What's next for Rockwell Collins in Iowa?

Rockwell Collins, United Technologies uncertain on new home for combined division

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Local and state officials are cautiously optimistic about the future of Rockwell Collins in Iowa, even as the status of Cedar Rapids as its headquarters is undecided.

United Technologies Corp. has acquired the aerospace supplier and Cedar Rapids’ largest employer for $30 billion, including debt. What is now Rockwell Collins will merge with United Technologies’ aerospace systems division to form Collins Aerospace Systems.

Rockwell and UTC have yet to settle on the home for the new aerospace division. Meanwhile, executives for both said the acquisition should not result in large layoffs, but some executive office-level staff may be affected.

The deal will combine two players in the nation’s aerospace industry that serve both commercial and military customers.

“This will be good for the industry because it gives us the scale to do things that we couldn’t do on our own,” United Technologies CEO and Chairman Greg Hayes said on a Tuesday conference call.

Cedar Rapids-based Rockwell makes radar systems, cockpit displays and other avionics technology, in addition to recently acquiring a maker of airline seats and other interior products. Farmington, Conn.-based United Technologies is a conglomerate whose divisions make aircraft engines, aerospace products, Otis elevators and Carrier air conditioners.

Rockwell Chairman, CEO and President Kelly Ortberg will lead Collins Aerospace Systems as chief executive, with United Technologies’ Dave Gitlin serving as president and chief operating officer.

Collins Aerospace Systems is expected to have annual sales of about $23 billion, about $8 billion of which comes from Rockwell Collins as it is currently.

The acquisition is expected to close within the third quarter of 2018 and is subject to approval by Rockwell shareholders and regulatory authorities.

The deal will mean Cedar Rapids’ largest employer no longer will be run by executives who are exclusively based in the city. It also will mean Iowa will lose one of few publicly traded companies based in the state.

NO ‘MAJOR DISRUPTION’

In Iowa, Rockwell has about 8,000 employees in Cedar Rapids and another 1,350 in Coralville, Decorah, Bellevue and Manchester. It has some 30,000 workers worldwide.

Rockwell and UTC expect $500 million in “synergies,” or cost savings from the deal within four years.

“There’s a little bit of factory (savings), but this is not a jobs story. This is not about closing a lot of factories,” Hayes told CNBC Tuesday.

Ortberg also said Tuesday he does not expect the acquisition to have major effects on employment levels in Cedar Rapids or Iowa.

“I think the key is we don’t expect major disruption. They bought us not only for our capabilities but for our employees, so we expect everybody to really benefit from this in the long run,” he said.

Staff reductions likely will be concentrated at the executive level or staff needed to run a public company.

“While there will be some head count reductions, primarily at the corporate level, the vast majority of employees will not be impacted as a result of the acquisition,” Rockwell said in a Q&A sent to employees Tuesday. “Our company will work closely with any potentially impacted employees and, as may be required by any local laws, consult with regional or national works councils or other employee representatives before any final decisions are made.”

Ortberg also said current employees and Rockwell retirees should not be concerned about their retirement accounts or pension plans.

‘WAIT AND SEE’

As with many acquisitions, the specter of layoffs and factory closures hangs over UTC’s announcement. Iowa has had mixed results with previous acquisitions of local businesses by outside corporations, one of the most negative being Whirlpool’s 2006 purchase of Maytag, which had large operations in Newton.

Whirlpool ended up shuttering those.

On Tuesday, city and state leaders took comfort in UTC and Rockwell executives saying the two companies have little product overlap.

“We’re not approaching this in a negative fashion. We just have to wait and see. At the city level, we don’t have any control over this kind of acquisition, but what we can control is continuing the relationship that we’ve had,” Cedar Rapids City Manager Jeff Pomeranz said.

“Rockwell has given us a lot as a community and we expect that to continue, no matter where the company is located from a home officer perspective.”

Mayor Ron Corbett noted Rockwell has been through transactions before, and “the Cedar Rapids facility has always been maintained.”

“These are the engineers and product development. United Technologies isn’t going to cut the brains out if they’re looking to grow from their company standpoint,” he said.

A spokeswoman for the Cedar Rapids Metro Economic Alliance said it expects a minimal effect on Rockwell’s Iowa operations.

“Because Rockwell Collins will no longer be a public company, we do expect some impact to related jobs, but the overall impact should be minimal,” the spokeswoman said in an email.

As the companies work through where to base Collins Aerospace, Ortberg said he expects to have discussions with government officials.

“Certainly, as we contemplate that, we’ll be working with state and local officials as we think through what’s the best solution for us going forward. Those will be discussions that’ll be happening over the coming months,” he said.

Iowa Economic Development Authority Director Debi Durham said her department reached out to Rockwell when the acquisition was still just a rumor to advocate for keeping the headquarters in Iowa.

“We’ve relayed that message to Rockwell. Now it’s just kind of wait and see until they open up that communication and dialogue for us,” she said.

Gov. Kim Reynolds said she spoke with Ortberg Tuesday morning.

“Actually, we talked about opportunity to bring additional business here, to grow their business here in Iowa and that he is committed to continuing to work with the state as they move through this process,” Reynolds said.

The state previously has offered incentives to companies to maintain an executive office presence in the state, such as with the merger of Dow and DuPont. The Rockwell deal is different, Durham said, because Rockwell and UTC have less product development in common.

“We really anticipate that what’s in play right now is truly that headquarters position and where those decisions are going to be made,” Durham said. “Obviously, we believe Iowa is the best place for that and we’d like to see those headquarters remain here and grow here.”

WHY ROCKWELL?

UTC taking over Rockwell will give the companies more pricing power for their customers, University of Iowa finance professor Yiming Qian told The Gazette last week. Combined, Collins Aerospace Systems will make everything from wheels and engines to cockpit technology and seating.

Aircraft makers want more integrated technology and digital connections on their planes, Ortberg said, such as smarter devices. More data and electrical integration, for example, can help with predictive maintenance to fix a problem before it occurs, he said.

“That’s where we see the advantage, whether it’s in the cabin or the electrical systems on the aircraft or even mechanical systems on the aircraft. They’re all going to be smart devices, they’re all going to need electronic and software control,” he said.

Richard Alboulafia, an aviation analyst with the Teal Group in Virginia, called the Rockwell-UTC deal “about the cleanest large acquisition imaginable.”

“There’s almost no overlap and that’s great,” he said. “That makes clearing regulatory hurdles so much easier, it makes integration so much easier and, of course, it eliminates the need for costly divestitures.”

While Hayes and Ortberg said the deal will provide more value to their customers, at least one large client appeared skeptical Tuesday.

“We intend to take a hard look at the proposed combination of United Technologies and Rockwell Collins,” Boeing said in a statement. “Until we receive more details, we are skeptical that it would be in the best interest of — or add value to — our customers and industry.”

Boeing added it may “pursue the appropriate regulatory options to protect our interests” if the UTC-Rockwell deal does not fit with its or its customers’ interests.

Companies such as Boeing and Airbus, the Teal Group’s Alboulafia said, also could fight back by giving contracts to smaller companies, which would create new competition.

WHY NOW?

UTC’s acquisition of Rockwell is the culmination of years of previous mergers, Alboulafia said.

For example, UTC previously had purchased aerospace companies Sundstrand Corp. and Goodrich Corp. to form UTC Aerospace Systems. Rockwell only recently closed its multibillion-dollar purchase of B/E Aerospace, a maker of airline interior products.

That deal is so recent, Rockwell still is finishing its integration of Florida-based B/E

“All of this has sort of steadily be building it’s way up to — and here’s where it is big — to easily the biggest” subcontractor in the aerospace industry, Alboulafia said.

Speaking on CNBC Tuesday, UTC chief Hayes said the acquisition talks with Rockwell began in May, soon after Rockwell had closed the B/E deal. Hayes said he called Ortberg and said, “We ought to see if there’s something we can’t do together.”

“I give Kelly and their board a lot of credit. For a company that was never for sale, they came very quickly to the conclusion this is the right deal for them, the right combination,” Hayes said.

UTC’s interest in Rockwell goes back further, though, Hayes said on Tuesday’s conference call. Hayes had worked for Sundstrand Corp., a company UTC acquired in 1999.

“I joined Sundstrand back in 1989 and one of the first acquisitions that we talked about or wanted to look at was Rockwell Collins. It’s only been 30 years we’ve been thinking about this deal,” Hayes said, eliciting laughs on Tuesday’s call.

Gazette Des Moines reporter Rod Boshart contributed to this story.

l Comments: (319) 398-8366; matthew.patane@thegazette.com

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