Honeywell Cuts Guidance, Settles Bombardier Engine Lawsuit
By Mathieu Dion, Bloomberg News
(Bloomberg) -- Honeywell International Inc. and aircraft maker Bombardier Inc. reached a deal on the development of aviation technology and settled a long-running legal dispute.
Honeywell said the agreement will hurt its financial results this year. The Charlotte, North Carolina-based company now expects to earn as much as $2.36 a share on an adjusted basis in the fourth quarter; previously, it expected to make at least $2.73 a share.
It also cut its sales outlook by $400 million, denting margins and cash flow. The shares dipped 2% in after-hours trading in New York.
Bombardier and Honeywell will collaborate on avionics, engines and satellite communications technologies, estimating the agreement to be worth as much as $17 billion in potential revenue, according to a statement.
Bombardier, headquartered in greater Montreal, had been seeking hundreds of millions of dollars, arguing that it paid too much for HTF7000 turbofan engines.
A judge in Quebec’s Superior Court ruled about a year ago that Honeywell had an obligation to negotiate with Bombardier on potential cost reductions for an engine system used in the latter’s Challenger jet line.
The roots of the dispute go back to the 1990s, when Bombardier began developing a so-called “super midsize” private jet with a longer range, capable of carrying passengers nonstop across North America.
Honeywell initially developed and manufactured the HTF7000 engines solely for Bombardier, but later began selling similar engines to Bombardier rivals such as Gulfstream Aerospace Corp. and Textron Inc. The contracts said that the Canadian company should always get the best price.
Bombardier argued that Honeywell sold its engines at a lower price to other customers, and claimed C$447 million ($318 million) in damages for what it believes it overpaid between 2012 and 2017, in addition to an undetermined amount of compensation for engines it bought the years after.
“Growing our long-term collaborative relationship with Bombardier is directly connected to Honeywell’s focus on compelling megatrends — automation, the future of aviation, and energy transition,” Honeywell Chief Executive Officer Vimal Kapur said in a statement.
What Bloomberg Intelligence analysts say
Honeywell’s announced partnership with Bombardier on aviation technology and engines appears costly, with Honeywell likely cutting prices to close the deal. This could indicate that the aerospace supply chain is taking longer to recover. Such a steep discount is reflected in Honeywell’s cut to 2024 guidance, with the long-term partnership potentially boosting its aerospace market share, as well as R&D expenses.
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