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Boeing, Airbus, Analyst Question United Technologies-Rockwell Collins Deal

BA | September 6, 2017

The plan by United Technologies Corp. (NYSE: UTX) to acquire Rockwell Collins, Inc. (NYSE: COL) doesn’t quite fly with everyone.

Both companies are major suppliers of a range of avionics systems to Boeing Co (NYSE: BA) and Airbus SE, and the two aircraft manufacturers expressed concern that the merger might disrupt their supply lines as each ramps up production of new planes.

Analysts also had mixed feelings about the $30 million acquisition.

Deutsche Bank’s Myles Walton rates UTC at Hold with a price target of $120, trimming $5. United Technologies dropped 5.7 percent to $111.21 at Tuesday's close.

Why Now?

“The logic of the strategic fit of COL and United Technologies Aerospace Systems almost goes without mentioning,” Walton said in an analyst note. “But for us, the question of why now and at this spread in valuation raises enough questions about the momentum of the core UTX business in ’18 and even ’19 for confidence to falter.”

Bernstein analyst Douglas Harned was a bit more positive.

“Management said it expects the deal will be good for customers and that the transaction will not reduce competition for any individual system (we agree), as there is little overlap between product lines,” he wrote.

Big Customers Not So Sure

Airbus pressed the company to make sure it can keep up with commitments to deliver its Pratt & Whitney jet engines on time.

“We hope that this M&A would not distract UTC from their top operational priority,” an Airbus spokesman said in an emailed response to Bloomberg. “Our total focus is on delivering planes.”

Boeing’s reaction was much more ominous.

“Until we receive more details, we are skeptical that it would be in the best interest of -- or add value to -- our customers and industry,” Boeing said in an emailed statement. “Should we determine that this deal is inconsistent with those interests, we would intend to exercise our contractual rights and pursue the appropriate regulatory options to protect our interests.”

The deal still needs regulatory approval.