EXPERT INSIGHTS AND RELIABLE INFORMATION FOR THE AVIATION INDUSTRY

28th Annual Commercial Aviation Industry Suppliers Conference

March 3-5, 2014

ENHANCING STRATEGIC PARTNERSHIPS

BETWEEN SMALL AND LARGE SUPPLIERS

PRESENTED BY:

SCOTT L. SCHEIN
PRESIDENT

Proceedings Sponsored by:

 Scott Schein, President

Enhancing Strategic Partnerships Between

Large & Small Suppliers

A Leading Aerospace & Defense Supplier since 1960

WHY SHOULD LARGE FIRMS PARTNER WITH SMALL BUSINESSES?

 Technology & Innovation – small businesses generate 16.5 times more patents per
employee than large firms

 Lower Cost – usually lean operations with overhead and indirect costs accounting
for <10% of sales; minimal waste

 Speed to Market – large firms typically work with key decision makers who can
respond quickly to customer needs

 Increase Supply Chain Competition – 5.8 million small businesses with <500
employees account for 49.4% of private sector payroll

 Access to Small Business Innovation Funding – since 1982, the U.S. Government
has awarded over $30 billion in research funds set aside specifically for small
businesses; many projects require corporate or university partnerships

The Department of Defense effectively uses small business set-asides to reduce

costs, maintain competition, and increase innovation

Page 2 A Leading Aerospace & Defense Supplier since 1960

THE CAPITALIZATION INCENTIVE FOR SMALL FIRMS

Small business lending

has not recovered from
2008 financial crisis

Source: FDIC – Excludes Farmland & Agricultural Loans

Partnerships allow small businesses to strengthen business cases for accessing

growth capital

Page 3 A Leading Aerospace & Defense Supplier since 1960

CAN SMALL BUSINESSES BE CREDIBLE PARTNERS?

Aerospace Products & Parts – U.S. Census Bureau Statistics

(Small Business = <$25 million in assets)

Metric Small Business All Firms

ROA (before taxes) 20.4% 8.9%
Small businesses often
ROE (before taxes) 38.4% 36.6% outperform the industry and
Net Margin 13.4% 10.2% have the ability to be stable,
innovative partners – however,
Current Ratio 2.60 1.38 they are often under-
Sales (3Q13) $1.1 billion $68.6 billion capitalized to grow

Assets (3Q13) $2.7 billion $359.2 billion

Page 4 A Leading Aerospace & Defense Supplier since 1960

RECENT COMMERCIAL PARTNERSHIP SUCCESS STORIES

 United Launch Alliance partners with XCOR Aerospace to

develop lower cost booster engines for commercial space
launches

 AVChem, a market leader in chemical management services

for the aerospace industry, was originally sponsored and
spun-off by Boeing Ventures

 Cirrus Aircraft partnered with small business vendors and

flight schools through the JumpStart program to increase
demand for new aircraft

 Inmarsat partnered with Kymeta Corporation to develop

revolutionary satellite antenna to increase broadband
access to business jets

Several examples of partnering with offshore small and mid-size businesses to enter
new markets – but less prevalent for commercial aircraft industry domestically
Page 5 A Leading Aerospace & Defense Supplier since 1960
POTENTIAL CHALLENGES IN PARTNERING

 Outnumbered by corporate stakeholders – engineering,

Small Business purchasing, finance, quality, management
View

 Corporate small business offices may not reflect broader

strategy

 “Culture clash” with corporate partner

 Visibility and access to the right opportunities

 Small businesses often lack sufficient planning, metrics, and

Large Corporate systems to provide confidence that commitments can be met
View

 Lack of visibility to the capabilities of small businesses – too

many options

 Small businesses are under-capitalized

 “Not Invented Here”

Page 6 A Leading Aerospace & Defense Supplier since 1960
OVERCOMING THE CHALLENGES: SMALL BUSINESS VIEW

 Develop detailed strategic and financial plans

– This will explain how the small firm’s goals intersect with the long range plan of the partner
– Need to tell the business’ story in a structured approach

 Employ financial and operational metrics in every facet of the business

– Provide confidence that commitments can be met

 Seek financial partners that will share the risk and support the growth strategy
– Must be able to show partners a credible path to capitalization

 Pursue continuous improvement and obtain quality system certifications

– Many firms will not consider a small business partnership without AS9100 and ISO 9001:2008
certifications in place

Small businesses can facilitate partnerships by improving management practices

and operating more like their corporate partners

Page 7 A Leading Aerospace & Defense Supplier since 1960

OVERCOMING THE CHALLENGES: LARGE FIRM VIEW

 Include small businesses in the strategic plan and supply chain development
– Identify specific cost reduction, technology, or development areas where small business can
contribute – small business environment may not be appropriate for all strategic needs

 Take a “major league scouting” approach to small business supplier development

– Develop purchasing and engineering resources that are specifically trained to scout and develop
small businesses; their job is to find the next supply chain or technological superstar
– Consider setting small business targets similar to Department of Defense and SBA

 Develop a small business procurement marketplace to evaluate new suppliers

– Use an electronic marketplace to allow qualified small businesses to bid on new projects
– Identify low risk, less proprietary components and systems to test new suppliers
– Consider requiring suppliers to leverage small businesses similar to DoD

 Institute incubator or joint development strategies to foster innovation

– Use SBIR/STTR projects as starting points for partnerships devoted to new technology

Page 8 A Leading Aerospace & Defense Supplier since 1960

POTENTIAL FORMS OF PARTNERSHIPS & POTENTIAL TOPIC AREAS

• Flight Entertainment
• Communications
Incubator • Avionics
• Green Energy Strategic partnership or
teaming arrangement for
• Materials
technology development
Government • Electronics
Funded • Structures
• Propulsion

• Skin
Production – • Wing components
Flight Critical • Windows
• Doors
Contracting and supplier
development focused on
component cost reduction
• Seat components
Production – • Floor components
Non-Critical • Galley
• Lighting

Partnership structure and approach are equally important to the strategy

Page 9 A Leading Aerospace & Defense Supplier since 1960
WRAP-UP

 There are several benefits for large firms to partner with small businesses – most
important may be reduced costs and innovative technology

 Small businesses need to improve their management practices and capitalization

to instill confidence in their prospective partners

 Small business can be integral to a Large firm’s strategy but need to identify
feasible topic areas – it all starts here

 Large firms should consider changing how they leverage their engineering and
purchasing functions to increase visibility to the small business supply chain and
identify potential partners – a more pro-active “scouting” approach

 Leverage Government programs that encourage these partnerships – SBIR and

STTR specifically

 Choosing the right form of partnership can be just as important as engaging the
right partner

Page 10 A Leading Aerospace & Defense Supplier since 1960

THANK YOU

President, Scott Schein

United Equipment Corp.

5112 Glen Alden Drive
Richmond, VA 23231
www.unitedequipcorp.com
804-222-7277
sschein@unitedequipcorp.com

Page 11 A Leading Aerospace & Defense Supplier since 1960