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Civil Training, Sim Market Could Boost Defense Firms

Jan. 10, 2014 - 03:48PM   |  
By AARON MEHTA   |   Comments
Big Seller: The flexible, modular RealitySeven Full Flight Simulator produced by L-3 Link Simulation & Training UK, formerly part of Thales, is used worldwide to train civil aircrews.
Big Seller: The flexible, modular RealitySeven Full Flight Simulator produced by L-3 Link Simulation & Training UK, formerly part of Thales, is used worldwide to train civil aircrews. (Business Wire)
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WASHINGTON — While defense budgets are on a downswing, commercial aviation is booming, creating a demand for civilian pilots that some in the defense simulation and training business hope to take advantage of.

The easiest path to that business? Go out and buy a civilian simulation arm.

In 2012, L-3 acquired Thales’ civil training and simulation business. L-3 had been keeping an eye on that part of the market for some time, said Leonard Genna, president of L-3 Link Systems.

“We’ve been following that industry for some period of time and looking for the right opportunity,” Genna said. “We were looking for a big one. You look at Thales and they had been a key player. ... DoD is potentially down, so everyone is looking at international and civil as growth.

“The positive is that it’s based on demand,” Genna said. “As airlines buy new airplanes, they’re going to need to buy a new product [training equipment]. The demand is there. The question is, can companies in the business provide a quality device at a competitive price? That’s the challenge.”

The military training and simulation community relies heavily on advances in the civilian world, and acquiring a civilian firm can address missing capabilities.

“We had some gaps in our military business where we were looking to the industry partners to do that,” Genna said. “We now have some of those gaps filled, with having a full flight simulator capability as well.”

Lockheed Martin, the largest defense contractor in the world, purchased Sim-Industries, a Dutch civilian simulation firm, in late 2011. That move gave the company’s simulation arm a new market while offsetting potential shrinking defense budgets.

“Defense budgets are certainly a consideration,” said Chester Kennedy, Lockheed’s vice president and chief engineer for Training and Logistics Solutions. “But we’re always looking for where the growth is occurring and where we see a need for training devices and services, and the commercial aviation space is one.”

Adding a group with civil experience has helped inform how Lockheed’s defense training business moves forward.

“We’re also getting synergies from the agility of that small business and observing how they were able to do things, in some ways, quicker and for lower cost points than we were able to do inside Lockheed,” Kennedy said. “So we want to learn from them, and we want to pull those lessons learned across our portfolio.”

Absorbing experience from outside the defense realm can benefit defense training and simulation firms in other ways.

“It’s not an easy transition, to be a government contractor that chases RFPs [requests for proposals] that come out of the military, to turn that around and now become someone who sells to the civil environment,” said Thomas Baptiste, a retired Air Force lieutenant general who is now president and executive director of the National Center for Simulation in Orlando, Fla.

Defense contractors “don’t have a sales force or a big marketing team; they wait for indications there is about to be an RFP, and they build a team to go chase it,” Baptiste said. “When they win they tool up, produce, and then they look for the next opportunity. So when you talk about spinning off from a defense contractor, that’s a huge leap, and it might take a partner who is involved in the civilian sector to be that sales force and [provide that] marketing potential that defense contractors won’t have.”

The latest move was the acquisition of simulation companies Mechtronix and OPINICUS by Textron, the parent company of, among others, Bell Helicopter.

More mergers and acquisitions are likely in the simulation realm.

A number of executives interviewed at the Interservice/Industry Training, Simulation and Education Conference in early December indicated further acquisitions could be coming in 2014, although none had specific deals in mind.

L-3’s Genna didn’t rule out further acquisitions by his company.

“We’re always looking for other places that we potentially have gaps,” Genna said. “L-3 does a good job of investing in opportunities but in many cases we invest in the glue that integrates components. We don’t always have to have everything. If we can partner with a company that has a nugget or buy a company that has a nugget, we can put those pieces together.” ■


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