Interview: Retreading Key to Dunlop Aircraft Tyres Global Expansion
In its centenary year, Dunlop Aircraft Tyres is part of the way through an expansion plan designed to double the size of the company in terms of new tyres made. With a view to achieving this, the company has set up a joint venture in China with the Hong Kong Aircraft Engineering Company, named Dunlop Taikoo. Before the recession hit the world’s economies, Dunlop AT had planned to set up a similar facility to cater to the North American market; plans that are still very much at the forefront of the current expansion strategy. It has also recently purchased tyre-making and testing equipment from Yokohama Rubber following the Japanese manufacturer’s decision to withdraw from aircraft tyre production at the end of March 2009. The purchase and installation of the equipment at Dunlop’s Fort Dunlop plant has enabled the Birmingham-based company almost immediate access to the Boeing 777 market for example, an aircraft used heavily in domestic flights.
An aircraft tyre’s tread lasts on average between 20 days and three months. Putting that in the context of an aircraft’s 25-30 year deployment, that equates at the upper limit to well over 500 tyre changes in an aeroplane’s lifetime. Here’s another eye-catching number: an aircraft cross-ply or bias tyre can go through the retreading process up to seven times. The weight advantages of radialisation are slowly leading to a deflated cross-ply market, though the retreadability of those tyres against radial aircraft products (which can usually be retreaded 2-3 times) means that an economic balancing act is required when switching to radial tyres.
Whether the tyres are radial or cross-ply, Dunlop AT is clear that retreading is an integral part of the aviation segment; so much so that Dunlop Taikoo functions as a retreading plant and distribution facility. Trust and safety issues mean that new tyres are almost always returned to the original manufacturer for retreading; between this and the impractical economic and time costs of shipping tyres around the world to be retreaded means that the expansion in a region must see the input of new tyres go hand-in-hand with a retreading service. Tyres & Accessories visited Dunlop AT in Birmingham to speak with chairman and managing director Ian Edmondson about the company’s expansion strategy, how retreading is fundamental to this expansion and his involvement in the company, which began less than half a decade ago.
Ian Edmondson: I got involved three and a half years ago as the business was being sold by the previous owner. I was involved with what was then ABN-Amro Private Equity Team as they were considering the prospective purchase of the company, so getting involved with them in an advisory capacity, because of my background in manufacturing, global business, technology, transport industries (sort of) – one thing led to another. They were successful in buying the company and I became chairman as a result of that purchase and fulfilled an agreed plan to take over as managing director in three months time when the previous MD retired – which was what he wanted to do.
T&A: What have been the defining features of the three and a half years in which you’ve been involved?
IE: The interest in the business for the principle investor – which is now AAC Capital Partners, although they still manage the same fund that purchased the company initially – the initial attraction of the company was that it was a great brand; it’s in a niche market sector – within aviation even, tyres are considered something of a niche; and as a company that had a huge opportunity, it was seen, to re-expand the Dunlop brand as applied to aircraft tyres in the global market. So the strategy that was outlined as part of the purchasing planning, which was formed in the early days after the change of ownership and into a proper five-year business plan. And that’s basically what we’ve been following.
Obviously there were some unexpected events [Edmondson said, dryly], because those three years ago, nobody had any thought of recession. The global aviation business and market was seen to be and expected to be and predicted to be expanding at 4 or 5 per cent compound per annum for the foreseeable future – so the world changed a bit. But the basic strategy is what we’ve been following; obviously tweaked a little bit by the ravages of the market and the economies of the world.
The basic strategy, which is fundamental to where we are and what we are trying to do, is based on two classical premises. One is geographical expansion, and the other is product range expansion – those are the key elements that are really the core of what I think we are all interested in.
The opportunity for global expansion and the strategy for that is developed on the power of the brand which was still known and respected globally and locally, though the aircraft tyre business had not developed on a global basis in the last twenty years. It had developed more on a European basis with some exceptions. So the opportunity in Asia and to some extent in North America was and is quite significant. The key to the strategy for global growth is retreading.
Aircraft tyres are retreaded as a norm. Whilst that is not something that is a feature of car tyres any more, it is and remains a significant part of operating a tyre business for aircraft. A typical aircraft tyre casing can last for multiple treads. A tread life is limited by the physical restraint of how thick and deep the tread can be, given that it’s going to run at 200mph and not fly off. The casing, because it has to take a huge load and operate at 200psi-plus is very strong. The tread wears out and the casing does not, so we can retread up to seven times in a number of cases.
Retreading is, of course, not something that you trust to every Tom, Dick or Harry in aircraft terms. It’s not quite the same in truck retreading, which is why you see truck treads thrown off on the motorway sometimes – that doesn’t happen with aircraft tyres. It is obviously properly done, technically: the remoulding and the inspection processes we use are key to it.
But retreading service [in aircraft tyres] has to be provided, more or less, by the OE tyre-maker. There are some exceptions, but they are limited and they are not relied upon by most airlines, so there is a very limited private retreading opportunity, especially for civil aviation and military work. A lot of private retreading goes on more in the general aviation business jet arena, but for commercial civil aviation, and where military do retread (they don’t always), the issues are such that generally the OE supplier will be the retreader.
Therefore, in order for us to expand in Asia and in North America we have to have retread facilities. Historically we have had a private retreader in North America, approved by us, doing a limited range of tyre sizes. So we have had some business in North America on that basis. In Asia: nothing. And so our geographical expansion was and is focused on putting a retread plant into Asia to provide the retreading service facilities so that we can sell new tyres and support the customers there.
That was the first and key element of our geographical strategy, which we are implementing. We have built a plant in China – a retread plant and a distribution centre for new tyres on the same premises. That plant was officially approved by the European Aviation Authority last September, by the aviation authority in China last October and has been officially opened in November of last year. So we are now ramping up the business and expanding the new tyre sales in Asia.
All the new tyres are made here [in Dunlop Aircraft Tyres’ Fort Dunlop, Birmingham plant] and within the strategic plan we foresee that we will continue to make the new tyres here – there is enough space, the footprint is big. We are investigating the acquisition of new equipment to expand [Tyres & Accessories saw several pieces of newly installed machinery bought from Yokohama recently during the visit to Fort Dunlop]; some of that is pure capacity, some is technology. We are happy with the UK manufacturing location’s ability to fulfil our initial ambitions of doubling the size of the company in new tyre terms. Therefore the retreading done here is – and will continue to be – for Europe, where we will have modest growth. The retreading plant in China will provide us with good strong growth with [the distribution of] new tyres, as well as with the retread business in the whole of Asia.
Then in North America our strategy for geographical expansion – to complete that – is eventually to own our own retread facility there for two reasons: one, we make no money out of the retreading that the private company does for us; and two, the private company is limited on range for the tyres it can retread, and that therefore is a limitation on our sales expansion in that region. We have this in our plan, but we have not done it so far, because the recession has interfered with the smooth deployment of our geographical expansion. It remains our next key step to take in the future at the appropriate time.
T&A: How has the timing been altered by the recession?
IE: For North America, we had expected to be building or buying a retread plant now. We have not committed to do that yet because the market is not certain yet, and we have issues and other priorities as well. The general markets obviously affect the general buoyancy of things, and so diverted funds in a tighter time with an uncertain market condition mean that we are just holding off and waiting for the right moment to commit to North America. But nonetheless, using our private approved retreader and one or two other special arrangements to bring tyres back to Fort Dunlop, mean that we are still enjoying some growth there, within the limited of range that we can support.
That’s the geographical leg. The product development is all about the introduction of radial technology to aircraft tyres. We have a catalogue of over 500 tyres, so we cover the market pretty well with the exception of private aviation, business jets. In civil and military aviation we have a pretty good catalogue covering both current and old. [Some aircraft still in operation] go back a long time; we still make a few Spitfire tyres for the Battle of Britain fleet every year, or every other year.
So we have a big range of tyres. But the new generation of aircraft tyres are going radial. Radial technology did not sweep the aircraft tyre business as it did the passenger car market 30-plus years ago. The construction of what we call bias tyres – or what you’ll remember as cross-ply tyres – leads to one or two differences to radial tyres, which have had greater, longer benefits in aircraft terms than in car terms. The casing strength is improved as the fibres in the fabric are crossed; in a radial tyre the fibres align circumferentially and radially.
The advantage of the radial is that it is more efficient – it puts the direction of the fibres in line with the maximum hoop stresses in the tyre, which means you can build it lighter, cheaper maybe, it confers more flexibility which allows you to have a flatter tread profile on the ground and so those things contribute to greater tread life. In car terms, that equates to better road holding and one or two other things that are more important in cars than in aircraft, like friction and noise. The aircraft tyre made from a bias construction therefore has a huge degree of redundancy in it, which is beneficial because they have to be very strong, but they also have to be designed and rated for exceptional load conditions.
It is difficult to imagine exceptional load conditions in a car unless you are doing the Dukes of Hazzard and jumping of a cliff-top or something. But an aircraft coming out of the sky and hitting the deck will sometimes hit it harder and sometimes there is an emergency and it hits the ground even harder. So the design requirements for aircraft tyres are that they have to be strong in the first place because of the high loads they carry in normal running, but then they have to be designed for double-overload conditions. Some are designed for triple or even quadruple burst strength against the nominal inflation pressure of the tyre.
Cross-plys are easier to give that strength to, and that extra casing strength is more robust against object damage on the sidewalls of the tyres (though it doesn’t affect the tread so much). And because of all that, it means they will retread a lot more than the radial tyre will. So an aircraft radial tyre will not generally retread more than once or twice, whereas a cross-ply or bias tyre will retread up to around seven times (though this always depends on the specifics of a given application). Because of the economics of retreading the bias tyre is much more favourable against the radial tyre in aircraft terms, so they have hung around longer.
Also the aircraft industry has a long legacy. An aircraft lasts for 25-30 years; a car lasts for 10 years, maybe 15 years. You do not upgrade the technology in service on a plane easily or often; you do not change the sources of spare parts for unapproved, unofficial aftermarket parts as you might with a car. All of that gives a slow evolution of certain changes. When things do change, they change dramatically, but the build up to a change is very long, slow and methodical because of the safety implications of flying.
To get this all into context: if you have a car tyre, it may be inflated to 30lbs/square inch, rated for 120mph; an aircraft tyre will be inflated to over 200-300lbs/square inch, or ten times the inflation pressure, and it will be rated to 225mph routinely as an emergency landing speed capability. We like to say that it’s the load of an off-road vehicle combined with the speed of a Formula One car combined in one. To illustrate that further: if you build a passenger car radial tyre it will often have a single rubberised fabric ply in the casing; in an aircraft tyre you will see between five and eight plies depending on how big it is. It is therefore a much more complicated construction, because building up these layers is a much more tricky operation. You’ve got to build them green and then mould them into the final shape while containing that internal structure so that it is properly sharing out the whole load when inflated and on an aircraft. It’s a much more complicated beast, whether it is radial or bias construction.
T&A: The relative strength of the cross-ply tyre’s casing prompts the question, what is driving the radialisation you project?
IE: The thing that is driving it inexorably is the weight saving, which means fuel saving, and as fuel gets more expensive the attention to weight has grown. The weight benefits of a radial tyre are often significant – they can yield a saving of 5-15 per cent depending on the aeroplane. People are looking at conversion on one or two planes. They work out if they save that much, they might save 50kgs on a flight set of tyres – four main tyres and two nose tyres. It’s not quite a passenger; if it was 80kgs I could put another seat on the plane and get revenue for it to more than pay for the extra fuel, but if I can’t do that, I know I can save the 50kgs of fuel. So that has been the primary push factor.
A second feature is that you can sometimes – depending on all the details – get better landing life out of a radial tyre. But if you get a better landing life, you won’t get a better retread life. So if I say I can get five retreads out of my bias tyre and only get two out of the radial tyre, that’s not good economics in tyre terms. But if my landing life per tread is increased a bit, then I will have to change my tyres and wheels less often and that in turn saves me maintenance costs. So there is a little bit of an offset there.
It is more or less all radial tyres on new civil aircraft being developed today. There are one or two old planes that are being converted because they have big fleets and there are big weight saving opportunities that makes it economical for the aircraft manufacturer to go through the whole rigmarole of approving a new wheel and possibly brake as well as the tyre.
The other thing that happens as the cost of fuel goes up is that the size or the criticality of the weight saving becomes more important even on small planes. All the wide-bodied planes, the Airbus A330, A340, the Triple Seven Boeing, of that generation were radial from day one, because they might have 12-18 tyres and the weight saving was there from the beginning. Now smaller new planes are looking to use radial from the beginning – the Bombardiers, Single-R Jets, Super Regional Jets for example.
T&A: Will bias tyres linger on planes smaller than the regional jets?
IE: They’ll linger on for decades across the board, because there are many planes that will never change and they’ve still got decades of flights left in them. The introduction of a new plane is very slow progress. It’s an exception, but they only build about 12 A380s a year because it is so big, so it’s going to take a while before there are many of those around.
So the product range expansion strategy for us is more or less all radial. We have a technology strategy that is the delivery vehicle for the product range expansion, which is to build radials on aircraft that are currently in service and are still being built meaning that there is an existing market and the fleet is still growing. We have become another supplier, because those aircraft already have suppliers.
T&A: Is this where the all the current product investment, such as the recent acquisition of radial tyre-making equipment from Yokohama rubber, is going?
IE: Yokohama for us was a great “windfall”, in the sense that we were able to enhance our capacity and technology at a lower price [and] in a shorter [time-frame] for radial tyre building. Buying new would have cost a lot more money and taken an awful lot longer. We’ve strengthened our technology team in a number of different ways and this was one of them.
T&A: Moving back to the China plant, is it accurate to say that some staff are going there to do some training?
IE: When we launched the product in China, we recruited a local team at the appropriate time while the plant was being built, and we brought them over here. They had six months of training and learning on the retread factory side. Then we sent them back in time to help with the installation of the [mostly European-sourced] equipment into the factory. Then they started working on commissioning the plants, developing tyres for testing and all the rigmarole of certification that goes with a new facility like that in the aviation industry that is long and tediously thorough. While that was happening, we had our own team out there supervising and commissioning the quality management systems, the operating systems and the equipment itself.
We had people out there; the general manager at the time was a guy from here, because he was basically the project manager while it was being built. We then recruited a local Chinese guy to take over from him to run the business. We also had other technical people out there variously during the commissioning and certification period and when we got Chinese and European Aviation Authority approvals. We would have got the American Aviation Authority’s approval, except they put a ban on approving overseas plants for their own reasons.
Now, we are – generally speaking – operating with one technical person out there. There is a number of shop-floor, technical people who go and spend six weeks out there at a time, because we are still developing new retread packages. The retread product expansion in China is likely to continue for a couple of years.
T&A: Is the activity in China all expansion, or is it going to be taking activities from somewhere else?
IE: It’s really expansion. The argument for doing it is that it isn’t economical to retread here for that far away. Whilst we think it is economical to build tyres here and send them there, it isn’t so to do the trip both ways – it’s as simple as that. And it isn’t just the shipping costs; it’s the time cost. A retread tyre is out of service, so in inventory management terms, you’re a tyre short from your pool of spare parts, and if that tyre is going on a long sea journey twice then it’s out of commission for a hell of a lot longer. So that plus the actual cost means it just doesn’t work normally.
Therefore, by the same token, it wouldn’t make sense to take work from here to do there. It’s the same reason in reverse. Although it is a little bit cheaper over there to retread it, the saving isn’t substantial enough for us to say, let’s do it. I can see in the future that it may make sense to decommission a mould here and only do it in China, because the demand here for that particular size is very low and it’s very high there. So we could consider shipping it then, but that would be in an exceptional circumstance. It isn’t saying that we are moving the factory to China.
T&A: Does that mean that the retreads offered at each factory is dependent on the types of aircraft used in the different regions?
IE: Well, it’s not even that, because many – I would say most – aircraft will have significant operations in Asia and in North America and in Europe. There aren’t many examples of planes that are regionally focused, so that situation would be wholly exceptional. So what that means is we are replicating; we’ve got the same moulds in China as we have here, and that’s likely to be the case in North America.
It’s not a big deal to have multiple moulds – it’s more a matter of the total capacity because the mould is one thing, but the press it uses is another. If you are forever changing a mould, the press is shut down for the change, so you’re not using your equipment properly. That would lead you to rationalise production in retread terms: for the sake of doing these ten tyres, send them to China; they’ve got the moulds, they use them all the time, so we’ll pay the extra costs if we can manage the inventory. But that is such an exceptional circumstance that there’s nothing that says we would do that in the plan.
T&A: What sort of volume is now going through the China plant?
IE: We’re looking at doing a few hundred tyres a month at the moment, but that’s ramping up. We do a few thousand a month here. It’s quite slow, because we have to make a new tyre sale first, then they have to wear out before we establish the retread volume. The immediate impact is more new tyres being sold here to that region, and then that pulls through the retread business with a little bit of a delay.
We expect there’s enough retread business in Asia for the plant to be the same size as this one, which is serving Europe today. Our share in Europe is what we aspire to have in Asia. We don’t actually have these numbers in our plan – they are lower – but the aspiration is there to get the same share we get here, and the same is true in North America.
T&A: What is the company’s market share at the moment?
IE: Globally – what we term the “free market”, excluding places like Russia still (though that may change) – we have about 10 per cent, but it’s enormously split. In Europe, we’re probably number two; we’re absolutely number four in Asia by a long way and we’re probably number four in North America. So on that basis, we’re probably number four globally. We are the smallest of the four in the market [Michelin, Bridgestone and Goodyear are the others], since Yokohama withdrew last year (though they were only in Japan anyway). There are one or two aspirants around the place, but it’s very difficult to get into.
The basics in terms of getting airworthiness certifications and approvals are that you have to go through the various aviation authorities depending on where you are located. But you also have to have the aircraft maker, who has to approve your tyre. You not only have to pass the specific tests, you also have to be approved by the aircraft maker. And then there’s the trust from the airline customers, who are very concerned about the integrity of their aeroplanes and operations. There are customers we know who will not buy an aircraft tyre from Goodyear or Michelin made in Thailand.
T&A: But there is no issue with mistrust of retreads.
IE: Bear in mind what I’ve said is that mostly it’s done by the tyre manufacturer, and where it isn’t, it’s wholly exceptional. The trust in the retreading comes down to the trust in the tyre itself and, generally speaking, the operators.
If something goes wrong with the retread – and things don’t go wrong with the retreads – all it’s affecting is the tread rubber. If we lose some of the tread rubber, the casing is going nowhere – it is not directly threatened if there’s a problem with some of the tread. We put in an ITF – an inter-tread reinforcement layer – which is replaced every time we retread, so that’s a barrier between the tread and the actual casing as well.
T&A: How do you go about differentiating the brand from the other major competitors?
IE: One very important aspect that we use a lot is the uniqueness of us as a company in that we only supply aircraft tyres. So we are entirely focussed and dedicated to serving aircraft users. That is significant on a day-to-day service basis, in that we like to think we give better response than anybody else due to a lack of distraction. At the investment level, we don’t have any other call on our investment; we aren’t competing in a corporate world with truck or car tyres or the businesses that are those. And that is significant because we and our competitors know that if you are, 99 per cent of the business by revenue is not aircraft tyres. Therefore, getting investment and development in aircraft tyres is sometimes more difficult for them, especially in a recession.