Safran USA Leaders Detail Products, Growth & Future Priorities

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Peter Lengyel, president and CEO of Safran USA, and Joseph Bogosian, president and CEO of Safran’s Optics 1, discuss new products and growth during an interview with Defense & Aerospace Report Editor Vago Muradian at the 2018 AUSA Annual Meeting in Washington, DC. Our AUSA coverage is brought to you by Bell, a Textron Company, Elbit System of America, L3 Technologies, Leonardo DRS, and Safran.

Peter Lengyel, CEO, SAFRAN USA

Joe Bogosian, President and CEO, SAFRAN Optics 1

AUSA Annual Meeting

October 2018

Vago Muradian:  Welcome to the Defense and Aerospace Report.  I’m Vago Muradian here at the Association of the United States Army’s Annual Conference and Trade Show in Washington, DC, the number one gathering of U.S. Army leaders from around the world to talk about the service’s future, its strategy, budget, doctrine, technology and more.  Our coverage here is sponsored by Bell, a Textron company; Elbit Systems of America; L3 Technologies; Leonardo DRS; and SAFRAN.  

We’re here on the SAFRAN stand here at AUSA to talk to Peter Lengyel who is the CEO of SAFRAN USA, a distinguished graduate from United States Naval Academy.  We’ll talk about the football debacle against Air Force a little bit later in the interview.  And my good friend Joe Bogosian who is the President and CEO of SAFRAN’s Optics 1 up in sunny New Hampshire.

Bing, I want to start with you.  I want to ask you — a call sign, a legendary P-3 aviator in your day.  Talk to us a little bit about the company’s strategy in the United States and growth.  You guys have had a footprint.  You’ve gone sort of a little bit more on the commercial side over the last couple of years but now centering and putting a new focus on defense.  Talk to us about what the growth strategy here is for DoD business.

Peter Lengyel:  Well, we’ve been consistently growing here in the United States since our first efforts over well, nearly half a century ago, supplying key technologies to the United States Department of Defense and our U.S. customers.

Now, as you know, we recently closed on the acquisition of Zodiac Aerospace.  That brings cabins, interiors and SAFRAN Zodiac Aero Systems into our portfolio.  It brings us to over 14,000 employees here in the United States, stretched across 25 of the U.S. states.  So it’s quite a footprint now.

Mr. Muradian:  And when it comes to defense growth, what does the portfolio include and what’s the plan?

Mr. Lengyel:  Well, the defense portfolio has always been a key and integral part of SAFRAN as a group.  That has traditionally been within the SAFRAN electronics and defense realm.  That being said, and what most people don’t really truly grasp or understand is that a lot of our aerospace technologies are sold to our U.S. primes and customers and end up on DoD platforms.  So we’re on over 40 DoD platforms and systems to include V-22, F-18, the new tanker, KC-46, and here for the AUSA gathering the Light Utility Helicopter.

Mr. Muradian:  And on the P-8, right, the CFM56 engine, which is the most successful partnership ever in aerospace.

Mr. Lengyel:  Indeed, and 15 miles of wiring from SAFRAN Electronics and Power.  The landing systems, wheels and brakes, and avionics.  So it’s a full nose to tail offering, and now with our SAFRAN Zodiac colleagues inside and outside of the aircraft.  

Mr. Muradian:  Speaking of noses, I’m going to go to Joe, from the night vision standpoint, leading the way.  That’s what I meant.

So talk to us a little bit, you’ve had some really, really big wins.  When you took over the company it wasn’t doing as well as it is now.  You did a restructuring up there.  When you and I spoke last year you were putting some new targets out there and some wins you were looking forward to, and you managed to land some of those.  So talk to us about some of the successes and what we should be expecting in the coming year.

Mr. Bogosian:  Sure, thank you, Vago.  Absolutely.  We have a tremendous team up in New Hampshire.  We have consistently been winning because we’ve been understanding exactly what the customer wants and delivering to the customer the technologies that they require.  That’s owing to our team from designers, developers, program managers, all the engineering, all the production folks, all the program folks.  And we led the way with 

LTLM II for the Army.  That continued on with Navy with our electronic clip-on SWIR imager, electronic clip-on thermal imager win.  That also then, the [ECODI] was selected by the Norwegian Ministry of Defense.  That led to the I-Cougar which is a sniper rangefinder for the Marine Corps.  That has led on to the 

X-Cougar, and as well, that X-Cougar won the most recent Storm II Competition.

So what we do is we offer the U.S. customer the best technology that can be sourced globally, whether it’s designed and developed purely in New Hampshire, or in France or in Switzerland.  All tailored to the U.S. military’s needs.

Mr. Muradian:  And what’s the next phase?  What’s the next step?

Mr. Bogosian:  Well the next step is to take that same best in class EOIR technology and look at land, air, sea applications.  I think behind me over here is a Paseo for armored vehicle application.  Same technology.  You have, for example, best in class digital magnetic compass which is our Swiss sister company’s product.  You have the hemispherical resonator gyroscope which is our French parent company’s product.  We take all that.  We have a package that the U.S. military is familiar with, but then they ask us to specialize, take certain things out, put certain things in in New Hampshire, and we control that through our SSA company in New Hampshire.

Mr. Muradian:  The U.S. Army has announced the Futures Command.  That’s going to be the big thing.  The cross-functional teams in each one of the six warfare areas.  How is that affecting how you’re going to do business?  Because there are a lot of folks who have been asking what does this mean in terms of the acquisition system?  We understand that plays a requirement and innovation and in a drive to try to accelerate things.  On the other hand, folks have some questions about how everything’s going to work.

You’re in the space, you’re interfacing all the time with the Army.  Is it clear enough to you what this new system is going to be like in terms of the ecosystem you’re going to have to operate in?

Mr. Bogosian:  We follow all that news, like you said, but where it really matters is where the rubber meets the road.  That is talking to your customer, knowing exactly what the customer is saying.  There’re some great people out there.  And whether it’s in the R&D field and following the military, following the customer in developing the right technologies, or whether it’s in the product field of knowing exactly what they truly want.  When they say they want LTLM II and they want weight to be the deciding factor, we listen to that, we hear that, and we deliver on that deciding factor for the customer.

I just have to say that the LTLM II since we last spoke has qualified now and is in full rate production and being delivered.  So we feel very good about our entire system today in terms of supply chain and production.  We’ve got some great assembly folks.  We’ve been growing to 160 employees in New Hampshire, and it’s a great place to be right now.

Mr. Muradian:  That’s fantastic, and congratulations.

I want to ask you, you’re a retired United States Navy captain.  You were in the international field when you were a P-3 crewman, you spent a lot of time overseas including with Dutch forces where you worked very, very closely with them.  And then you worked in the Office of Defense Cooperation in Paris before taking on this job at SAFRAN.  So international trade has been core to what you’ve done for a long time, or international military cooperation.  

There are some concerns about Buy American.  You know, tariffs and transatlantic tensions.  Is any of that affecting at all the SAFRAN approach to doing business in the United States?  Are there any challenges?  Or do you still feel that the doors are still open, even though everybody with the company is an American that’s facing the customer, that there is French ownership in Paris.

Mr. Lengyel:  It’s always been a concern from the standpoint of the rhetoric that you read about, that you hear on the news, et cetera.  The fact is, as I said, we’ve been here for nearly half a century and we’re tier one.  We provide key technologies.  As long as our technologies are better than the competitor and competitively priced, we’re going to win and we have consistently won in this market for decades.  We anticipate continuing to do so.  

Again, despite what’s being said in the press and what’s being reported by statements, when it comes down to it they know our technologies, our customers know our technologies, our end users  in the DoD and each of the services appreciate those technologies, and the fact is that we’re a strong allied partner with the United States from a defense capabilities perspective.  So there’s really very little daylight between us and we are very strong partners in the CIFIUS, IHR controls, et cetera.  Hyper compliance is how we address those issues and how we intend to do so in the future.

Mr. Muradian:  Do you see some more investment in growing out the portfolio and expanding through acquisitions and other deals and perhaps even mergers to grow the business base?

Mr. Lengyel:  Well, you’ve seen recently several key announcements that we’ve made on those fronts.  MOUs with our partner Raytheon for navigation and pointing systems, for next generation land vehicles.  We had a recent announcement with Bell Helicopter for hybrid electric propulsion solutions.  Now we’ve moved on just recently, last week, with Zunum Aero which you know is a partner with Boeing and Jet Blue for hybrid electric propulsion solutions.  Again, using one of our SAFRAN helicopter engine products, the Ardiden III.  So these are all advancements in our roadmap for more electric aircraft.

And as you know, we signed a letter of agreement for acquisition of some of the Rockwell Collins portfolio to balance out our capabilities and to strengthen our offering in those key markets of avionics, flight data systems, cockpit controls, et cetera.

So we’re quite confident and we’re moving forward in a very, I would say, consistent manner with the SAFRAN Group strategy here in the United States, dating back over decades.

Mr. Muradian:  And talk to me a little bit, Joe, about how, you are developing a lot in the United States, but talk to us about the parent company.  Because SAFRAN is one of the world’s leaders in electro-optic technology, in electronics and so many other fields, from the most nuclear hardened equipment all the way up to commercial hardware.  Talk to us about the relationship you have with Paris.  What you draw from the French side of the company and what you offer into the French side of the company from what you guys are doing.

Mr. Bogosian:  Sure.  Thanks, Vago.

Basically, again, it starts with the customer.  We listen to the customer.  We understand what technology they need, and we have, like you said, a global footprint.  Best in class.  Whether it’s designed/developed in the U.S., in France, or in Switzerland.  And what we can do is we can take the best in class from any of our sister companies or our parent company and put it together in a package that meets the U.S. customer’s needs.

Mr. Muradian:  Let me ask you one last supplier-based question.  The White House last week did the Industrial Base Assessment.  I know a lot of guys participated in it.  DoD finished their input into that.  The President had asked for that in July ’17.  DoD gave its recommendations I think in April earlier this year and did talk to a lot of companies to give their views in on that.  I think you participated in that process as well.

Talk to us about the output in terms of managing single point failure.  Do you guys have a plan and a strategy to be looking at your supplier companies?  How is this process going to work?  It’s a very, very complicated one.  You guys are always trying to get the best quality you can at the price you can that meets the security concerns of folks.  I know that you worry a lot about supplier-based management.  But talk to us a little from the standpoint of two CEOs effectively of businesses, how that’s going to potentially change how you operate?  Are you going to have to invest some more money to protect — how is this all going to work when the rubber, as Joe said, meets the road?

Mr. Lengyel:  For one thing the fact of the matter that we’re a tier one supplier changes our perspective.  We’re a little bit closer to the bone than the OEMs are for systems-based platforms.  Whether it’s aerospace or on the land systems.  So we know, and we feel that pressure on our supply chain probably a little bit more keenly than anyone else in the business.

For that reason we invest in, through SAFFRON innovation and a lot of key technologies, bring them along, bring them into the group.  We’ve centralized our research and development investments so that they are pan-SAFRAN, of benefit to the group.  So we have devised strategies and put in place mechanisms internally to address those issues on the supply chain management.

So we’re quite confident in our ability to, I would say to assess and to provide an ongoing I’d say stress test of those capabilities, and we know from the, again, the language that’s being used for Buy American, we consistently, it’s why we’re investing in the United States.  It’s the largest market of its kind for what we do, so we consistently invest here in the United States, create U.S. jobs, and create that supply chain, spending billions of dollars a year for the U.S. supply chain tier two and below to create our systems.

Mr. Bogosian:  Absolutely.  We are a special security agreement company in New Hampshire.  We’re overseen by the Defense Security Service.  So we abide by all the requirements and all the ever-increasing requirements due to the threats that are seen out there, and we get the highest marks on our audits for doing so.

It is an absolute necessity.  It’s not something that ought to be told to us.  We are already motivated to do exactly what the U.S. military is asking of us which is improve the security, improve cyber security, and make sure that you have a handle on and you are working with your suppliers, whether they’re first, second, third tier below you.  You’re working with them, that they also have the same level of requirements and they’re meeting the same level of specifications that we do ourselves.

Mr. Muradian:  Naval Academy graduate, your father was the athletic director at the Naval Academy.  Legendary.  You come from a Navy family.  We have gone to football games before  You’ve been generous enough to host.  What happened?

Mr. Lengyel:  We’re still working through that, but we do have high hopes for the rest of the season. 

Look, every program goes through their rebuilding years, but this is one that will test our mettle and I’m sure that we’ll come out stronger for it.  Great coach, great kids, great team and we’re looking forward to the rest of the season.

Mr. Muradian:  DJ Hammond took a pretty hard hit, and —

Mr. Lengyel:  Yes.  It was a difficult game to watch from start to finish, other than the first touchdown.

Mr. Muradian:  Thanks for pointing that out.  So how do you think everything’s going to go for the Army/Navy game?  Army is pretty confident.

Mr. Lengyel:  We’ve got good tickets, so I’m looking forward to it.

Mr. Muradian:  Peter Lengyel, CEO of SAFRAN USA; Joe Bogosian, President of SAFRAN’s Optics 1.  Thanks very, very much guys.  I really appreciate it.  Best of luck to you guys.  Thank you.

Mr. Lengyel:  Always a pleasure, Vago.  Thank you.

Mr. Bogosian:  And if I may put a last plug — STEM education and hiring retired military.  Absolute priorities.  I think everybody should do it.

Mr. Lengyel:  Thanks very much, Joe.

Mr. Bogosian:  Thank you, Vago.

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