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UTC buys Rockwell Collins, hurting Boeing: New company will lead market and make conditions harder for Boeing
Having left the servicing market when the 787 Dreamliner program was created, Boeing announced a return earlier this year. Yet the much vaunted return – advertised as a means to save money in a toughening commercial jet airliner market – is likely to be harmed by the purchase of Rockwell Collins by UTC. The new company formed by the takeover will provide a service no other company is able to match fully. In making very public protests over the $30bn deal, Boeing is attempting to raise the interests of regulators. One half of the commercial jet duopoly, Boeing is under pressure since announcing its return to the servicing and maintenance market, and the existence of such a powerful rival threatens prosperity at a time of shrinking aircraft sales.
Boeing is nervous about the fallout from one of the most valuable business deals in aerospace history because of the scope of services the new company will have the capacity to provide. Capable of outfitting aircraft from tip to tail, Collins Aerospace Systems stands to benefit from an advanced market position in response to reduced margins demanded by manufacturers to shift metal in what is an increasingly competitive market. Furthermore, the deal will hasten the creation of ‘industry 4.0’ in aircraft servicing and maintenance, making life harder for Boeing due to heightened competition.
The aerospace mega-deal is the latest in a trend of consolidation in the market, which has been gaining pace rapidly over the past year. Consolidation has come about thanks to downwards pressure from the Boeing/Airbus duopoly, causing much of the aircraft industry to adapt to a more troublesome sales environment. Pressure to produce at lower costs by aircraft makers ensures linking the ‘smart’ offerings and inert components will become ever more essential, creating motivations for companies to engage in merger and acquisition activity. For both Boeing and Airbus the consolidation trend poses a difficult problem: single-point-of-failure risk. However, it can be implied that the aircraft duopoly contributed towards servicing companies feeling the need to combine efforts.