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Aerospace executives look on bright side of United Tech, Raytheon deal

06/20/2019 | 07:12am EDT
FILE PHOTO: A Raytheon building is shown in San Diego

PARIS (Reuters) - Aerospace executives see potential benefits from the surprise merger of Raytheon Co and United Technologies, 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 $121 billion (£95 billion) merger, announced last week, would reshape the competitive landscape by forming a U.S. conglomerate which spans commercial aviation and defence procurement.

United Technologies provides primarily commercial plane makers with electronics, communications and other equipment, whereas 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 defence sector in Europe ... is a completely different competitive landscape," he said at the Paris Airshow.

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

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

He said he did not expect any impact on MTU's longstanding strategic partnership with United Tech's Pratt & 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 Airshow. "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 would also 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.

Israel's Elbit Systems said the merger could also 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.

(Reporting by Andrea Shalal; Editing by Keith Weir)

By Andrea Shalal

ę Reuters 2019
Stocks mentioned in the article
ChangeLast1st jan.
AMP LIMITED -1.00% 0.99 End-of-day quote.-36.54%
CHANGE INC. 2.46% 2329 End-of-day quote.-33.93%
GENERAL ELECTRIC COMPANY -1.97% 98.63 Delayed Quote.16.28%
LEONARDO S.P.A. -0.75% 6.65 Delayed Quote.13.37%
MIRAINOVATE CO., LTD. 0.00% 24 End-of-day quote.-20.00%
MTU AERO ENGINES AG 1.45% 194.35 Delayed Quote.-11.08%
ONE STOP SYSTEMS, INC. -1.48% 5.2 Delayed Quote.33.00%
RAYTHEON TECHNOLOGIES CORPORATION -1.95% 82.62 Delayed Quote.16.61%
SAFRAN 2.55% 107.7 Real-time Quote.-9.20%
VISION INC. -0.14% 1405 End-of-day quote.35.62%
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