Proposed Merger Holds Promise for U.S. National Security

In the present environment where potential adversaries like China, Russia and more are ramping up their defense spending to surpass the U.S., it is imperative that aerospace and defense firms invest in future technologies and provide innovative capabilities necessary to maintain their competitive edge. One way to do that is through mergers and acquisitions.

While this merger was just recently announced, the story begins, paradoxically, with the 2015 announcement by United Technologies that it would sell or divest its Sikorsky Aircraft division.  The Sikorsky name remains synonymous with helicopter aviation, and the company has been a major supplier to the Department of Defense since the dawn of vertical flight.  But while helicopter technology and manufacturing had matured, expanding and more profitable opportunities were in providing “platform content.”  This encompasses the electronic and communications hardware, software, and systems integration that provide the helicopters not only self-defense measures but also enable them to perform sophisticated warfare missions.

United Technologies began repositioning itself within in the aerospace and defense industry in September 2017 when it announced the proposed acquisition of Rockwell Collins, the well-established provider of communications, electronic, and flight control systems to both commercial and military markets.  The acquisition provided United Technologies with the capability to immediately enter targeted growing market segments.  Because there was little overlap between these two companies' capabilities, the approval process went relatively smoothly with little concern regarding the erosion of competition within the U.S. industrial base.     

United Technologies' intent to merge with Raytheon, while divesting its Carrier and Otis Elevator divisions, culminates its effort to emerge as a leading systems provider within growing market segments of the aerospace and defense industry.  The merger is expected to be approved in the first half of 2020 and will provide economies of scale and enable the combined company to consolidate capabilities, eliminate redundancies, and provide synergies resulting in $1 billion annual cost savings within four years.     

The deal represents the union of iconic, successful businesses that are both alike and different in important ways.  In this instance, their unique differences will lead to ultimate success. Since United Technologies and Raytheon have few shared capabilities, the proposed horizontal merger will extend the merged firm’s presence and capabilities across the aerospace and defense industry’s growing market segments.  The merged firm will operate from four divisions including United Technologies’ Pratt & Whitney and Collins Aerospace, and Raytheon’s Intelligence, Space & Airborne Systems and Integrated Defense & Missile Systems.  In addition to having a larger footprint within the targeted high-tech and growing market segments, it is anticipated that the merged company’s balanced and diversified aerospace and defense portfolio will be resilient across business cycles.  And since there is a minimum overlap of capabilities between the merged companies, there is expected to be no erosion of competition across the U.S. defense industrial base, a consideration that company leaders hope will smooth the approval process.

The proposed Raytheon-United Technologies merger has all the ingredients and promises to be the real deal, with no regulatory red flags. Final approval is expected in the first half of 2020 and with China and Russia on our heels, would bring a timely and welcomed boost to U.S. defense and national security innovation.

William Hughes served in the U.S. Navy where assignments included command of a LAMPS helicopter squadron and a Pentagon tour as assistant helicopter requirements officer.  He later joined BAE Systems Inc. as a corporate communications director and participated in several business acquisition and integration teams.