Executive Summary In a laudable strategic and tactical move Airbus acquired majority ownership of Bombardier’s Series C line in a no cash deal. Additionally, Airbus management astutely recognized that Bombardier’s problems could be recast as advantages with their international footprint and supply chain. The Deal On October 16, 2017 Airbus announced it would acquire 50.1% of the equity of the Canadian consortium which owns Bombardier’s C Series airliner. Prior to the deal Bombardier’s market value was $2 billion. Airbus is putting up no cash for its shares and it announced it would move a significant portion of the plane’s final assembly to its plant in Alabama. Analysis The deal is a brilliant gamble by Airbus and a desperate attempt to survive by Bombardier. The C Series regional jet, lauded technologically by aircraft designers, has suffered from poor sales and a near empty order book. One cause has been Bombardier’s chief competitor for the lucrative US regional jet market. Boeing, manufacturer of the market adjacent 737, has been hammering Bombardier in US courts to pay a 300% tariff on Series C aircraft sold in this country. Few airlines wish to commit to a fleet with an unknown price tag so they have stayed away from the modern composite wing Series C, financially crippling Bombardier. Boeing found a possibly unwanted ally in President Donald Trump. The President recently stressed to Canada’s Prime Minister Trudeau that the President strongly supported Boeing’s claim regarding the sale of the “foreign” aircraft (more on this later). Trudeau responded by freezing the purchase of 18 Boeing Super Hornet fighters for the Canadian Air Force valued at $5.2 billion. In August Bombardier leadership looked for a white knight to keep the C Series alive. Airbus offered a no cash deal and ended up with its first regional jet,…
Aerospace
Executive Summary United Technology Corporation’s (UTC) offer for Rockwell Collins reflects UTC’s history of using merger and acquisition for strategic re-positioning. While expensive, a successful transaction should place UTC in an enviable market position among aerospace suppliers. The Deal On September 4th, 2017 United Technologies Corporation (UTC), one of the world’s largest precision manufacturers, announced it would buy Rockwell Collins for $30 billion in cash, stock, and assumed debt. Some criticized the deal as too expensive and brought on by the threat of activist investors pressuring UTC management for better performance. A longer term look shows the Rockwell Collins deal is the latest action in a disciplined M&A strategy that should continue to refresh UTC’s prospects for decades to come. Precision manufacturers of all sizes can learn from UTC on how to effectively sell and buy businesses with an eye to long-term performance. For some time UTC has faced complaints from shareholders for underperforming other industrial firms. There is some truth to the complaint: Source: ChartIQ. Since 2011, UTC shares lagged the broad market. Why? Lack of growth. The company, net of discontinued operations, grew revenues at a gentle 2.4% per year. Profitability similarly lagged, primarily due to the decline in US military spending. Three separate deals reflect UTC’s attempts to expand in the more desirable commercial aerospace markets. Goodrich In 2011 UTC acquired Goodrich for $18 billion. Out of the tire business for years, Goodrich’s $8 billion in annual sales come from landing systems, one of nine core technologies found in most aircraft. At the time of the deal, Wall Street pilloried UTC management for paying too much. Hindsight shows that, though expensive, Goodrich (now part of UTC Aerospace Systems) is a highly profitable contributor to UTC. So, a step in the right direction. Sikorsky Sale In 2015 UTC…