Consolidation in the aircraft component supplier sector is not quite done yet. Industry giants Raytheon and United Technologies (UTC) announced plans over the weekend to merge their aerospace operations in an all-stock deal. The deal includes only the Collins Aerospace and Pratt & Whitney units of UTC; the Otis and Carrier divestments will continue as previously planned. The combined company will be massive, with sales topping $74 billion annually and covering nearly every aspect of aviation components. Once the transaction completes the company will be named Raytheon Technologies Corporation (RTC). Rumors of the merger were first tipped by the Wall Street Journal late last week.
The companies focused on cost savings ($1bn within four years) and increased capital returned to shareholders ($18-20bn in three years) in their press release. The size of the combined company, as well as the reduction in competition, should give the new RTC a stronger negotiating position when it comes to its role as a supplier for the industry. As the buyers also consolidate and diversify their in-house operations this becomes an important factor in maintaining a semblance of balance in those relationships.
Expanded R&D operations are also highlighted, thanks to the stronger combined cash flow. The companies highlighted three specific priority areas for the commercial aviation segment – all very much data driven – to take advantage of the combined skill sets of their existing operations.
Investments in Cyber Protection for Connected Aircraft will help ensure that operational data can be transmitted safely and reliably between planes and operations centers on the ground. An Advanced Analytics and AI for Aviation group will focus on processing that data to help improve aircraft efficiency and operations. The combined company will also dedicate significant resources towards developing a next generation air traffic control solution that increases safety and scales up to manage the massive increase in airborne vehicles expected as urban air mobility projects come to life.
Other aspects of the commercial aviation business, such as cabin systems and seating or inflight connectivity services of Collins Aerospace, are not mentioned in the release. They will be included in the new RTC and perhaps not calling attention to them is a good thing for now. They are, generally speaking, segments that will not be affected by the merger as Raytheon does not being much to the table for their benefit. Letting them continue to run their course will hopefully mean fewer distractions as the merger swirls around them.
The merger must be approved by regulators, and, because both companies operate heavily in military circles, the Department of Defense. The deal is slated to close in early 2020, after the Carrier/Otis spin-offs complete.