The Farnborough Air Show is a calendar highlight - an action-packed week where attendees see displays of genius and applied ingenuity that provide the promise of even more exciting days ahead for the aerospace industry.
At ITT, we often say that, “the future belongs to those who can see it coming.” With this thought in mind, we spend a lot of time and effort to determine where key industries such as aerospace are heading and the many different ways we can help them get there.
Today, in aerospace, people are talking about passenger comfort, passenger safety and sustainability - and in all those areas, ITT has products and technologies that help meet the needs of our customers.
Right now, if you walk through the cabin of almost any commercial airliner, you’re likely to come in contact with hundreds of unique applications and technologies in our aerospace portfolio, from actuators and dampers that control the overhead stowage bins to the devices that allow seats to recline and return to the upright position with the simple touch of a button.
Our valves and switches are part of cabin pressure and ventilation systems. Our custom engineered components minimize noise and vibrations. Our connectors are part of in-flight entertainment systems. And every day we’re making these components using the latest lightweight materials and innovative techniques to help manufacturers drive down the weight of their aircraft and reduce fuel usage.
This week, we are showcasing some of our latest technologies at Farnborough, including a Mil-DTL 38999 composite connector that offers a 30% weight reduction to end users compared to its aluminum counterpart; an advanced damping system that allows critical components, such as aircraft sensors and electronics, to function properly; a compact RAM door actuator that improves system fuel efficiency; and a strut integrated isolator that combines isolation with next-level assemblies to meet both noise and structural requirements in a lower-cost, reduced-weight package.
Our current capabilities are built on our legacy with the aerospace industry. We’ve been in this market for decades and today it represents about 16% of our revenue. Looking ahead, we think this market will continue to have very strong growth potential for ITT. This year alone, the industry is experiencing a 15% build rate in commercial aerospace and is seeing passenger air traffic growing at 3-4%.
Given this growth potential, we expect our aerospace capabilities to play a key role in helping us achieve our premier growth targets. In the long term, we are targeting a 5% to 7% increase in organic revenue and operating EBIT margin growth of 50-70 basis points. Our goal is to deliver free cash flow at 105% of net income, and our earnings per share growth target is 10-15% over the long term.
We expect many of the industry’s growth trends to continue into the foreseeable future because when you look at macrotrends such as the emerging middle class, urbanization and sustainable development, the aerospace industry fits very nicely into the growth characteristics associated with those trends.
Take the fact that today about 50% of the world's population lives in urban areas. Asia alone is currently about 40% urbanized and is expected to grow to 50% by 2025, creating many of the world's new one million plus population cities.
Fortunately, the world is also getting more prosperous, as the middle class is growing quickly in many developing countries. As a result of this income growth, substantial investment will be required in new rail, bus, highway, airport and energy infrastructure, and there will be an overall increase in the demand for energy.
ITT is well positioned to support these trends. We already have a very strong global footprint as 60% of our revenues today are international with 28% in emerging markets. In aerospace, a lot of our business has been centered on North America but we are looking to expand more globally, especially in Brazil and China.
We already have an established presence for some of our other businesses in those locations and have recently made substantial investments, including expanding and upgrading our plant in Salto, Brazil, and making a $10 million investment in a research, development and production center in Wuxi, China. Given our developed relationships in these countries, we see them as having very strong potential to help us grow with aerospace customers.
While the world’s rapid growth can be a bit daunting from a sustainability standpoint, the good news is that businesses are acquiring new tools to deal with some of our largest and most complex problems. In fact, it is argued that we are in the midst of a third Industrial Revolution.
By integrating the best elements of digital technology and manufacturing, companies now have a far greater capacity to provide customers around the world with exactly what they want and when they want it. They are becoming increasingly adept at designing and creating the next generation of virtually everything, from airplanes to power plants to more efficient automobiles.
The newly reconfigured ITT is a leader in this area because we have the experience, ingenuity and creativity to leverage this “manufacturing renaissance” and create breakthrough solutions for many of the major industries that underpin modern life such as aerospace.
We see enormous opportunities to be seized in aerospace, and that helps explain why events such as the Farnborough Air Show are, and will continue to be, so exciting. The observers at the event will celebrate what they see and imagine what will come next. While no plane will have ITT’s logo on its fuselage, our team will take enormous pride and pleasure in our company’s innumerable contributions to these aerospace marvels and our legacy of aviation excellence.