The Winston-Salem operations of Collins Aerospace Systems and its 1,500 employees are likely to be spared a major impact from a proposed merger between parent company United Technologies Corp. and Raytheon, according to analysts.
The corporations announced plans Sunday to merge, with UTC shareholders owning 57% of the combined company.
The megadeal is projected to close in the first half of 2020, though analysts say it is likely to face significant U.S. and global regulatory headwinds.
UTC has not commented directly on the deal’s impact to its Winston-Salem facilities.
Gregory Hayes, UTC’s chairman and chief executive, told analysts Monday that he refers to the megadeal as “integrational-lite” because there is little overlap between the companies besides their corporate headquarters.
Hayes would serve as chief executive of the proposed merged company for two years and then take over as chairman with the departure of Thomas Kennedy, Raytheon’s chairman and chief executive.
Hayes said combining the corporate headquarters in the Boston area is an opportunity to pick the best workforce and that “a significant presence” would remain at UTC’s base in Farmington, Conn.
“This is really not going to affect our businesses or our operations really anywhere,” Hayes told analysts.
Paul Ausick, an analyst for 24-7 Wall Street, said Monday that “the Rockwell Collins acquisition (completed in November) was never enough to put United Technologies into this (defense industry) league, and it had to do something to keep from being marginalized.”
The companies project $1 billion in cost savings: $350 million from supply chain and procurement; $325 million from corporate and segment consolidation; $175 million from facilities consolidation; and $150 million from information technology and other selling, general and administrative (SG&A) expenses.
“There will be some facilities rationalization, but we’re not looking to consolidate a bunch of factories, and we’re not taking out a lot of jobs,” Hayes said.
After UTC’s spin-off of its Carrier and Otis business segments, UTC would be focused on aircraft engines and aerospace systems for commercial and defense customers.
Meanwhile, Raytheon specializes in defense electronics and mission systems.
According to an analyst presentation, there is one business overlap with UTC’s mission systems unit, listed under the Raytheon intelligence, space and airborne systems umbrella.
The companies stressed an expectation of adding jobs overall and offering employee career advancement.
The talk was similar to what Rockwell Collins said when it spent $8.6 billion to buy B/E Aerospace Inc. in April 2017, and as UTC said when it paid $30 billion to buy Rockwell in November 2018.
“We’re going to create a lot of jobs through this merger,” Hayes said.
UTC said in May 2018 it projected adding 35,000 U.S. jobs, including 1,500 in North Carolina, as part of a five-year expansion. More than 40,000 people already work for the UTC Aerospace Systems division, which is based in Charlotte.
Half of the workforce expansion will involve production and maintenance roles while the other half will be professional and managerial positions, such as engineering and technology development.
The company has set up www.utcinvestingintheusa.com for more details.
The expansion would represent a 17% increase in UTC’s global workforce to 240,000, and a 52% jump in its U.S. workforce from 67,000 to 102,000.
Hayes said Monday that UTC has hired about 5,500 people in the U.S. so far this year with plans to reach 10,000 by year’s end.
Meanwhile, Kennedy said Raytheon plans to add 10,000 jobs this year to be at 77,000.
‘This will bode well’
Analysts said they believe the local Collins Aerospace workforce will be mostly spared from job cuts because of the lack of operational overlap.
“I think this will probably go through without too many antitrust concerns, as the two companies are not generally direct competitors,” said Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University. “Any synergetic employment loss will likely be where UTC is currently headquartered.
“Instead, this will likely bode well for our local area, as a larger company will be more able to compete on and win international defense and aerospace contracts, which could mean expanded production at local facilities.”
Tony Plath, a retired finance professor at UNC Charlotte, said he believes there will be little concern about anti-trust issues.
“Granted, they both compete for defense contracts but for entirely different contracts in the first place,” Plath said. “A more important issue is what the combination will bring to rank-and-file jobs creation, and on that score I like the prospects of this combination. It’s going to lead to greater economies of scale for both companies.”
A combined company is likely to use some cost savings to boost reseach and development, he said.