Page 14 - ADT MARCH / APRIL 2020 Digital Magazine | GBP

doubts, however, have since vanished. The merger, he said, makes
it possible for the company to “deliver innovative, game-changing
technologies to our customers together that we could never have
done on our own.”
Although the majority of its work – close to 75 percent - was in [ ANALYSIS ]
commercial aviation, United Technologies had been steadily grow-
ing its presence in the defence sector over the last decade, with
Pratt & Whitney supplying engines to a growing number of military
aircraft and Collins Aerospace being a major player in defence elec-
tronics and avionics. The added capabilities of Raytheon, which is
one of the major military contractors in the world, makes Raytheon
Technologies a powerhouse in both the commercial and defence Valid Concerns
sectors, one capable of holding its own against any kind of com- When the merger was first announced,
petition. With its capabilities in almost every field of aerospace and President Donald Trump made it clear that he
defence, the company will be a virtual one stop shop for products, wasn’t happy with the development. He added
something that offers it a distinct advantage over competitors that that the trend of defence companies merging
lack the size and depth of its capabilities. makes it difficult for the government to negoti-
ate as there is a smaller pool of businesses to
choose from. Raytheon Technologies officials
however say that the merger would help the
firm save more than USD350 million a year in
parts and raw materials, thus lowering costs
for customers. The size of the company and
the financial resources at its command would
ensure added funding for R&D, they contend.
Trump is not the only one worried by the con-
solidation that the defence industry has seen
in recent years. Even though there is Industry
watchers believe that though there is no
product overlap, the increased market power
gives Raytheon Technologies an unfair advan-
tage over its competitors. Longtime industry
watchers would recall that the U.S. Defense
Department has always been wary of deals that
threaten competition; it didn’t allow Lockheed
Capable of Weathering Any Storm Martin’s proposed purchase of Northrop
Although the long-term prognosis for Raytheon Technologies the Grumman in the late 1990s to go through.
new company is rosy, the immediate future isn’t likely to bring much “They could use the enhanced footprint and
cheer. With Covid-19 crippling the commercial aviation sector, it enhanced market power to potentially make
would take months, if not years, before the company can hope to it harder for their rivals to compete,” Diana
reap the benefits of its increased heft in that sector. The impact of L. Moss, president of the American Antitrust
the ongoing crisis on the defence sector will not be as drastic or Institute, a Washington group that advocates
evident, but military spending will not be high on the priority list for stronger antitrust enforcement, told The New
governments in the near future as nations reel from the economic York Times. “I would imagine that Rolls-Royce,
impact of the virus outbreak. a rival, would be somewhat agitated.”
“What consolidation does, which is what
What Raytheon Technologies has going for it, compared to many M&A (merger and acquisition) is all about,
other companies in the industry, is the fact that it operates in diverse is remove a source of competition, and it is
markets and can thus afford to take a revenue hit in any one seg- a wonderful way of improving your pricing
ment but still remain healthy. The U.S. market will remain a priority power position,” says David Rosenberg, chief
for Raytheon Technologies, but the company’s diverse portfolio economist at Gluskin Sheff, an investment firm
ensures that it has deep roots in foreign markets as well, notably based in Toronto. William Kovacic, a professor
in the busiest one – Asia. Another notable advantage is that it is at George Washington University Law School
a major player in the original equipment market as well as the and a former chairman of the Federal Trade
aftermarket. With the commercial aviation sector almost grinding Commission, believes that a decrease in the
to a halt because of the ongoing crisis, the company has already number of firms in the defence industry will
announced that it would transfer some of its commercial workers adversely affect the chances of innovation in
to defense projects. That is a strategy that single-sector companies the sector and the production of new weapons
cannot adopt. systems.

14 | March/April 2020 WWW .GBP .COM.SG/ ADT