FTG: Focus to Expand

Estimated reading time: 24 minutes

Firan Technology Group (FTG) is a Canadian circuit board and cockpit product manufacturer specializing in the aerospace and defense market. With a newly established global footprint, they look now to increase their capabilities and grow within that footprint, particularly by way of acquisition. I-Connect007’s Judy Warner and Barry Matties met CEO Brad Bourne at FTG’s Chatsworth, California facility to learn more about the acquisition process, their immediate success in China, and the overall challenge of working in the aerospace and defense market.

Barry Matties: Brad, let’s start with a little context about FTG, what you guys do, and maybe a little bit about the history of the company.

Brad Bourne: Sure. I'll give you a history of FTG from my time here. I've been here since 2002, which works out to 14 years. It existed before I got here, but I'm not an expert on that part.

FTG actually has two businesses. We do printed circuit boards and we do cockpit products, things that light up in a cockpit. Both of them are electronic and in both cases our whole market focus is in aerospace and defense. We’ve worked hard over the 14 years. We started in Canada. We had two plants in Toronto, one doing circuit boards and one doing cockpit products. Our goal has been to grow into the U.S. with a footprint because the largest aerospace and defense market in the world is the United States, so we needed a footprint there to be a more significant player in the U.S. As of today we have that footprint in the U.S. for both our businesses, all in Chatsworth, California.

The fastest growing aerospace market in the world is Asia, so we wanted a footprint there. We now have a cockpit product plant in Tianjin, China and a joint venture for circuit boards in Tianjin, China. Our goal has been achieved to have the global footprint and now it's just to grow within that footprint.

Matties: I think you guys have about 300 or so employees?

Bourne: It's a little complicated right now with the acquisitions we just did, and I'm not sure whether to count them or not, but in total I'd say we're between 400 and 500 employees around the world.

Matties: What sort of percentage of revenue is split between those product groups?

Bourne: Roughly speaking it's about 75% circuit boards and 25% cockpit products. We have another goal, another dream, which is to have that balanced 50-50 just to have a more balanced business. Obviously our goal is not to shrink the circuit board business to get to that balance.

Matties: Going into China to start selling products like that I would think you're competing with some local vendors. How's that entrance into the marketplace?  Are you going after the Chinese military market?

Bourne: Not the military market. Our first foray into China was in our cockpit product. We went in to support our Western customers. Really the largest market right now for selling aircraft, if you go up to the Boeing/Airbus level, is Asia. The more content they can show within Asia the better their competitive position, so they've been pushing their whole supply chain for the last 10 years to find Asian sourcing.

We went into China to support Western customers, but once we got there we realized there's two really good reasons to be in China. One is to support Western customers, and the other is that there is a Chinese aerospace market. China is developing their own aircraft. They just certified and delivered their first regional jet and it has just entered service. They're now in development of a commercial air transport aircraft, the equivalent of a Boeing 737 in terms of size. So we're now trying to participate both in the Western market and in the commercial aerospace market in China. But, to be very precise, we are not pursuing the defense market in China.

Matties: Even so, doing business in China, trying to break into the market, we hear about all of the challenges and obstacles for foreign companies coming in to do just that. Are you running into those challenges?

Bourne: Yes and no. I’d guess more no than yes. We had shockingly good luck. We opened our cockpit business in China and had our grand opening in October of 2012. Shortly thereafter one of the AVIC companies in China came out with an RFP for a lot of the cockpit products to go into their new single aisle aircraft.

In November 2012 they heard about us because we had just announced this grand opening, so within a month of being there we got a big RFP. We won it against many international competitors, but we won it because we had our footprint in China, even though it was not in production. We were just barely starting. We're still in development on that, but it's probably going to end up being the largest contract FTG has ever won. That becomes the whole base for being there and it all started truly within 30 days of being in the country.

Judy Warner: That's amazing.

Bourne: Pure luck.

Warner: Brad, I'm curious to know what is involved in those cockpit products. You said everything that lights up in a cockpit. Is it a whole integrated assembly? What does that mean?

Bourne: It can mean many different things. When I first came to FTG we were doing cockpit products. We were doing almost all illuminated backlit panels, a very simple product. It's a piece of acrylic that gets painted and has text etched into it and has a circuit board on the back with a few lamps on them. You plug it in and it lights up. It's a few hundred dollars apiece. Pretty low technology stuff.

We have many dreams at FTG and one of them was, in both of our businesses, to move up the technology curve. So in the cockpit products you went from backlit panels to integrated switch panels. It's a similar sort of thing, but now we’ve moved into a few buttons that the pilots will push and actuate things. Then we moved into keyboards and bezels, a little bit more sophisticated, more electronics in the back. Ultimately, most recently, we moved into full box level assemblies to go into the cockpit. Now you're still doing the front that we always did, the panels and keyboards and that, but with the interface electronics back to the aircraft data bus. We actually started doing box level assemblies for a simulator product, which was great because it had all of the technology but without all the requirements for flight certifications. It was a nice intermediate step for us.

Now we've moved into box level assemblies for aircraft, so we're learning how to get all that stuff through certification. That program I talked about in China is all box level assemblies. We're working on that and we're working on some other programs in the U.S. where we're doing full box level assemblies. What we do has evolved and we have moved up the value chain over the last decade.

Warner: What kind of certifications and/or expertise do you need to be able to build that level of integration into aircraft?

Bourne: It gets complicated very quickly and it depends on the product itself. There are boxes with electronics as one level, boxes with electronics and software as another level, and we're doing both. Basically you certify the two items somewhat separately. It's a separate process. If you have electronics, which they all have, you go through a certain qualification process. If it has software, then there's an additional piece to qualify the software. Ultimately you get certified either as part of the aircraft or you get certified on a standalone basis. The certification ultimately comes from where you're doing the work, like Transport Canada if you're doing it through Canada, the FAA if you're doing the U.S., or it can come from the CAAC if you're doing it in China. We're learning to deal with all of them all at the same time.

Warner: You were talking about being a more integrated solution for your customers when it comes to the assembly side and having more capabilities in your cockpit division. Will you look to expand that? What equipment and capabilities do you have now, and are you looking to grow more into that space so you can be even further integrated?

Bourne: We're being careful in that. I do not want to be an EMS supplier or contract manufacturer. I don't want to become a Celestica or a Plexus or a Flextronics. When I'm assembling cockpit products, it's a very unique assembly. A lot of it is tied to the lighting technology, so we're very specialized. We can use incandescent lamps, LEDs or electroluminescent lamps, and we can do all sorts of filtering and we can do night vision panels. It's a very specialized assembly, and even as I say with our Teledyne acquisition that we're doing value-added assembly on circuit boards, we're not doing a full populating of circuit boards the way EMS companies would. Rigid-flex circuit boards seem to all have this requirement where you're putting connectors on a few other passive components but not really doing the full assembly that the big guys do. In both cases it's very specialized.

Warner: So stay in your lane, not trying to be all things to all people, and make it relate to your existing product point.

Bourne: Yes, exactly.

Warner: That totally makes sense.

Matties: You just reported record revenue for the company. Congratulations, first of all.

Bourne: Thank you.

Matties: What side of the business did that come from? The cockpit side or circuit board side?

Bourne: It came from both sides. Both businesses are growing. Our circuits business through the last 18 months has actually been growing the fastest. It just happens to be that we had some pretty interesting opportunities and we captured them and it's really pushed our growth nicely in that business, but both of them are growing.

Matties: What was the driver when you talk about the opportunities?

Bourne: There's a few different things. First of all, the aerospace market right now is a great market. Boeing and Airbus, if I use those again, are kind of the top of the food chain, are both sitting on record backlogs. If you want to buy a Boeing 737, I think it's a six-year lead time to get one. If you want to buy one you'll have to wait a while.

The market is strong, so part of it is we're just riding the wave with the market. One thing, as it relates to circuit boards that we've put a lot of time into is capturing content on new aircraft by investing in technologies. We have a lot of content in circuit boards on the Boeing 787. Amazingly, we shipped our first development circuit board for that aircraft in 2006, so 10 years ago. Finally in the last few years it's gone into production. The last quarter Boeing reported they shipped 38 aircraft in the quarter, so they're shipping somewhere between 12 and 14 a month. It makes a big difference. As that volume ramps up, if you have your content on it you just ride that growth. That's the second part of why we grew.

The third part, again, is really the technology investment by FTG. One of our goals had been to do the full range of circuit board technologies, from simple FR-4 product through HDI product through all the other materials that aerospace guys want to use—all the Teflon, BTs, mixed materials and everything else they can think of. By having that wide offering we seem to be really aligned with our customers’ supply chains these days. They're looking to simplify their supply chain, and what they really want to do is buy more product from fewer suppliers. Obviously, if you're there offering the full package of what they might buy you're well-positioned. We've seen that. We've seen our activity with a few customers double in the last two or three years as they've shrunk their supply chain and moved more work into FTG. All of those things are driving growth.

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