Boeing, Airbus raise alarms over UTC-Rockwell merger

Tie-up will create top parts supplier

Boeing Co and Airbus SE voiced concerns about a proposed tie-up of two leading suppliers on Tuesday, potentially upsetting United Technologies Corp’s $30 billion acquisition of Rockwell Collins Inc.

The world’s largest planemakers added to the chorus of sceptics of a deal that would create an aerospace behemoth with a range of products to outfit jetliners and warplanes.

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 sceptical that it would be in the best interest of — or add value to — our customers and industry,” the company 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.”

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 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.

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 UTC’s Goodrich Corp baulked 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, UTC’s chief executive officer, said of the potential for a contract dispute.

Airbus, one of UTC’s 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 UTC confirmed the cash and stock deal for Rockwell Collins. “Our total focus is on delivering planes.”

Despite the doubts, 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 UTC’s 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 Inc director, Continental Airlines CEO and Boeing executive.

Brazilian planemaker Embraer SA said the consolidation of the two companies “will probably bring greater efficiency and economies of scale that, we expect, will benefit the whole industry,” according to an emailed statement from the company.