Honeywell Aerospace President Mike Madsen was interviewed by AW&ST Editor-in-Chief Joe Anselmo during Aviation Week’s virtual DefenseChain Conference. Highlights from their wide-ranging discussion follow.
Aviation Week is forecasting that defense spending will remain robust in 2021, but with governments having spent so much on COVID-19 relief they’re expected to come under pressure in the long term. Is that your outlook?
The COVID stimulus packages that we’ve seen, particularly in Europe and the U.S., are going to create a bill that has to be paid at some point. There will be pressure on defense and all the discretionary government budgets as we go forward. I think fiscal 2021 is probably in good shape because it’s a little late to make changes. We’ll have to see about fiscal 2022 and 2023. I see some pressure there, but I don’t think it’s going to fall off a cliff because the U.S. and its allies still have security needs. I think we’ll see some shift in the profile of the spending back to what we had [during the Cold War], where we had this Great Power conflict and the spending associated with that.
We are in the midst of a transition of the space sector being driven largely by government budgets to a new, burgeoning private sector. Does Honeywell Aerospace see opportunities in that shift?
It’s hard not to get excited about what’s going on in commercial space. We’re deeply engaged with all of them, particularly around our navigation equipment and systems. It’s incredible how far SpaceX, Blue Origin and other commercial enterprises in that sector have come in such a short period of time. Beyond being just a customer set for us, they’re also a source of inspiration that I’ve held up to my team. We need to continue to shorten the cycle time for product development and maturation of our products. We need to use those commercial space pioneers as an inspiration for how we move quickly, take intelligent risks and bring innovation to our customers.
What does your wallet for M&A look like?
It’s significant. Our strategic plan goes beyond defining the industries we wish to participate in and the customers we wish to work with. We look at the technology needs of those segments in five-, 10- and 25-year horizons. Then we say: “Where do we have strength, where do we have gaps, and what’s the best approach to fill those gaps? Is it organic development, partnerships or acquisition?” We just announced the acquisition of Rocky Research, which has a strong presence in thermal management systems for both defense and commercial applications. It fits right in with our efforts in vapor-cycle systems, cooling systems and directed-energy weapons—not just in defense but vapor-cycle cooling for things like urban air mobility, unmanned aerial systems, general-aviation aircraft and ground vehicles. It’s the kind of acquisition where we can bring technology in and use it in a variety of ways. The last six months have been a difficult time to be a buyer or a seller. There’s so much uncertainty in the market. But I think that’s starting to clear up. We’re continuing to look and shop.
How concerned are you about Honeywell’s key suppliers, and what steps are you taking to keep them viable through the COVID-19 crisis?
We look at it through a lens that characterizes the risk our suppliers face and the impact it would have on Honeywell and its customers. Think of a framework where a small supplier may be at more risk than a larger supplier, or a supplier that is more exposed to the commercial sector than defense and could be at greater risk. When we draw that Venn diagram of sorts, we pay particular attention to the supplier that fits in two or three of those [risk areas]. We try to help them through the supply of material, solving problems they may face with parts production or securing from their supply base and solving engineering issues. It goes way beyond financial assistance through our payment plans to helping them technically and operationally. So far, we’ve been fortunate. Our supply base has remained robust, and we’ve been able to avoid any significant issues. But it’s something that we have to continue to watch—especially in these times.
You sound pretty optimistic about the future.
Aerospace will come back, and growth will return. People still need to travel. You can’t go to your daughter’s wedding over a Zoom meeting: You still need to fly. The market is, more than ever, demanding cost-efficient and energy-efficient solutions, products and services to help reduce the carbon footprint. The pace of innovation accelerates even in this current situation. We tend to look at this as an unprecedented challenge, but our memories are short. Go back 100 years to the flu pandemic of 1918, and the years that followed in the 1920s were tremendously robust for aerospace innovation. Similarly, after the Great Depression and World War II ended there were incredible technology booms. Even as we face economic challenges, health crises or global conflict, we find a way to continue to innovate.
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