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A soldier from the Japanese Self-Defense Force stands alongside a Raytheon PAC-3 missile unit manufactured by Raytheon at the Ministry of Defense in Tokyo in 2012. About 30% of Raytheon's sales are made abroad, which represents a record number of subcontractors of the American defense. (AP Photo / Shizuo Kambayashi)
ASSOCIATED PRESS
A merger of United Technologies and Raytheon would create a fairly balanced giant between civil aerospace and defense and better able to handle uncertain prospects in both sectors.
The two pillars of the New England-based industry would be under discussion for a "merger of equals", with a possible announcement in the coming days, according to the same source. the Wall Street newspaper, who first reported on the negotiations of the agreement.
The spokesmen for both companies said Forbes that they would not comment.
The combined company would have annual sales of more than $ 75 billion, making it the second largest player in the aerospace and defense industry after Boeing. The aggressive move is a surprise, industry watchers contacted by Forbes United Technologies is already in the process of transformation: in November, it finalized the acquisition of Rockwell Collins, supplier of components for aviation, for a total of 30 billion dollars; it is preparing to hand over its Otis elevators and its Carrier climate control units to become a pure aerospace and defense game.
"Everyone knew & lsqb; CEO & rsqb; Greg Hayes was reorganizing United Technologies to focus on aerospace and defense, but no one was expecting a combination of this scale, "said Loren Thompson, defense analyst and consultant for the United States. sector at the Lexington Institute.
After the fallout, United Technologies expects to achieve annual sales of $ 50 billion, of which about 75% for the commercial sector and 25% for defense, where it holds a dominant military engine franchise – it's the engine of the F-35.
The company's product line based in Farmington, Connecticut, does little to overlap with Raytheon, which had a turnover of $ 27 billion last year. Raytheon is the largest missile producer in the world, as well as missile defense systems like the Patriot. He also manufactures radars; sensors for aircraft, submarines and satellites; and electronic warfare and cybersecurity systems.
Most US defense contractors have opted for pure play and, while defense spending has risen sharply over the last two years, it is expected to rise again. in the next budgetit remains under the heights of George W. Bush's administration, adjusted for inflation. At the same time, their diversified competitor, Boeing, has achieved annual growth of 5% in commercial air traffic over the past 20 years to become the world's leading aerospace company.
Some say it's the scale of the profits it has made in commercial aerospace that has allowed Boeing to make an aggressive bid on the price for chain of big Pentagon defense contracts recently: the Air Force T-X trainer, the MQ-25 drone and the MH-139 helicopter. & nbsp;
The fiscal outlook is another reason why defense coverage could be a good choice for Raytheon. President and CEO Thomas Kennedy expressed optimism that the US defense strategy was aimed at countering threats posed by China and Russia over the strengths of the Waltham, Massachusetts-based company, but that the federal debt continued to grow in proportion to the economy as a whole. Controlling the House and automatic reductions in defense spending known as imminent sequestration, the prospects for a continued increase in military spending are in doubt. And when the belts tighten, the purchase budget is cut first, not the staff costs.
On the commercial front, thunderstorms could explain United Technologies' interest in obtaining greater defense exposure. The acquisition of Rockwell Collins was seen as a move to expand against the growing dominance of Airbus and Boeing airliners. Bombardier's exit from commercial aerospace and Boeing's acquisition of Embraer are the cornerstones of a decades-long consolidation wave that has allowed the two giants to obtain significant cost reductions from their suppliers. & nbsp;
While the number of air travel is expected to double around the world in the next 20 years, it is feared that the airline industry has taken a step ahead of itself in this period of low interest rates and easy financing. ordered more planes than he can use effectively medium term. As air traffic growth slows in the face of trade disputes between China and Europe, analysts predict that cancellations could reduce the large order books of Airbus and Boeing.
The combination of Raytheon and United Technologies could put further pressure on the consolidation of major commercial aerospace suppliers, particularly Honeywell and General Electric, said analyst Richard Aboulafia of Teal Group.
For GE, the world's leading manufacturer of aircraft engines, a combination with Safran could make sense. Both companies have a 50-50 successful joint venture, CFM International, which manufactures the LEAP engine line. But the French government could play a role of spoiler.
Honeywell would also make a logical partner for GE, explains Aboulafia.
On a larger scale, Raytheon and United Technologies could gain more negotiating power with the Pentagon, and greater geographic reach would give it more to the media, said William Hartung, director of the Arms and Security project of the Center for International Policy.
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A soldier from the Japanese Self-Defense Force stands alongside a Raytheon PAC-3 missile unit manufactured by Raytheon at the Ministry of Defense in Tokyo in 2012. About 30% of Raytheon's sales are made abroad, which represents a record number of subcontractors of the American defense. (AP Photo / Shizuo Kambayashi)
ASSOCIATED PRESS
A merger of United Technologies and Raytheon would create a fairly balanced giant between civil aerospace and defense and better able to handle uncertain prospects in both sectors.
The two pillars of the New England-based industry would be under discussion for a "merger of equals", with a possible announcement in the coming days, according to the same source. the Wall Street newspaper, who first reported on the negotiations of the agreement.
The spokesmen for both companies said Forbes that they would not comment.
The combined company would have annual sales of more than $ 75 billion, making it the second largest player in the aerospace and defense industry after Boeing. The aggressive move is a surprise, industry watchers contacted by Forbes United Technologies is already undergoing a transformation: in November, it finalized the acquisition of Rockwell Collins, a component supplier for aviation, for $ 30 billion, and is preparing to split its Otis lifts and its Carrier climate control units to become a pure defense and defense industry. to play.
"Everyone knew [CEO] Greg Hayes was reorganizing United Technologies to focus on aerospace and defense, but no one was expecting a combination of this scale, "said Loren Thompson, defense analyst and consultant for the United States. sector at the Lexington Institute.
After the fallout, United Technologies expects to achieve annual sales of $ 50 billion, of which about 75% for the commercial sector and 25% for defense, where it holds a dominant military engine franchise – it's the engine of the F-35.
The company's product line based in Farmington, Connecticut, does little to overlap with Raytheon, which had a turnover of $ 27 billion last year. Raytheon is the largest missile producer in the world, as well as missile defense systems like the Patriot. He also manufactures radars; sensors for aircraft, submarines and satellites; and electronic warfare and cybersecurity systems.
Most US defense contractors have opted for pure companies, and while defense spending has increased significantly in the last two years and is expected to increase further in the next budget, it remains below the top of George W. Bush's administration, adjusted for inflation. At the same time, their diversified competitor, Boeing, has achieved annual growth of 5% in commercial air traffic over the past 20 years to become the world's leading aerospace company.
Some say it was the many profits he made in commercial aerospace that allowed Boeing to aggressively bid for a series of big Pentagon defense deals: the Air Force TX coach, the drone MQ-25 and the helicopter MH-139.
The fiscal outlook is another reason why defense coverage could be a good choice for Raytheon. President and CEO Thomas Kennedy expressed optimism that the US defense strategy was aimed at countering threats posed by China and Russia over the strengths of the Waltham, Massachusetts-based company, but that the federal debt continued to grow in proportion to the economy as a whole. under the control of the House and automatic reductions in defense spending known as imminent sequestration, the prospects for continued increase in military spending are uncertain. And when the belts tighten, the purchase budget is cut first, not the staff costs.
On the commercial front, thunderstorms could explain United Technologies' interest in obtaining greater defense exposure. The acquisition of Rockwell Collins was seen as a move to expand against the growing dominance of Airbus and Boeing airliners. Bombardier's exit from commercial aerospace and Boeing's acquisition of Embraer are the cornerstones of a decades-long consolidation wave that has allowed the two giants to obtain significant cost reductions from their suppliers.
While the number of air travel is expected to double worldwide over the next 20 years, there is reason to fear that the airline industry will be ahead of itself in this period of low interest rates, easy financing and orders for more devices than can be used effectively in the medium term. term. As air traffic growth slows in the face of trade disputes between China and Europe, analysts predict that cancellations could reduce the large order books of Airbus and Boeing.
The combination of Raytheon and United Technologies could put further pressure on the consolidation of major commercial aerospace suppliers, particularly Honeywell and General Electric, said analyst Richard Aboulafia of Teal Group.
For GE, the world's leading manufacturer of aircraft engines, a combination with Safran could make sense. Both companies have a 50-50 successful joint venture, CFM International, which manufactures the LEAP engine line. But the French government could play a role of spoiler.
Honeywell would also make a logical partner for GE, explains Aboulafia.
On a larger scale, Raytheon and United Technologies could gain more negotiating power with the Pentagon, and greater geographic reach would give it more to the media, said William Hartung, director of the Arms and Security project of the Center for International Policy.