United Technologies–Raytheon Merger Could Create ‘True Powerhouse’ in Hypersonics

Making a leap from #20 to #7 this year, United Technologies won $7.9 billion in federal contracts in FY18 (and Raytheon came in at #4 with $18.1 billion).

United Technologies made a big jump in the BGOV200 this year, but it’s poised for even more growth in the years to come. In June 2019, the company announced that it will be merging with Raytheon in an all-stock deal, creating a new aerospace and defense giant. The merger is expected to close in the first half of 2020, and the combined company, called Raytheon Technologies Corporation, will have $74 billion in pro forma 2019 sales.

“This merger of United Technologies and Raytheon will bring together two aerospace and defense leaders with long track records of industry-defining innovation in our respective sectors,” says Greg Hayes, chairman and CEO of United Technologies.

The deal has been met with some skepticism, however. Democratic Congressman Ro Khanna, a member of the House Armed Services Committee, says he wants a congressional hearing on the potential impact of the merger. Khanna believes the deal will “raise prices, harm workers, stifle competition, and undermine innovation.” Activist investor Bill Ackman has also raised alarm bells, saying the merger will dilute United Technologies sales and lower the quality of the company’s existing aerospace business.

But Hayes and other senior members of United Technologies’ leadership believe the new company will be better poised to make investments in research and development. “The Department of Defense is looking for the contractors to make more investments in technologies,” Hayes says. “That’s clear. They’re putting more responsibility on the contractors, but they also want us to make more investments.”

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With 60,000 engineers and a total of $8 billion of research and development, the new company will also be better positioned to invest in new technologies such as artificial intelligence, air traffic control modernization, autonomous flying, radio and GPS advancements, and hypersonic weapons, which can travel at up to five times the speed of sound, according to Hayes.

Paul Eremenko, CTO of United Technologies, says the new company will be a “true powerhouse” and leader in hypersonics.

“We bring together Raytheon’s capability in missiles, in seekers and payloads, and UTC’s expertise in exotic high-temperature materials, nickel-based alloys, silicon carbide-based composites, thermo-management expertise, and advanced propulsion systems such as turbine-based combined cycle engines,” he says.

Turbine-based combined cycles are engines that can function like turbojets at low speeds in order to propel hypersonic weapons.

“You really can’t just do this with a supplier relationship or a joint venture,” Eremenko says.

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