There are many wide-ranging engineering companies, quoted and private, so trying to pigeon hole them is like herding cats.
‘Industrial engineering’ is an umbrella term covering aeroplanes, satellites, engines, generators and missiles, with middle to small sized firms representing downstream industry linked to metal manufacturing, bearings, sprockets, gas turbines, machine tools, and more.
The ‘metal bashing’ side of engineering is about the manufacture of a metal item to be used with another metal item and was central to the industrial revolution of the 19th century into the 20th.
Today the old style metal bashing has shrunk, the companies are now more diverse, often connected in various ways with the aerospace, avionics and defence sectors. They lap over with chemical, electrical, automotive and civil engineering companies.
Companies in industrial engineering span the earth from Malaysia’s heavy engineering and shipbuilding firm MMHE Engineering to huge conglomerate, Siemens, from Germany.
Siemens is a good example of an evolving old style engineering firm that has broadened out into interests from process industries and drives, steam turbos, power generation, to wind power and financial services.
All this century heavy engineering has been trying, like Siemens, to morph its core businesses into something less cyclical, more versatile, more ecological and sustainable – and more profitable.
In the US heavy engineers include General Electric, General Dynamics, Boeing and Lockheed Martin. Lockheed is the world’s largest defence contractor on revenue. In 2013 the Pentagon paid out nearly 10% of its revenue to Lockheed.
In Europe there is the multi-national aerospace and defence Airbus Group. In the UK industrial sector big names includes ammunition, artillery systems and missile launchers made by BAE Systems (BA LON).
There is also diversified engineer Smiths Group (SMIN LON), aerospace and automobile components firm GKN(GKN LON), and QinetQ (QQ LON) which is exclusively defence.
Tapping into defence
Defence is a big chunk of heavy engineering, where contracts, information and intentions are probably the least transparent of all stock market sectors.
But as with all heavy engineering, defence contractors have had to become more imaginative about what they pitch for and undertake, and they are looking for new customers from the emerging markets, moving away from their historic links like NATO.
PWC’s Engineering Trends - Aerospace & Defence 2017 shows that spending in North America and Europe defence budgets declined in 2014. The Middle East, India, South Korea and Japan saw an increase in spending, topped by Saudi Araba (54%) and UAE (23.9%).
Getting that contract
In global business successful trading is all about building relationships and adding value with strong emphasis on fine tuning sales, programmes and joint ventures.
Engineering is also trying to meet the demands of many countries which have complicated histories, politics, economies, agendas and an unfamiliar way of doing business and awarding contracts.
An example of involving importing technologies and using local capability is a joint venture in India between Boeing and Tata Advanced Systems where they will produce together Boeing AH-64 Apache helicopter fuselages.
Long term service agreements
Engineering has also been trying to get away from its hardcore business to boost income, and general stock market credibility.
This is characterised in terms of devising contracts with long term service agreements. The idea is to generated much needed income and support the lean years.
Rolls Royce (LON RR) is the world’s second largest aircraft engine maker after the US’s General Electric, with global reach for its Trent jet engines.
RR was a pioneer in the business of persuading principals to buy service contracts that lasted the life time of the engine, and many firms have followed this successful approach, including GEC.
Another way for heavy engineering
Another trend is for industrial engineers to diversify further down the industrial supply line, buying smaller, niche and complementary industries which could provide cash flow.
An example of the current fashion to regroup is the French locomotive manufacturer Alstom’s decision to sell its power generation and electrical transmission business to General Electric in 2015.
Smaller industrial UK engineering companies to watch out for include classic aerospace equipment firm Meggitt (LON MGGT), based in Bournemouth. Also machine tool and precision components firm 600 Group (SIXH LON).