Airbus Opposes Any Attempt to Revive Honeywell-UTC Deal

airbus

Honeywell and UTC are key suppliers on Airbus aircraft

2/25/16

By Peggy Hollinger, London, Robert Wright, New York, and Jennifer Thompson, Hong Kong
The Financial Times

Airbus and rival aerospace groups on Wednesday signalled their opposition to a merger between Honeywell and United Technologies, key suppliers to the aircraft makers, in moves that greatly reduce the chances of the $90bn deal being revived.

Honeywell is pushing for merger talks to restart after rejecting UTC’s claim that a combination of the two aerospace suppliers would face insurmountable regulatory obstacles. It emerged on Monday that the two companies have held on-off discussions about a combination, but that UTC rebuffed Honeywell’s most recent approach.

Tom Enders, Airbus chief executive, waded into the matter on Wednesday by insisting that, whatever the regulatory issues, a merger of two of the company’s top 20 suppliers would pose problems for the aircraft maker.

“I do not see that such a combination would be in the interests of Airbus,” he told the Financial Times.

Mr Ender’s comments were reinforced by Boeing, Airbus’ US rival.

“Healthy competition in our supply chain is vitally important to Boeing and our commercial and military customers . . . we would anticipate taking a very close look at the potential impact on us and our customers of a Honeywell-UTC merger or acquisition,” said Boeing.

And Canadian aircraft maker Bombardier told the FT that it would also object to any merger, reflecting widespread industry unease over the dominance such an enlarged supplier would have and the erosion of competition.

Mr Enders said earlier that neither Honeywell nor UTC had sounded out Airbus on the possible merger.

But he indicated that UTC understood Airbus’s concerns. “I am under the impression that the UTC leadership shares [my] assessment,” he said.

Airbus buys roughly €4bn worth of components, systems and services from UTC each year, and the owner of Pratt & Whitney, the engine maker, is the European aerospace group’s number one supplier.

Honeywell ranks 18th and supplies, among other things, wheels, brakes and air conditioning systems, worth about €300m each year.

Suppliers are coming under pressure from the two big aircraft makers to bring down costs while stepping up production.

However, combining Honeywell and UTC would give the enlarged company unrivalled dominance in several key areas of aerospace products, such as air conditioning systems, said one person familiar with the situation.

Announcing Airbus’s 2015 results, Mr Enders said the robustness of the group’s supply chain was a priority for 2016 — a year when it begins to accelerate production of its newest generation of aircraft such as the A350 long-range jet.

However, the group was so confident in its prospects that it was reversing a cut in production of its older A330 wide-body jet.

Mr Enders said strong orders for the A330 meant that the production rate per month could go back to seven aircraft in 2017, just a year after it was cut to six.

There was some caution from Mr Enders on a revamped version of its A320 narrow-body jet, the group’s most popular aircraft.

Problems with the Pratt & Whitney engine have led to delays and Airbus was having to pull forward deliveries of the existing A320 to compensate.

Mr Enders said he expected the engine troubles on the A320neo — the name of the revamped version — to be overcome by the summer.

“I am confident with the contingency plans we have put in place,” he said, “and confident we can deal with the temporary delay.”

Finally Mr Enders warned over the risk of yet more charges for Airbus’s troubled A400M military transport programme.

Airbus reported operating profit of €4.1bn for 2015, up 2 per cent compared to 2014. Sales rose 6 per cent to €64.5bn.

The group proposed raising its dividend 8 per cent to €1.30 per share.

Airbus expects “stable” earnings in 2016 before one-off charges, and steady cash flow.

Airbus is aiming to deliver more than 650 passenger jets this year, up from 635 in 2015.

Robert Stallard, analyst at RBC Capital Markets, said the increase in A330 production was good news. “Given that each A330 makes roughly €20m in profit, this would represent about 5 per cent more earnings,” he added.

Original article can be found here.

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