Rockwell Collins CEO looks back on turbulent first decade

Rockwell Collins' business model has proved its resilience in its first decade, the company's CEO says, but the company has multiple concerns about the approach to federal defense cuts.

The Cedar Rapids based aerospace electronics company Friday held its tenth annual meeting since being spun out from Rockwell International, the manufacturing automation company that had been its parent since 1973.

Rockwell Collins straddles both defense and commercial markets, with its Government Systems business unit generating about 55 percent of sales and its Commercial Systems unit generating 45 percent of sales.

"We had high confidence when we spun out that we could grow and grow profitably, and that's what we've done," Rockwell Collins chairman, president and CEO Clay Jones said in a post-meeting interview. "However we never expected the ten years of volatility we've experienced."

"We've gone through two recessions, two wars, an epidemic, a national disaster and a credit crisis," Jones continued. "Those are things you never expect."

Jones said the diversity of the company's markets and its efficient use of shared services between the business units has allowed it to weather such storms.

The next crisis facing Rockwell Collins is federal defense cuts. The way Congress approaches them - or doesn't - will have a strong bearing on the company.

"We're concerned about almost everything that's happening out of the Defense Department now," Jones said.

"We've had about five programs canceled within about the past 6 months that have affected us significantly and we've spelled those out in our disclosures," Jones said. "My guess is we're likely to have a couple more canceled when the budget is released in February. We believe we can accommodate those. we've factored those into our guidance and forecast."

The thing that concerns Rockwell Collins most is that Congress will fail to selectively make defense cuts, and will settle for the "sequestration" or across-the-board cutting approach that became the default option after the Congressional "Super Committee" failed to agree on a system of cuts.

"I believe that would be devastating to national defense, devastating to the national security, and would certainly be detrimental to Rockwell Collins and our ability to stabilize government systems and grow it in the future," Jones said.

"My hope is that sanity will prevail, congress will do the right thing, and make these cuts in a responsible way rather than this kind of peanut butter cop-out approach that sequestration represents."

At the meeting, Jones said Rockwell Collins has generated a

a 163 percent total return to shareholders since the June 2001 spinout from Rockwell International, compared to a "relatively flat" growth in the Standard & Poors 500 index over that time.

In 2011, the company's earnings per share grew to $4.06 from 2010s $3.82, and sales were up 4 percent.

As defense cuts take effect, Jones said sales are expected to balance out to about 50/50 between the business segments in two years.

One way Rockwell Collins expects to offset federal defense cuts is to have strong positions in international markets.

"Our focus is to make sure that we're well positioned internationally in countries that are actually growing their military capability," Jones said.

Countries like Brazil, India, Turkey, and some Middle East nations "live in pretty tough neighborhoods" with serious threats, Jones said.

Jones added that "I think there's an anxiety whether the united States is going to be able to support them through whatever threats they might face in the future."

The company is seeing signs of a strong resurgence in the business jet market and production for Boeing's new 787 jetliner have generated strong demand for spare parts for the 59 airlines that have ordered it.

Jones said 2011 was the "year of the tanker" for the Government Systems business. It won major contracts on the KC-10, KC-46 and Brazilian KC390 aerial refueling tanker programs.