Rolls-Royce Group has opted to add Parker Aerospace’s heat management valves to the pneumatics package it already supplies on the Trent XWB engine program. The Rolls-Royce Trent XWB is the only engine currently available to power the new Airbus A350 family of aircrafts.
Parker Hannifin (PH) estimates that the package has the potential to contribute approximately $175 million in revenues over the lifetime of the program.
Product design, manufacture, and support will be completed by the Parker Aerospace Fluid Systems Division in Irvine, California. The heat management valve package will include a surface air oil heat exchanger oil bypass valve (SAOHE OBV) and variable frequency generator surface air cooled oil cooler thermal bypass valve (VFG SACOC TBV).
In addition to the heat management valves, Parker’s supplies to the Trent XWB include several product lines in congruence to Rolls-Royce’s requirements: the pneumatics valve suite enabling anti-icing, turbine case cooling and engine bleeding functions; the oil pump feeding oil to bearings and gearboxes and scavenging the return oil; and the hydraulic engine build-up system including tubes, hoses, and associated hardware required to position the aircraft hydraulic power between the engine-mounted pumps and the aircraft.
We believe PH is a high-quality company and is showing good execution through its cost saving efforts. Although Parker stands to benefit from any recovery in global manufacturing activity, the company’s increased scale in its International business (where Europe represents by far the largest geography) as well as its meaningful aerospace presence increases its late-cycle exposure relative to past economic cycles.
We expect MRO (Maintenance, Repair, and Overhaul) to get a boost from continued deferral of capital investment in new machines. PH’s strong exposure to MRO-type products and ability to convert net income into free cash flow will benefit future earnings.
Although PH operates in fragmented and cyclical markets, its strong distribution system provides an edge over competitors. We believe this distribution system is likely to result in asset turnover and returns on invested capital above those of peers, despite the impact of the weak economy. In addition, to staying ahead of competitors, the company emphasizes product innovation and technological improvement.
With annual sales exceeding $10 billion in fiscal year 2009, Parker Hannifin is the world’s leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of mobile, industrial and aerospace markets. Parker Aerospace is an operating segment of Parker Hannifin Corporation.
Parker Aerospace designs, manufactures, and services hydraulic, fuel, flight control, engine, and fluid conveyance components and systems, and related electronic controls for aerospace and other high-technology markets.
We currently have an Outperform recommendation on PH.
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