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Adams Rite, AdelWiggins, & TransDigm Competitive Risks

This interview with a Former President at TransDigm, who spent over 20 years at the group, provides an interesting perspective on how companies like Adams Rite and AdelWiggins are operated and the challenges combating competitive threats from PMA companies like HEICO. 

Another interesting risk that came up was how Boeing will aim to claw back ownership of the aftermarket on future aircraft platforms. If aftermarket profits are split with the airframer, the incremental returns for suppliers will degrade for new platforms:

let's say you have a clean sheet aircraft, let's call it Boeing X. Boeing will ensure, to the extent they can control, that any supplier on that aircraft will likely have to agree to terms that are more favorable to Boeing in the aftermarket. It will work with some parts, not with others. But my point is, they will do a much better job of securing their share of the aftermarket than before. On average, if suppliers got ninety-nine cents of every aftermarket dollar in this generation, they certainly won't get ninety-nine cents in the next generation. - Former President at TransDigm

The comment above reminds us of a story we uncovered last year of how Boeing actively tried to insource TransDigm parts. Due to airline complaints, Boeing’s team switched a TDG battery out with a Saft product:

It was a TransDigm battery with a unique technology that customers didn't like. The exclusive distributor of that battery was Satair, so Airbus. I went to the Boeing people and said, everything about this is wrong. It’s bad for Boeing. Let’s partner with Saft, who’s on every other Boeing airplane, and get a new battery. It will be cheaper, it will have double the life, and the customers will love it. - Former Managing Director at Boeing, Supplier Services

Another Former TDG executive also previously shared how Boeing has changed the way it structures aftermarket pricing agreements on the 787. 

It might trim 15% to 20% off the top of the aftermarket for those products. Remember this is only on 787 products or any of the new platforms. That will obviously have future downward impact but it is currently not that significant but there is certainly a pressure. PMA pressure will always exist but due to the expense and effort, it is only 1% a year. - Former President at Transdigm

How Boeing and Airbus approach the aftermarket is a critical factor in determining supplier pricing power. Boeing’s historical attempts to claim back ownership of the aftermarket imply it’s fully aware of the missed opportunity. However, Boeing currently has its own issues to deal with. And there is still little sign of a new platform. Maybe it will take years before the aftermarket bargaining power shifts back to Boeing…

LVMH: Balancing Quality and Growth

This comment from a Former President at LVMH is interesting:

I believe that in luxury, and not just in the middle segment, success is a combination of management and creativity. Successful companies always have a great CEO who works well with a great creative director…groups like LVMH are very sensitive to this combination of an excellent CEO and creative director. LVMH has many great CEOs because it's a large company offering opportunities to different CEOs. You can start with a smaller brand, and if you excel, you move to bigger brands. - Former President at LVMH

It’s not just having a great creative director and CEO. The relationship between them has to also be great. 

It's not just about two people; it's about two people plus their relationship. You could have a very talented CEO and a very talented creative director, but if they don't work well together, it won't succeed. It's more challenging than just finding two great individuals; it's about finding two great individuals who can form a strong working relationship. - Former President at LVMH

One interesting question is how much fragility does this relationship inject into luxury and affordable luxury-type brands? No doubt the management team and relationships between them are crucial for all companies, but it’s curious to explore in which ways luxury fashion may be more or less fragile than other companies? 

We also have a series of interviews planned over the next few months on how parallel grey luxury market operates.

Wise vs SWIFT & Correspondent Banking

Wise is a £7bn UK-listed payments company mainly targeting individuals who want to move money globally. The company has created its own cross-border payments network instead of relying on the established correspondent banking system. This has created faster and cheaper payments through Wise:

This interview with a Former Swift executive and correspondent banker compares the the two networks:

They have an impressive track record, with over 57% of cross-border payments settling instantly or in under 20 seconds, and over 90% settling within an hour, end to end. That's not what Swift is doing; Swift is achieving 90% within an hour from bank to bank. - Former Swift Executive

Because of its ability to cut out the middle layer of correspondent banks, Wise is able to settle payments faster than SwiftGo. According to the executive, this is mainly due to the last leg of the transfer where Swift back-office operations aren't 24/7 under the traditional system. Fixing this issue requries cooperation between Swift bank members. The network structure and governance makes this difficult:

To address your question, I would start by saying Swift is a cooperative, meaning it can only move as fast as its slowest member.(...) Some can be addressed, but others are extremely challenging. There are ways around some of them, but so far, SwiftGo has limited power. It depends on local banks or corresponding banks to tackle these issues and their willingness to do so. - Former Swift Executive

Interpump Group: Governance, Org Structure, & Water Pumps

Interpump is a 4.5bn EUR Italian-listed group of over 150 pump and hydraulic component manufacturers. The company was founded in 1977 and is still owned and controlled by the founder. Over the last 20 years, the business has achieved ~10% CAGR revenue growth, 35% organically and 65% from acquisitions. The company has consistently earned ~10% FCF margins. 

This interview with a Former Managing Director explores the governance, org structure, and quality of the underlying assets in the water jetting division. 

It's a thousand-legged beast. You have companies in a very profitable business, which is water jetting pumps. It's very profitable but fragmented, with thousands of part codes and finished product codes. Almost just Interpump has 1,500 to 1,600 customers, with 98% smaller than Interpump. There are very few big customers. This is typical of the sector and the fact that Interpump has a mantra; no complete system, no system integrator role, just components and niches. Very few automotive supply, quite a few truck supply. All the volatile sector with, let me say, where the supply is commoditized, are not the field of battle for Interpump. - Former Managing Director at Interpump

LGI Homes, Lennar, D.R. Horton & US Homebuilding Scale Advantages

In this interview, a former Purchasing Manager at Lennar explains the limited-scale advantages large homebuilders have over smaller, local ones when it comes to sourcing building materials.

"We use leverage to get better pricing. However, no matter how large a national builder is, they operate like satellite offices per division. Each division negotiates most of the construction build locally. While national builders may have some national contracts for better pricing, from my experience, that's minimal. This benefits larger builders over smaller ones because they can negotiate those national contracts. - Former Purchasing Manager at Lennar

Ashtead Technology: Leadership History & Sources of Differentiation

A Former Ashtead Technology executive with 40 years of experience in the industry explores the history of the subsea equipment rental firm and how its differentiated:

Typically, when mobilizing a vessel that requires a wide range of equipment, you want to source from a single supplier due to the interconnectivity of these systems. This interconnectivity needs to be tested before reaching the vessel, and having one provider simplifies support. You avoid situations where you have to contact different companies for different components, which can complicate accountability for interdependent issues. - Former Senior Executive at Ashtead Technology

GXO Logistics: Conflicts with Customers & Warehouse Management System Issues

In 2021, XPO Logistics, a leading 3PL provider led by entrepreneur Bradley Jacobs, completed the spin-off of its logistics division. Rebranded as GXO, the company is a $7bn pure-play global contract logistics provider. 

GXO typically has multi-year contracts with blue-chip customers to run their warehouse and logistics. These are sticky relationships with low single-digit churn annually. However, in this interview, a Former VP of Supply Chain Operations at GXO Logistics highlights potential misalignments of interests between GXO and its customers.

Another aspect is transparency. The more transparent your pricing, the lower your margins will be. With an open book contract and competition with other 3PLs, you'll be negotiated down to around 3%. It's almost impossible to have a higher margin. If you make it less transparent with fixed variable pricing, there are ways to reduce costs that the customer doesn't directly see, allowing you to increase margins to around 15%.- Former VP at GXO

Braze: Sales Org, Consumption Model & Addressing SMB

Braze generates ~60% of revenue from ~10% of its customers and highlights its success in the Enterprise segment. This interview with a Former Account Executive at Braze explores the positioning and competition in the Mid-Market and SMB segments.

The biggest resistance we saw in the commercial sector, both mid-market and SMB, was with Iterable. Iterable was the closest parallel product-wise to Braze, even though they started as an ESP first, and Braze started for mobile apps. Their biggest selling point was if you don't have a mobile app, you don't need Braze. This wasn't invalid, but it didn't hold as much merit over time. They came in a few thousand dollars cheaper, whether it was their minimum or the flexibility of waiving onboarding fees. We saw resistance because you could get 90% of the same features for less than 90% of the cost. Braze is so sophisticated that it really moves the needle for the enterprise or upper mid-market space. SMB companies weren't leveraging all the powerful tools of Braze because they didn't need them yet. If they didn't need them, why spend the money when they could spend less and get something comparable with Iterable? - Former Account Executive at Braze

The Mid-Market and SMB segments potentially still presents and opportunity, which is why Braze has started offering free trials.

Boyd Gaming: Corporate Culture & Unifying the Tech Stack

In this interview, a former Senior Executive at Boyd Gaming explains the company's approach to unifying its tech stack and how its unique corporate culture is facilitating what is supposed to be a challenging process.

"In most organizations, when marketing wants to do something marketing-wise, the Chief Marketing Officer or someone in marketing picks up the phone and goes shopping for a marketing system. And that's it. That's how they make marketing decisions. The problem with that is they're in a silo and making decisions that are best for marketing. They're not engaging operations, finance, or other groups. So what you typically have in most casino organizations is almost this natural infighting. They're almost all against one another, pitted against each other, trying to make their own decisions based on what's best for them individually. What we did at Boyd was lean all that out so it becomes a more enterprise decision. When we're talking about the needs marketing has, we're bringing in finance and asking, "How are you impacted by this?" We're bringing in casino operations, hotel operations, anyone that might have a touch to this process. It's about the process, not about a department. We make them part of the play, and then we represent the company as a whole for that. - Former VP at Boyd Gaming

Metro Bank, Shawbrook and the UK Challenger Banking Market

In this interview, a Director of Corporate Lending at Shawbrook Bank sheds light on how challenger banks are carving out their niche in the UK SME corporate lending market to better compete with incumbents.

Shawbrook's place in the market is that we're never going to be the cheapest. We're a second-tier lender, a challenger bank to the main high street, the big four. We won't win on price, but we win on flexibility. - Director at Shawbrook Bank