AVIATION WEEK & SPACE TECHNOLOGY'S 2006 TOP-PERFORMING COMPANIES STUDY

It's a question worth pondering in light of the results of Aviation Week & Space Technology's 2006 Top-Performing Companies study. General Dynamics Corp., Lockheed Martin Corp. and Northrop Grumman Corp. first, second and third, respectively. Using this year's more rigorous methodology (see p. 70), General Dynamics would have ranked No. 1 from 1999 through 2005.

Among airlines, readers may be equally struck by the results: seven of the 10 top-performing carriers are headquartered in Asia (see p. 62).

Singapore Airlines is No. 1, followed by Cathay Pacific, last year's top-ranked airline. That these and other large Asian carriers have performed as well as they have in recent years is all the more remarkable because the challenges they've had to overcome are so similar to the turbulence that has bedeviled North American operators--a tribute to Asian airlines' ability to adapt to and capitalize on marketplace changes. Another Asia-Pacific carrier, Air New Zealand, along with Air Canada showed the greatest improvement in 2001-05 (see p. 66).

Supporting this year's rankings is a revamped and more critical methodology backed by the largest database ever used in the annual competitive analysis. It is weighted 70% in favor of operating metrics. Taken into account was input from aerospace executives on performance measures they considered essential for running their businesses. For both the one-year snapshot and the five-year most-improved rankings, total scores have about a 98% statistical fit to preliminary results derived from test samples dating back 10 years.

In aerospace, General Dynamics, Lockheed Martin and Northrop Grumman were among the most acquisitive companies in the fast-paced merger-and-acquisition frenzy of the 1990s, so the notion that they would dominate the rankings in 2006 would have been almost inconceivable five years ago.

AS THE TUMULTUOUS DECADE drew to a close, two of the three were still struggling with the massive job of integrating disparate cultures and processes. Lockheed Martin was in serious financial trouble, and some industry observers were questioning Northrop Grumman's future after the companies failed to get the green light to merge in 1998--in hindsight, probably a blessing in disguise.

As it turns out, a detailed analysis of the study revealed that both of those corporations posted some of the strongest operating performance improvements since 2001, with Lockheed Martin leading the pack.

And Raytheon also has proved robust, as has Boeing, since 2003. Both had been among the most sluggish-performing companies in the 10-year-old competitiveness study. Such improvements have led to substantial gains in share prices for many, but that hasn't been true in all cases (see p. 61).

On the basis of various operational metrics--inventory management, time-to-market, and making the most productive use of working capital--most aerospace/defense companies still aren't exactly models of efficiency for top performers among, say, automotive suppliers or in the semiconductor industry. Another cautionary note: the quality of program management leaves much to be desired. Cost overruns and botched schedules remain commonplace, although changing requirements dictated by defense customers contribute to the problem. In addition, pockets of asset bloat remain, with some companies seemingly resigned to maintaining the status quo--a drag on efficiency.