Meggitt-USA is the bridge between the US and its UK-based mothership Meggitt plc. Meggitt has four divisions: Aircraft Braking Systems (MABS; brakes, brake controls), Control Systems (valves, pumps, fans, motors), Polymers & Composites (aircraft seals, flexible fuel tanks, coatings, composite structures), and Sensing Systems (test, measurement). Meggitt-USA designs and manufactures original equipment (OE) and aftermarket equipment used in civil aerospace and military defense applications -- for air, land, and sea. Non-military markets include automotive, energy, transportation, industrial, and medical. Meggitt's Equipment division makes aircraft fire protection, avionics, combat systems, and training systems.
The US Department of Defense (DoD) is its #1 customer. Other blue chip customers include Boeing, General Electric, General Dynamics, Honeywell, Lockheed Martin, and United Technologies, to name a few.
With more than half of Meggitt group's revenues being generated in North America, and 65% of those revenues coming from the military, the company recognizes the region, but more specifically the US, as its key market. For that reason the US defense budget is very important to Meggitt and its overall success. DoD funding has been at the mercy of cutbacks ordered by the Obama administration, which has turned its head away from more traditional combat weaponry, and toward programs and products that increase the military's speed, flexibility, and precision. Budget priorities favor electronic sensor and cyber warfare technology that supports ISR (intelligence, surveillance, and reconnaissance) missions, and C3I (command, control, communication, and intelligence) requirements.
Good news for Meggitt-USA is that the vast majority of its OE programs will continue to be funded. With aircraft representing 70% of its sales -- driven by Joint Strike Fighters, F16s, F18s, Typhoons, C130s, Apaches, and Black Hawks -- the company believes that this area will increase by as much as 5% over the next year, primarily due to the sale of aftermarket parts, which represents 40% of its military revenue. Meggitt-USA has positioned itself for retrofit programs, which will mitigate for a slowdown in OE programs. Some of these aftermarket products include blast-proof fuel tanks, thermal management of electronics, and composite-made aerostructures.
To stay up-to-date and onboard with the latest technology, Meggitt-USA acquired Pacific Scientific Aerospace (PSA) from Danaher in spring 2011 for $685 million. PSA makes equipment used to supply electric power, as well as safety and security products (fire and smoke detection and suppression) for commercial and military aerospace applications. The PSA acquisition is complementary to the company's EBrake electric braking systems (developed by MABS) that replace traditional hydraulic braking systems with electrical sensors and actuators, thus reducing maintenance costs for airlines. Meggitt is keeping current with the trend of aircraft manufacturers, moving away from hydraulic technology and more toward electrical technology, which is cleaner and more fuel efficient.
Meggitt-USA took the cue to capitalize on Meggitt Training Systems around the same time as the economic recession put a kibosh on capital equipment purchases. Joining the industry trend, the company mitigated the downturn by beefing up its aftermarket components and services business. Still, Meggitt-USA could not insulate itself entirely from the cyclical downturn. It responded by reducing its civil aerospace headcount by about 15% from mid-2008 levels. Among other cost-cutting measures, the group also froze management pay.