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Boeing `Skeptical' of United Technologies-Rockwell Collins Deal

Boeing and Airbus will have a say on the merger’s fate because they both have “disproportionate influence” on deals throughout their supply chains.

Boeing Co. said it would take a “hard look” at the United Technologies Corp. deal to buy  Rockwell Collins Inc., potentially upsetting the $23 billion acquisition.

“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 in an emailed statement. “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.”

Airbus SE, another major customer of United Technologies, also pressed the company to make sure it can keep up with commitments to deliver Pratt & Whitney jet engines on time after a rocky rollout for the company’s geared turbofan. The world’s largest planemakers are wary of distractions to a key supplier as they embark on the biggest production ramp-up in history for their single-aisle jets, the largest source of profit for Boeing and Airbus.

“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.”

Pratt builds engines for Airbus’s best-selling A320neo series but its new geared turbofan technology, which cost $10 billion to develop, has been beset by manufacturing hurdles, delivery delays and technical glitches. That’s elicited stark rebukes from Airbus.

United Technologies plans to hold calls on Sept. 5 and Sept. 6 with customers to discuss the merits of the deal, Chief Executive Officer Greg Hayes said in a phone interview.

“We didn’t want to get ahead of ourselves, the board literally voted yesterday to do this deal,” he said. “We’ll be talking to all of them, trying to make sure they understand the benefits of bringing these companies together.”

‘Disproportionate Influence’

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 before the deal was announced. The planemakers hold contractual clauses that give them broad authority over parts production, essentially making each customer “a gatekeeper for potential structural changes in the supplier base,” he said.

Pratt’s engines are one of two powering options for A320neo models, competing with products from the  CFM International joint venture of General Electric Co. and Paris-based Safran SA. While Pratt has signed just one buyer this year, the CFM turbine has snatched up about 10 times more orders amid the United Technologies unit’s operational challenges.

Airbus CEO Tom Enders said in July that the revamped A320neo narrow-body workhorse is a major concern, with the company hitching its earnings goals to Pratt meeting delivery targets and providing a reliable fix for the powerplant.

“There are just too many maturity issues on this engine,” Enders said at the time. “That is frustrating for us, that’s frustrating for the customers.”

By Benjamin Katz and Richard Clough


TAGS: Supply Chain
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