When the shareholders of AlliedSignal and Honeywell are balloted on the planned merger of the companies on 1 September, the expected "yes"' vote will represent a new highwater mark in the consolidation that has swept the US aerospace supply sector over the past 18 months.
Although the $14 billion AlliedSignal-Honeywell deal also requires the go-ahead from the US regulatory authorities - the Department of Justice last week issued a request for additional information on the merger - it is expected to win government approval, creating the world's largest avionics/equipment supplier and a new second-tier giant.
While topping the consolidation table, the deal is the latest in a series of mergers that represents one of the most distinct trends in aerospace manufacture in recent years. Although the phenomenon has not attracted the same attention as the consolidation that gripped the primary-tier airframing sector, it is in many ways equally important . It illustrates the fact that US manufacturing is striding ahead of that of Europe, giving the lie to the impression that the continent is poised to draw level.
Nowhere has the degree of second-tier consolidation been better demonstrated than at this year's Paris air show. Although attention focused on modest advances made towards European first-tier consolidation, such as the DaimlerChrysler Aerospace-CASA merger and the impetus given by government ministers to the establishment of the Airbus consortium as a single corporate entity, the most startling feature was the procession of US suppliers flaunting new partners.
In addition to AlliedSignal-Honeywell (which will be known as Honeywell, although AlliedSignal will be the senior partner), that parade featured BFGoodrich and Coltec Industries and United Technologies subsidiary Hamilton Standard and Sundstrand (now Hamilton Sundstrand), along with TRW and LucasVarity.
Having headed along the merger trail with its swoop for Honeywell, AlliedSignal has also withdrawn its opposition to the BFGoodrich-Coltec deal. The latter marriage hints at one of the major factors prompting the merger trend: while it allows the pair to build the "critical mass" second-tier firms seek, it brings together complementary competencies.
Most importantly, the new business unites BFGoodrich's wheels and brakes operation with the Menasco landing gears subsidiary of Coltec, allowing the merged company to offer full under-carriage packages. Although orders for such packages are not the norm, they may well become so, and AlliedSignal - which offers only wheels and brakes - felt it had to oppose the merger. A compromise means BFGoodrich will honour a prior agreement between Coltec and AlliedSignal, and that it will supply gears to AlliedSignal where it bids for an integrated system.
Although the AlliedSignal and BFGoodrich acquisitions have attracted most publicity, TRW's move for LucasVarity illustrates two key points. It shows that second-tier merger mania has become a transatlantic phenomenon. Although so far it is one fuelled solely from the USA, that may not remain the case for long, with the major European players in the sector needing to respond or risk becoming merger targets.
One such company, the UK's Smiths Industries, acknowledges that it is potentially on the merger trail, but has been thwarted in its immediate ambitions by TRW's decision to retain LucasVarity's aerospace interests within what is primarily an auto-parts group. That decision raises the second important feature of the TRW move in that it illustrates the huge growth potential the sector is thought to offer even those companies for which aerospace manufacture is a non-core activity.
Rather than divest itself of Lucas Aerospace, as some observers believed it would, TRW has instead reorganised itself to accommodate the business, has bought French flight systems supplier SAMM from Peugeot. It says further acquisitions are "being investigated".
There is far more scope for merger activity the further one glances down the aerospace hierarchy. In retrospect, with the large airliner sector reduced to just two manufacturers - Airbus and Boeing - and airliner powerplant manufacture featuring just three - General Electric, Pratt & Whitney and Rolls-Royce -it seems inevitable that there should be significant consolidation at supplier level, where, by comparison, companies proliferate.
Recent moves by Boeing to decrease the number of its suppliers from 31,000 to 18,000 may add to the merger impetus, so that consolidation pressures are likely to become as great at the most basic level of component manufacture as they are at the top.
At that second-tier level, all major players agree that more significant moves are on the cards.
Source: Flight International