Boyden Executive Search

The aerospace industry could see one of the biggest mergers in its history if United Technologies and Rockwell Collins join forces.

American conglomerate United Technologies has agreed to pay $23 billion for aviation supplier Rockwell Collins. Including debt, the deal is valued at $30 billion. By combining two major manufacturers, the proposed merger would create a formidable player with a hand in nearly every aspect of building aircraft, encompassing United’s aero-structures, landing systems, propellers and engines business, and Rockwell’s flight control, cockpit displays, seating and aircraft interior systems capabilities, among others.

Some worry that the merger would exert pricing pressure throughout the aerospace supply chain. “It just gives them tremendous negotiating leverage” with contractors and aircraft manufacturers, said Stephen Perry, Managing Director of Janes Capital Partners, an aerospace and defence investment banking firm. Perry described the new business unit as an “absolute colossus”.

The deal comes at a time of intensifying competition in the global commercial aerospace market. Both Boeing and Airbus are venturing into the aftermarket, including various segments traditionally served by suppliers such as United and Rockwell. Both plane makers are major customers of the would-be merged companies – and both have voiced concerns about the merger, the New York Times reports. “We are sceptical that it would be in the best interest of – or add value to – our customers and industry”, Boeing said in a statement.

Gregory J. Hayes, CEO of United Technologies, contends that the combined company, as the world’s largest aerospace components supplier, would be able to deliver lower-cost parts with greater efficiency, and also be better positioned for technological innovation. Additionally, he expects the merger will yield some $500 million in cost savings. Hayes and Kelly Ortberg, Chief Executive of Rockwell Collins, pointed out that planes are becoming more digital, and joining the two companies will better enable them to develop the new products that the next generations of planes will need.

As of this writing the deal is subject to approval by Rockwell Collins shareholders and regulators, and is expected to close by the third quarter of 2018.