In the world of defense contractors, consolidation has long been the name of the game. The lion’s share of the business has always been controlled by a select few companies. Boeing, Lockheed Martin and only a small handful of others have secured all of the major deals with the U.S. government. Now, the market is only getting tighter. As the New York Times reported, United Technologies is poised to merge with Raytheon, forming an aerospace and military conglomerate that will surely be a multi-industry leader.
Between the two of them, the companies produce a wide range of products that are of value to the federal government: they’re responsible for Pratt & Whitney engines, Tomahawk missiles, the F-35 fighter jet and more. The combined company, to be called Raytheon Technologies, can expect about $74 billion in sales in 2019.
The beauty of this deal, as the decision-makers involved see it, is in what it does to diversify the two companies’ offerings. The two companies together can cover a lot of ground in aerospace and military technology, and there’s virtually no overlap between the two currently.
“I can’t remember the last time we had a major competition against United Technologies,” said Tom Kennedy, Raytheon’s chairman and chief executive.
United Technologies products have historically been used in some of America’s most successful aircrafts, including Airbus commercial jetliners and the F-35 fighter jet. Raytheon, meanwhile, is famous for making the missiles, radar systems and command and control technology that are used by militaries not just in the United States, but worldwide. Experts have said that because the two businesses are so distinct in what they do, there’s little risk of the merger being threatened by federal antitrust reviews.
An interesting question concerns what long-term strategy the two defense contractors have in mind with this deal. Are they looking to thrive during boom times in military spending? Or, on the flip side of that coin, are they building a more resilient business that can weather tough times? Because military spending is such a politicized issue and we live in volatile political times, it’s tough to say.
Having said that, United Technologies chairman and CEO Greg Hayes thinks the intent behind this deal is perfectly clear.
“There’s nothing defensive about this,” Hayes told the Times. “This is an offensive deal.”
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