With us in Albany International Corporation. We've got Gunnar, forgive me if I don't say it right, Kleveland, President and CEO, and Robert Starr, EVP and CFO. So thank you guys for coming.
Thank you for having us.
All right. Thank you. Thank you, Ron.
I think it's always useful for investors who aren't as familiar with the company. What does the company do?
Yeah. So Albany International. Textiles. It's a lot of looms and weaving. And up through the years, found the need. Machine clothing and other engineered fabrics, so belts that are used in paper machines. And so. There are several types of belts, and that type of belts come from, among others, would come from us. So this weaving technology I've discovered to be very much more technology than I had expected when I came to the company. I've been busy with the company now for eight months. Material science. And there are different types of belts that are used in different parts of the machine and for different purposes. But then, to keep it short, just to have the history, they took this weaving technology that they were so good at, and they were. 3D weaving and transfer that over to aerospace.
What they started making were parts that go into engines. Probably best known for is the LEAP blade. So what we do is we weave a 3D shape, a form, and then insert resin into that to make a composite blade that is near-net shape. We do that together with Safran. It goes on the LEAP 737 MAX and the A320neo. And so that was the connection to aerospace since then. Acquisitions on the composite side of business, and we are both in Europe, Mexico, and the U.S. with the aerospace part, we are pretty much all over the world. We got a lot of sites.
And then when you think about, say, just the split by sales, the big Paper Machine Clothing, correct?
Yeah. So yeah, the paper machine clothing is the bigger. The aerospace side was catching up. Excuse me. It was catching up until we last year made an equity with Heimbach, which added growth to that part of the business. But we're about 60/40, 60% paper machine, 40% aerospace.
Gotcha. Gotcha. What's the proper balance for the company, do you think, going forward?
Well, I think you'll see that the aerospace part outpaced what we have in paper machine clothing. It's growing in the double-digit investment there, and we see a slower growth on the machine clothing other than from our acquisition. But I think that the aerospace.
Yeah. And probably sort of unrelated, but do you guys have an idea why they call it Machine Clothing instead of just belts? Right? Because I think that just throws people off.
It's been around for a long time. Back when I was an associate in the paper and packaging group, we talked about machine clothing. I think it's just a way. It's an analogy to machine. I mean, it's.
Okay. So it's like gold.
Belts is, I think, a better term for it. But the parlance in the industry is machine clothing.
What is 3D weaving as opposed to just weaving or braiding or something? You know what I mean?
I think from the standpoint of coming in, you have to think about 2D and the way that traditional composite is made, where you take layer upon layer of broad goods and create a part. You can insert that with resin, or you can cook it in autoclave and get the composite part. What is unique in 3D weaving is that we weave in every direction, which allows us to have a strength that is phenomenal compared to the traditional. There is no delayering in 3D parts. We become and we're able to stay lighter. We're strong, so I like about that in the future of aviation.
So when you think about that, maybe broadly, are there parts on aircraft today, woven parts? And then, I mean, obviously, there's going to be future platforms. There'll be this. But in the market today, are there things that could come off that could be replaced?
Yeah. There is. And looking at opportunities there, I think our biggest opportunity is the future platform, whether that's air mobility or military aircraft and then single aisle. But anywhere you have titanium today, we should be able to replace that. We can make very intricate forms woven without having to have the add-on of fasteners and other parts. We can make one integrated part. Woven. It is a really remarkable technology that Albany has developed over the last several years. And any type of that you traditionally see, a large titanium hog-out or from a forging, we can be there.
Gotcha. You've been at the company now maybe eight months or so.
Yep.
Since you took over the helm, I mean, what are some of the biggest surprises, good, bad lessons coming? Used to do.
Yeah. Yeah. It is different. The aerospace part, obviously, having been in aerospace for many, many years, it was entry for me. I know the people. I know the suppliers and the OEMs. But I want to start by saying the reason why I came was because makes composite parts the traditional way. I see what we do at Albany with this 3D woven as the absolute future of composite manufacturing. And I have learned that we can do more with it than I initially thought. But I needed to understand our machine clothing, our belt business, much better. So I've spent with that team going out to the sites. I've been to several of the Heimbach sites. I've been to five of the countries in. And also here in the U.S.
My discovery is this that I like to refer to, and I talked to earlier, material science. This that they put into a paper machine, which you may feel like there is a lot of technology that goes into. A paper machine work the way the manufacturers need to. And if anything goes wrong with our belts, it's not a good day for the paper maker. So they want the absolute best quality. And I've been to every R&D center that we have and capability in the material sciences to make these belts perform at the level that our customer expects. And that is both in the chemical composition of our made and also in the way we make them and the form, whether that is some sort of a 3D weave types of belts.
I think we spend 4% on both sides of the business on R&D every year. That's been well. You can see it in our product. You can see it on the renewal of our product, and you can see it in our customers picking us and paying for it. We promoted a person, Rob Hansen, to take over all of R&D and innovation for the company. Level because I see the opportunity to harvest some of these technologies and use them cross-company and also for other. Is that we have.
When you think about growth in the paper machine clothing. My impression is this could be wrong. I'm not a paper guy, right? But it's kind of like a GDP sort of grower. Can you get better than that? What can you do in the salary growth beyond just sort of how things grow?
How things grow. Yeah. And I think the answer in that lies in the type of paper that is. Imagine what is called publications or newspapers and traditional paper is a declining business, very wisely. 15-10 years ago, moved away from publication and put a lot of effort on what is referred to as. Which are growing. So when you're in and that's where also the paper machine makers and the. Their R&D. So they need the more sophisticated belts that we are able to make and support them with. So you can grow there. Because it's strong. And I take the opportunity. Anytime you see a pattern in tissue, chances are it's coming from one of our belts. It's the belts that make it. In North America, obviously, there's a great market for that. It has expanded tremendously in Europe as well. Asia, it's picking.
I think the rest of the world, that is a growth area that we have a competitive advantage. So it is possible, but. Traditional papers that at some point we need paper. So at some point, that is going to flatten out.
And then in that business, when we think about the structure of the industry, who's your biggest?
So there is one privately owned company in the U.S., AstenJohnson, that makes parts. They are centric. They do have some others as well. But then each of the paper machine makers, the companies that make paper machine, also some of them have the clothing, the machine clothing. So it's a small industry, and our positioning in that industry. So that's why we're putting so much effort into the technology.
Okay. Now back to the aerospace, maybe aerospace and defense side. What avenues for growth? Just the LEAP business. I mean, that seems like it's a good start.
Yeah. The LEAP was a phenomenal start. I think it's incredible to think about a company that came from a is to take on aerospace with the fan blade on a new engine. That is an incredible leap, no pun intended. But that technology has kind of four areas that I think we can grow in. So the 3D woven. I mentioned air mobility. Going to use electricity as the power needs significant weight reductions. We're able to do that. So that is an area that we can. And the lightness of our material has a place in new military products such as helicopters and fixed wing. So the third one is a little bit further out, which is on the single aisle. The next single aisle, it's coming. We're currently working on the RISE. The Safran and GE is a great project. We're also on the Wing of Tomorrow.
So our technology is being accepted, and we see also investing quite significantly now on hypersonics. So 3D weaving, this is really an area where we can make a near-net shape. Carbon just keep it simple there. Carbon infuse it to where it becomes the front of some of these hypersonic missiles. Heat absorption effect that is needed there. I think we have a significant competitive advantage in making a near-net shape form there. Standpoint. And I think that's a growth area going forward. On the more traditional 2D structures, we have expanded into space. That's a growth area. That's a good place for us to be. We have recently with Sikorsky on the CH-53K. We do structures. I think we have a unique in the structures market, composite structure market in aerospace. I've been the OEM. I've been the ones asking for composite structures.
Of the suppliers in that arena is pretty poor. We are performing exceptionally well. It's one of the things that really attracted me. At 100%. We deliver a quality product, and I think we can demand a price that is needed to. You see what I mean, Boeing and Airbus are insourcing, again, that capability. If there needs to be a position to be in. Price. I think we can expand that area as well. So everywhere within what we do in. We have growth opportunity. We do braiding as well. And I should have said that. So the JASSM and the LRASM body is made with our. And that's where I believe missiles and weapons are going in the next 10 years as another area.
When we think about the composition of the composite business, I mean, could it be a 50/50 commercial defense kind of thing? Defense portfolio over time.
Over time, I think that would be my goal. I'd like to see it 50/50. I think in the near term, it'll be a growth. Paces the commercial side until the 2D. But if you look 10 years from now, I think it'll be about 50/50.
Yeah. Yeah. That makes sense. That side of the business, what kind of growth should it have?
It should have mid-double digits.
Yeah. Gotcha.
Yeah. We had talked about 14% growth prior to yesterday. There's nothing to think that we shouldn't accomplish at least that.
Gotcha. Gotcha. Gotcha. Gotcha. Think about maybe potential M&A. How do you think about that on both sides?
On both sides. We just did the Heimbach acquisition. It's really a great opportunity for us. I think if you see our numbers, our performance with over 50 our legacy business. And compare that to where Heimbach is. When we take the steps that we need to do to consolidate these two, we'll have very attractive margins. So it's a good acquisition. So I think we're looking at as a way of using our great capital. But we're being very careful about how we use it. Believe a good acquisition is. And when we find it, we will take an action there. But there might also be opportunities where we can use our capital for growth. And that is if we see the opportunity for some large programs to invest in an. And we see the returns there being more attractive than an acquisition, then we'll do that.
We're doing a lot of math. It's going to have to make sense. You want to add there.
No. I mean, we're just taking a very disciplined approach. I mean, it has to bring something either on the technology side, a platform. We have exposure to that has good growth prospects. And that's really on the aerospace side, right? I mean, there are a lot of assets that are currently sitting with. And we're just being very disciplined as we review it. It just has to be something that drives the right return profile for us.
And then, bigger issue across both businesses. How's it gone with supply chain?
Remarkably well, which means I don't hear about it. But that doesn't prevent me from hearing about it. I went through the pandemic and the challenges with that, so I know how bad. Coming here, with some investments, I would say that we have invested in some performing suppliers on both sides of the business. And that has shown the results. They've done a phenomenal. And if I told you we didn't have issues, they would probably come tell me when I come back tomorrow because there are issues in supply chain out there. But there are ways to deal with that. I think. Hedging for them. But there's always a performance now. We are at the level in the supply chain where we are part of the supply chain that is delivering at 99%, which our customers appreciate. And that's both sides, by the way.
That is a challenge. Our strongest growth is in Salt Lake City. There's a lot of competition out there. But you have to attract to be part of a company that people want to work for and they want to grow in. They've done a good job there. I would say that. Not a challenge that we couldn't overcome.
What tactics have you been deploying to?
Yeah. So it's really getting people, paying the right amount, which I believe we also have. We share. We have profit sharing, and we help people invest in their. So there are several programs around that. But I think what I've seen the challenge with when you're hiring a lot of and you don't train them well, and they don't feel like they're doing a good job. They don't stay very long, and they leave. So it's attrition of the really tells you how well you're performing because you can get people indoors, getting them to stay. And they have very solid training programs. People in. And once you have an employee that stayed, then to stay. Attrition, I think, is excessively high across the country industry.
Our biggest effort is how do we keep the people and making them feel like they were part of a company that has a great future.
Yeah. That makes sense. I have.
You can ask Rob some questions, but.
Yeah. No, no.
Yeah. I mean, my only thought there on the employees is every meeting we have starts with a debrief on safety. Relative to other places I've been, the whole emphasis on safety is a big deal in terms of how our employees really appreciate what we try to do.
We did a town hall, actually, this week right before we came down here. And I am the chief safety officer, right? So I briefed our safety performance. I talked about what's important. Good. No one should get hurt at work. And if that's part of the culture, it's a good place to work.
Yeah. Yeah. This here?
I like that one.
Go ahead. Fire away.
All right, friends.
Just two quick ones for me. Just zooming back out to a topic that Ron hit on earlier is if we think for the composition of the portfolio. In one sense, the aerospace and the Machine Clothing businesses have very different end users and customers. But can you talk a little bit about the philosophy for why the portfolio makes sense?
Sure. I'll start, and then he can fill in all the blanks. But I think really that the connection is around the material science and the weaving technologies, right? I mean, we got to start. There's quite a bit of research and across both segments. The end markets may be different, but when you walk into an AEC facility and see the looms, and then you come into one of our machine clothing facilities and see, it becomes very clear the commonality between the manufacturing processes and the requirements. As different as you think or people might think between qualifying on a paper machine versus qualifying on an aircraft, right? I mean, the aircraft is probably clearly a bit more strict. Our belts operate for months on end in very high temperature, high pressure, caustic environments requires of material science know-how to make that happen.
And the other thing is that doesn't get a lot of daylight, right, is the R&D centers between the businesses do communicate. I mean, Gunnar talked about bringing Rob Hansen to our Chief Technology Officer role on the senior leadership team. That is really just even more so, the technologies across both businesses.
Thanks. And then back to the competition point that Ron raised earlier. Aero side, can you talk a little bit about the competitive landscape sort of in a broad sense for where your products are used, but also with your 3D woven technology? Are there others that you're aware of, or are you guys really the only game in town for that?
Yeah. Right now, I believe we're the only game in town for that. I believe others are attempting to develop it. Makes sense because they see. But think about the industrialization that we've been through on LEAP and the price on that program. To now a reasonable price where we can compete with this technology. There's going to take a there's a high barrier entry. There's going to take a long time until anyone. When you make as many blades as we make in Europe, in Mexico, and in the U.S., we have an advantage that is probably close to a decade ahead of anyone else.
Thank you.
Maybe if I can just add on to that. Is that IP that's yours, right?
Yes.
Okay. I would imagine there must be a pretty broad moat around how do you set up?
It's how we use the looms.
Yeah.
Right. Sorry. No, no. The know-how is very difficult to replicate. Sort of like Coke syrup.
Well, thank you, guys.
Thank you.
All right. Thank you.
All right. Appreciate it.