuel consumption, while carrying two tons of additional payload, 500 additional nautical miles of range, and lower operating costs.

Our success on the Airbus "neo" speaks directly to the capabilities of our international suppliers and partners. They will continue to be a critical part of the equation, and we continue to seek advantages realized from engaging 21st century aerospace partners.

For suppliers, what exactly does that mean?

It means we're looking for capacity. We want to know that European partners and suppliers are right-sized and are ready to ramp up when the call comes in. We know that suppliers are feeling the pinch in terms of raw materials and backlog, and that many are concerned about financing, capacity and retooling. We will continue to look for partners that are making the right moves today to ward off delays and shortages in the future.

Perhaps our most obvious requirement concerns cost. How can joint ventures and other forms of collaboration help us all meet the aggressive price points set by our customers? How can we continue to share and defray the costs of development?

Capabilities are also important. A lot has been written about the consolidation of the U.S. aerospace industry, and how American companies are on the hunt across Europe and elsewhere for new solutions and technologies. We are definitely part of the hunting party, and are constantly on the lookout for ways to reach the next level in power plant technology.

The history of our industry – traced back to its roots – tells us that European innovation will continue to be part of America's technological journey over the next horizon.

You can go as far back as 1917, when U.S. Colonel Raynal Bolling took a steamer to Europe with 93 factory workers to learn European aviation manufacturing techniques for the U.S. war effort.

Or you can go back even farther, to the Wright brothers, who sought the counsel of French-born Octave Chanute to help transform their knowledge of bicycles for mechanized flight – none of which would have been possible without the formulas of Otto Lillienthal and scores of other European inventors, thinkers and aviators who led the way.

In fact, it was one of Lillienthal's calculations that led the Wright Brothers to conclude that their first successful flight would have to be made into a 25-mile-an-hour headwind – perhaps a counterintuitive conclusion at the time.

But all these years later, the industry is still counting on European innovators to help us find new formulas for reducing fuel burn and improving performance– and to confront many of the new challenges brought about by the emergence of a global economy and the advent of 21st century technology.

Global headwinds notwithstanding, through ongoing collaboration I am confident that we can ensure the strength of our industry, drive innovation and safeguard the competitiveness of our customers around the world.

Thank you.