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Understanding Software’s Growing Stature in Honeywell Aerospace

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Honeywell Aerospace: Largest standalone software contributor

Honeywell Aerospace (HON) made $15.2 billion in total sales in 2015. Of the segment’s sales, 58%, totaling $8.8 billion in product sales, was enabled by software. The Aerospace segment was also the largest contributor to standalone software sales in 2015, contributing roughly 4% of total sales, or $608 million.

By 2020, the company expects to derive 6% of its total sales from standalone software. Plus, 60% of its sales would be enabled by a software, a 2% increase in each category. Although 2% over five years may seem small, we are looking at a larger sales base in 2020. In dollar value growth, this could be far more significant.

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Key trends driving software growth within the aerospace industry

The role of software is largely unsung in the aerospace industry (PPA). Yet, software plays a critical role in how control systems talk to the aircraft, how the aircraft talks to air traffic control, and how vehicles collect data—all of which could save millions of dollars for an airline. These functions continue to drive software growth in aerospace, as they help to alleviate two significant concerns for airlines: safety and costs.

For example, consider the development of the continuous descent approach in aircraft landings. Most airplanes approach an airport in a stairstep profile so that air traffic control can help them maintain safe separation from other aircraft, terrain, and obstacles at each stage.

This approach can be made continuous when the precise location of the aircraft is known using software and electronics. This results in shorter routes, substantial annual fuel savings, and a quieter approach.

Honeywell SmartPath

Among its ground-breaking products, Honeywell Aerospace’s SmartPath Ground-Based Augmentation System is the world’s only certified satellite-based navigation and precision landing system. Honeywell notes that SmartPath provides “digital precision navigation solution to increase airport capacity, decrease air traffic noise and reduce weather-related delays.” Due to its user-friendly interface, the training time is lower than that for conventional systems. Newark Liberty International Airport in New Jersey and Frankfurt Airport in Germany are among the system’s users.

Investors interested in trading in aerospace and defense can look into the PowerShares Aerospace & Defense ETF (PPA). Major holdings in PPA include Honeywell (HON) at 6.7%, United Technologies (UTX) at 6.8%, and Lockheed Martin (LMT) at 6.7%.

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