Page 19 - AAA SEPTEMBER - OCTOBER 2018 Online Magazine

Once formed, Collins Aerospace will have an enviable prod- firmly in favor of UTC as it would have an
uct portfolio that covers virtually every major aircraft system increased share of the parts and systems
- landing gear systems, engines, avionics and interior systems, of the Bombardier CSeries jet, now rechris-
electrical power, structures, actuation, and landing gear sys- tened as A220.
tems. It will be headquartered in Palm Beach County, Florida.
Cedar Rapids, the Rockwell Collins headquarters, will be the Over the last few years, Boeing and Airbus
lead site for the new organization’s avionics and mission systems have been working assiduously to cut into the
units. Kelly Ortberg, currently Rockwell Collins CEO, will be the 15-20 percent profit margins that component
CEO of the new organization. suppliers have traditionally enjoyed. Boeing
was the first to makes its move, introducing
“The combination will enable us to compete more effectively for its Partnering for Success (PFS) initiative
future business through continued investments in innovation, in 2012, one that forced suppliers to either
world-class integrated product offerings and the ability to retain reduce costs by about 15 percent or risk
the top talent in the industry,” says Ortberg. losing business. UTC’s Aerospace Systems
(UTAS) segment had to pay the price for
OEMs Unhappy with Development choosing the brave path and refusing to
he news of the proposed acquisition sent ripples through lower its price on landing gear assemblies
the industry and evicted sharp responses from Boeing for Boeing’s 777X aircraft – Boeing chose to
and Airbus. In statements, the aerospace giants made go with a smaller company - Héroux-Devtek
Tit clear that having to share market space with a new – as the supplier. Significantly, both UTAS and
colossus, a super supplier that is formidable enough to alter Rockwell Collins have signed new supplier
existing industry equations and resist the pressure that plane deals under Boeing’s PFS 2.0 initiative, the
makers are increasingly exerting on suppliers for price cuts on second phase of its PFS initiative that seeks
parts, wasn’t something they were happy about. to cut supplier costs by two percent a year.
Unable to bear the brunt of the cost-cutting
In March this year, Boeing gave its approval for the acquisi- all by itself, UTAS has introduced “PACE,” a
tion following an agreement with the suppliers to support its cost-cutting programme for Tier II suppliers.
cost-cutting initiative, but the company’s initial reaction was
revealing. When news of the pending deal broke, the aerospace Taking note of the success Boeing had
giant said in a statement that it was skeptical that the merger with its PFS initiative, Airbus came up with
“would be in the best interest of - or add value to— our cus- SCOPe and SCOPe+, A320-focused initia-
tomers and industry.” The company even went to the extent of tives that forced suppliers to reduce prices
threatening to ask regulators to block the deal. by at least 10 percent. The plane maker has
also launched another initiative for, its long-
Shortly after the acquisition news broke, Airbus publicly asked range aircraft programs, called “LR COP.”
UTC to focus on delivering jet engines on time. According to Both Boeing and Airbus have experienced
media reports, the plane-maker is worried that following the considerable success with their initiatives,
merger, the plane maker- supplier power balance would tilt but suppliers aren’t happy; some of them
have coined a new name for the Boeing ini-
tiative -Pilfering for Success.

It is not the first time that OEMs have opposed
a proposal intended to create a super sup-
plier. It was their opposition that played a big
part in Honeywell dropping its 2016 offer to
buy United Technologies. Industry experts
believe that with OEMs continuing to exert
pricing pressure on suppliers, it won’t be a
surprise to hear about new supplier consol-
idation proposals involving mid and lower-tier
players.

Rockwell enjoy much higher profit margins,
have opposed a proposal intended to create

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