Raytheon and United Technologies Corp (UTC) are steadily moving toward their goal, capping a period of dramatic M&A activity among aerospace and defense primes.
The new Raytheon Technologies Corporation will be a diversified aerospace and defense conglomerate with products that range from missile defense to airline seating.
Industry primes such as Airbus and Boeing continue to push suppliers to cut costs, which drove UTC to acquire Rockwell Collins and form the new Collins Aerospace just last year. At the same time, cost pressure is a notable constant in contracting with the Pentagon.
By combining operations, the new company is looking to gain efficiencies of scale in its own operations to meet lower cost targets. Further, the diversification follows the old conglomerate model upon which UTC was based – when one market is down, hopefully the other is up, providing resiliency across business cycles.
Once complete, Raytheon Technologies will consist of four businesses – the defense-oriented Intelligence, Space & Airborne Systems and Integrated Defense & Missile Systems, and the commercial aerospace facing Collins Aerospace and Pratt & Whitney.
The aerospace and defense model is one that Boeing has successfully followed for years. Not only does the diversification help balance out its offerings, but the technology transfers between operations also provide substantial product development advantages.
The new company will generate approximately $74 billion in annual revenue, putting it behind Lockheed Martin in terms of defense contracting. Raytheon Technologies will be the world’s second largest aerospace and defense conglomerate after Boeing, with revenue roughly split between the two markets.
Complementary research and development is one area the two firms tout as a major benefit to the combination.
With some 60,000 engineers and combined annual company- and customer-funded R&D spending of approximately $8 billion, Raytheon Technologies will have the scale and funding to develop new technologies faster and more efficiently. The companies said that initial areas of joint interest include hypersonics and future missile systems; directed energy weapons; intelligence, surveillance, and reconnaissance (ISR) in contested environments; cyber protection for connected aircraft; next-generation connected airspace; and advanced analytics and artificial intelligence for commercial aviation.
The merger caps off an active period in major defense consolidation.