A silver living to the United Technologies deal

CBJ Editorial 

The acquisition and integration of Rockwell Collins by United Technologies Corp. (UTC) has caused some anxiety and consternation in the Corridor.

The ongoing public relations and business turmoil surrounding Boeing’s grounded 737 Max jetliner suggests a possible silver lining, however. The acquisition illustrates that a bigger and more diversified company in a global marketplace can be more resilient against unexpected market forces.

Collins Aerospace, the UTC division into which Rockwell Collins was folded, is a major supplier to Boeing. Shares of Boeing’s stock have been hammered since the fatal crash of an Ethiopian Airlines 737 Max on March 10, and an earlier crash by Lion Air. The incidents killed 346 people between the two flights.

Boeing reluctantly grounded its best-selling 737 Max jets following the tragedies. Shares of the company’s stock traded last week near a 52-week low, and the slide has wiped out nearly $27 billion in market value.

Fortunately for Collins Aerospace, UTC is significantly larger than Rockwell Collins  was, with a highly diversified line of businesses in elevators, heating and cooling systems and jet engines. Its stock has only marginally been impacted by these disasters.

Had Rockwell Collins remained its own publicly traded company, its stock price and market value likely would have been impacted along with Boeing’s.

Citing Wolfe Research, Bloomberg recently reported that UTC’s aerospace unit has a large exposure to the Max program. Boeing accounted for 31 percent of sales for Collins Aerospace last year, spread across commercial and military segments.

“We would estimate the Max program at over $4 million per ship-set for United Technologies,” Wolfe analyst Nigel Coe wrote in a research note to investors. “If the production drop lasts three to six months, then this implies a relatively minor $150 million to $250 million sales impact.”

Boeing is developing a software fix to address the problems with the 737 Max, but it is not clear that Boeing, UTC or Collins Aerospace are out of the woods. The Wall Street Journal reported last week that Boeing didn’t book any commercial orders for its 737 jetliner in March, the first month without a sale of the aerospace giant’s best-selling aircraft in almost seven years.

Rockwell Collins shareholders got a premium price from UTC’s acquisition, and its diversification with UTC’s other business units has blunted the impact of this aviation debacle on UTC, shares of which were part of the price tendered for Rockwell Collins.

Employees and other stakeholders of Collins Aerospace might still have some heartburn from the acquisition, but as it is currently playing out, business today would be tougher going it alone than it is under UTC. •