October 24, 2016 / 2:00 PM / 2 years ago

Rockwell sees big sales gains from $6.4 billion B/E Aero deal

NEW YORK (Reuters) - Aircraft electronics supplier Rockwell Collins COL.N said on Monday its $6.4 billion acquisition of interiors maker B/E Aerospace Inc BEAV.O will boost sales and spur new products, helping offset sluggish demand for equipment in new business and commercial jets.

Cockpit equipment made by Rockwell Collins and used in a CH-47 Chinook helicopter is pictured at the ILA Berlin Air Show in Schoenefeld, south of Berlin, Germany, June 1, 2016. REUTERS/Fabrizio Bensch

But investors and industry experts voiced skepticism about the deal, sending Rockwell’s stock down 6.9 percent to $78.63, while B/E Aerospace shares rose 15.5 percent to $58.44, reflecting the bid premium.

Rockwell’s acquisition, announced on Sunday, would triple its sales of equipment in new-generation widebody jetliners such as the Boeing (BA.N) 787 and Airbus (AIR.PA) A350, and “nearly double our position in the narrowbodies,” Chief Executive Officer Kelly Ortberg said on a conference call with analysts, referring to top-selling jets such as the Boeing 737 and Airbus A320.

The companies have little product overlap, with Rockwell best known for avionics, flight controls and cabin connectivity, while B/E Aerospace is a major provider of aircraft seats, galleys, lighting and other systems.

But Rockwell’s plan to wire digital sensors and electronics into the galleys, lavatories and seats that B/E Aerospace drew some skepticism from industry experts.

Lavatories and galleys are not items airlines typically use as selling points to customers. “If you’re making a lavatory higher tech, it’s got to improve customers experience or reduce cost,” said Phil Toy, a managing director at aerospace consulting firm AlixPartners.

The combination is expected to produce annual cost savings of $160 million, with 90 percent captured in the first full year, and provide a double-digit percentage boost to per-share earnings in the first full year, the companies said.

Rockwell’s acquisition - which is expected to be completed next spring - also underscores rising competition for lucrative aftermarket sales, which involves spare parts and services, a business that Boeing and Airbus also are pursuing.

Cedar Rapids, Iowa-based Rockwell Collins could benefit as leases expire on numerous widebody aircraft and the planes need interior upgrades that B/E Aerospace provides.

B/E Aerospace earned 40 percent of its 2015 revenue from aftermarket sales and 23 percent from business jet sales.

Aftermarket sales also would help offset weakness in other parts of the combined company. Rockwell sees sales to business jet and regional jet makers falling 10 percent to 15 percent in fiscal year 2017.

Reporting by Alwyn Scott Ediitng by W Simon

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