Boeing, Airbus voice doubts on $23bn supplier merger

Bloomberg

Boeing Co. and Airbus SE voiced concerns about a proposed tie-up of two leading suppliers, potentially upsetting United Technologies Corp.’s $23 billion acquisition of Rockwell Collins Inc.
The world’s largest planemakers added to the chorus of skeptics of a deal that would create an aerospace behemoth with a range of products to outfit jetliners and warplanes. Investors sent United Technologies shares plunging by the most in two years, while credit ratings companies said the manufacturer risks downgrades. Boeing, which has been squeezing suppliers for discounts, warned it would take action to protect itself if it saw the merger as harming its business.
“Until we receive more details, we are skeptical that it would be in the best interest of—or add value to—our customers and industry,” Boeing said. “Should we determine that this deal is inconsistent with those interests, we would intend to exercise our contractual rights and pursue the appropriate regulatory options to protect our interests.”
Boeing and Airbus are wary of distractions the merger could create for a key supplier just as the planemakers embark on the biggest production ramp-up in history for single-aisle jets, their largest source of profit.
The merged aerospace businesses, to become a separate unit called Collins Aerospace Systems, would make a host of products spanning seats, landing gear, flight controls, and the data pipelines linking pilots and passengers to the Internet.
Boeing and Airbus will have a say on the merger’s fate because they both have “disproportionate influence” on deals throughout their supply chains, Nicholas Heymann, an analyst at William Blair & Co., said. The planemakers hold contractual clauses that give them broad authority over parts production, making each customer “a gatekeeper for potential structural changes in the supplier base,” he said.
Chicago-based Boeing hasn’t been afraid to exercise its clout in the past. The company shifted to a Canadian upstart to manufacture the landing gear for its 777X jetliner when United Technologies’ Goodrich balked at providing concessions.
The US planemaker, for one, may be able to renegotiate terms of some of its supplier agreements with Rockwell Collins because of a provision allowing the contracts to be reopened if there is a change of control. The avionics company has won the rights to provide large flight displays across much of the Boeing product line-up.
“We don’t see anything that would be a show-stopper,” Greg Hayes, United Technologies’ chief executive officer, said of the potential for a contract dispute.

Engine Deliveries
Airbus, one of United Technologies’ largest customers, pressed the company to make sure it can keep up with commitments to deliver its Pratt & Whitney jet engines on time after a rocky rollout for the company’s geared turbofan.
“We hope that this M&A would not distract UTC from their top operational priority,” an Airbus spokesman said in an emailed response to questions after United Technologies confirmed the cash and stock deal for Rockwell Collins. “Our total focus is on delivering planes.”
Planemakers stand to benefit from technology breakthroughs, such as synthetic vision or autonomous planes, that might come out of Rockwell Collins labs once they are able to tap
funding from United Technologies’ deeper pockets. The tie-up would “mean Rockwell is better capitalised and can do more R&D that benefits the planemakers,” said Gordon Bethune, a former Honeywell International director, Continental Airlines CEO and Boeing executive.