Nation & World

Aerospace execs see bright side of United Technologies-Raytheon merger

Potential for better margins encourages some in UTC-Raytheon deal

Reuters

A visitor takes a picture of an Airbus A350-1000 as it performs during the International Paris Air Show on Wednesday.
Reuters A visitor takes a picture of an Airbus A350-1000 as it performs during the International Paris Air Show on Wednesday.

PARIS — Aerospace executives see potential benefits from the surprise merger of Raytheon Co and United Technologies Corp., including the prospect for better margins for suppliers and perhaps the chance to bid for any units put up for divestment.

Most dismissed any suggestion that the merger could trigger similar moves among players in the more fragmented European industry, noting that national loyalties and different market conditions will limit cross-border transactions on such a scale.

The merger, announced last week, would reshape the competitive landscape by forming a U.S. conglomerate which spans commercial aviation and defense procurement.

UTC, parent of Cedar Rapids-based Collins Aerospace, provides primarily commercial plane makers with electronics, communications and other equipment. Raytheon mainly supplies the U.S. government with military aircraft and missile equipment.

Airplane makers Airbus and Boeing have said they will study the merger carefully, but other U.S. and European executives said they did not expect a significant impact to their businesses.

Alessandro Profumo, chief executive of Italy’s Leonardo SpA, which builds helicopters and is a partner in the Eurofighter Typhoon consortium, told Reuters there could be some consolidation along business lines — but not in the near future.

“The aerospace and defense sector in Europe ... is a completely different competitive landscape,” he said at the Paris Air Show.

“So the consolidation process will face difficulty because the capabilities are still very nation-based.”

Michael Schreyoegg, chief program officer at Germany’s MTU Aero Engines, said MTU viewed the Raytheon-UTC merger as positive since it would strengthen the ability of UTC to invest in future joint projects.

He said he did not expect any impact on MTU’s long-standing strategic partnership with United Technologies’s Pratt and Whitney engine-making unit, which is mirrored by the partnership France’s Safran has with General Electric.

“In sum, we see it positively. We expect to have a larger and stronger partner at our side, who can make decisions beyond the business cycles,” Schreyoegg told reporters at the Air Show.

“In the end, I’d rather have a stronger partner than someone who is limited in their ability to invest.”

In fact, he said, to the extent that the combined company was able to negotiate better terms with Airbus and Boeing, that also would benefit MTU and other second-tier suppliers.

Aerospace consultant Richard Aboulafia said the merger would boost pressure for further consolidation in the overall aerospace market, including in Europe, but the pace of change might not be fast.

“It’s been a very slow multi-decade process. It’s not like you’re suddenly at a competitive disadvantage, but it’s inexorable,” he said.

ARTICLE CONTINUES BELOW ADVERTISEMENT

Israel’s Elbit Systems said the merger also could result in possible acquisition targets that could boost its bid to expand in the United States, if regulators insisted on any divestments.

Elbit already scooped up the night vision business of Harris Corp. as a result of divestments ordered as a result of its merger with L3 Technologies.

Give us feedback

We value your trust and work hard to provide fair, accurate coverage. If you have found an error or omission in our reporting, tell us here.

Or if you have a story idea we should look into? Tell us here.

Give us feedback

We value your trust and work hard to provide fair, accurate coverage. If you have found an error or omission in our reporting, tell us here.

Or if you have a story idea we should look into? Tell us here.