A Pratt & Whitney PW1000G turbofan engine sits on the wing of an Airbus A320neo aircraft during a delivery ceremony outside the Airbus Group SE factory in Hamburg, Germany, on Friday, Feb. 12, 2016.
Bloomberg | Krisztian Bocsi
United Technologies has struck a deal to combine its booming aerospace business with defense contractor Raytheon, a surprise twist capable of rattling customers and competitors alike.
The deal would create a giant, one-stop shop with products that range from Tomahawk missiles and radar systems to jet engines that power passenger planes and the seats that fill them.
Under one roof, the companies could put more pressure on suppliers and encourage their industrial conglomerate competitors to seek deals of their own.
Raytheon and United Technologies have a combined market value of close to $166 billion. The stock price of each has gained more than 21% this year, far outpacing the broader market, as they’ve reaped the benefits of strong defense spending and record orders for passenger planes around the world.
The new company, which they plan to name Raytheon Technologies, would have approximate annual sales of $74 billion, putting it behind Boeing as the second-largest aerospace and defense company in the U.S. by revenue.
The combined company, with big footprints in both the fast-growing commercial aerospace business and an increase in military spending, may be emboldened to push back on big customers like Boeing, Airbus and Lockheed Martin in terms of pricing, aftermarket work and intellectual property.
Boeing itself has been trying to gain more direct control over certain parts of its supply chain and strengthen its services businesses that can provide revenue streams long after aircraft are delivered.
In June 2018, Boeing 737 said it formed a joint venture with French engine manufacturer Safran to make auxiliary power units for planes, a business that competes directly with United Technologies’ Pratt and Whitney unit and with Honeywell.
Earlier that year, Boeing unveiled a joint venture to make airplane seats with Adient.
The United Technology-Raytheon tie-up “creates this monster supplier in aerospace and defense,” said Richard Aboulafia, aerospace analyst at Teal Group.
Raytheon and United Technologies don’t have a lot of the overlap that generally draws regulatory opposition to such deals. But customers may have other views. Boeing initially expressed concerns about United Technologies’ $23 billion-acquisition of avionics and aircraft seat maker Rockwell Collins.
The combination of the two companies may shake up competitors as well. The deal comes just as industrial conglomerates are rethinking their businesses and scrambling to focus on highly profitable units.
United Technologies last November announced it would split into three companies, spinning out its Carrier HVAC business and Otis elevator unit. The aerospace business, which includes United Technologies’ newly acquired Rockwell Collins and engine maker Pratt and Whitney, would be the unit merging with Raytheon.
The deal could pressure others in the sector, like Honeywell International and General Electric, both of which make jet engines and other airplane parts and have shed other businesses, to look for partners to bulk up top-performing units.
Last year, military equipment suppliers Harris Corp and L3 Technologies agreed to merge in the largest ever deal for that sector.
“Clearly the logic of size keeps marching on,” Aboulafia said. “It increases pressure on them to do something.”
The new company, called Raytheon Technologies, would be headquartered in the Boston area. Raytheon is based in Waltham, Mass., a Boston suburb.
