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How the CEO of Rockwell Collins has turned a pretty profit by juggling military and civilian work
It's the dream of every defense contractor: A product or service developed on the government's dime turns out to have broad appeal in the private sector. Think Hummer sport-utility vehicles. Night vision goggles. Tang.
Aerospace parts maker Rockwell Collins (COL) is a master at this particular form of technology transfer. Its head-up displays—transparent screens in the cockpit that tell pilots their speed, altitude, and direction—were originally developed for fighter jets and are now features of Bombardier's new Global Express aircraft and Boeing's new 787 Dreamliner.
By keeping his hands in both military and civilian work, Rockwell Collins CEO Clayton M. Jones has been able to double the company's sales and profits over the past five years, earning $585 million on sales of $4.4 billion in 2007. Those results helped the Cedar Rapids (Iowa) company soar to the No. 24 spot on BusinessWeek's annual list of the 50 best-performing companies. A big part of the company's success comes from leveraging its $950 million a year in research and development spending, more than half of which comes from customers, including the Defense Dept. "He's probably one of the best at that, if not the best," says Cowen & Co. (COWN) defense-industry analyst Cai von Rumohr.
Jones' company was once a part of the now-dismembered conglomerate Rockwell International. In 1996, Rockwell sold most of its space and defense businesses to Boeing but kept the units that made aircraft electronics. Back then, the defense and civilian sides of the company maintained separate design facilities, laboratories, and software. As a senior executive in the mid-1990s, Jones helped Rockwell reorganize the staff to focus on particular product lines, such as liquid-crystal displays for cockpits. "It was enormously difficult, because we completely changed the way our people did business," Jones says. "But it made us much more efficient."
Jones, a former U.S. Air Force pilot, flew F-15 fighters in the late 1970s and still has a top gun's instinct for maneuvering in tight situations. After Rockwell Collins was spun off as a public company in June, 2001, the September 11 attacks all but devastated commercial aviation. But Jones was able to reassign many of the company's engineers to defense work. "As these markets go through cycles, we can shift resources and people and hold on to that intellectual capital," he says.
That capital is a valuable thing. Rockwell developed the satellites that created the global positioning system for the Defense Dept. in the 1970s. (These are the same satellites that consumer devices use today.) Rockwell still provides handheld GPS devices to troops in Iraq. The company also sells GPS systems to commercial carriers, such as Southwest Airlines (LUV), which is outfitting its fleet with them.
Sometimes the technology goes from commercial to military. One of the company's top products is Multi-Scan radar, which automatically checks different angles to get better readings of storms. It was developed in response to requests from commercial airlines, but Rockwell Collins is installing the devices on military helicopters and transport planes.
So what's in the lab these days? For one, Rockwell is designing sophisticated in-flight entertainment systems for private jets that include high-definition TV, iPod jacks, wireless Internet connections, and support for BlackBerry devices at 50,000 feet. If Jones has his way, in a few years some of that technology could find its way into commercial airliners, easing the journey for passengers riding in coach.