Rockwell Collins Takes Over B/E Aerospace in $6.4 Billion Deal

Rockwell Collins

Aircraft component supplier Rockwell Collins has agreed to buy aircraft interior company B/E Aerospace Inc. for $6.4 billion in a deal that represents a big bet on smarter airplanes featuring onboard connectivity for seats to lavatories and miscellaneous cabin systems.

The deal, which will be the biggest in the 83-year history of Rockwell Collins, was announced by it alongside B/E Aerospace on Sunday. It marks a continuation of recent consolidations in the aerospace industry, in part, to save costs and improve profitability.

Rockwell Collins agreed to pay $62 per share in cash and stock, which represents a premium of 22.5 percent on the closing price of B/E Aerospace shares on Friday. The shares had closed at $50.61. Investors of the aircraft interior maker will receive $34.10 in cash and $27.90 in shares.

With this deal, the Boeing supplier will be getting the biggest aircraft cabin equipment supplier. It gives the company more innovative ways for deployment of high-spread broadband connectivity on aircraft.

Chief Executive Officer Kelly Ortberg, who was named into the position less than two weeks ago, said in an interview on Sunday that the merger will facilitate substantial reduction in costs. It also gives the companies the ability to cross-sell products to each other’s customers and makes the resulting single company a potential leader in the development of smarter airplanes.

“It sets us up for the future,” Ortberg said. “We’ve made major investments in next-generation airplanes. That trend is going to translate into the interiors of aircraft.”

Companies in the aerospace industry are spending more and more on connecting passenger facilities and aircraft system with the Internet via the satellite. An increasing number of commercial airplanes now provide passengers with high-speed broadband access to enable them stream their preferred content, among other uses.

B/E Aerospace ranks among the world’s biggest manufacturers of aircraft seat, galleys and other interior fittings. The Wellington, Florida-based company has claimed about half of the coach seat market. It is even more dominant in the market for luxury business-class seats, each of which can cost an amount in excess of $100,000.

With this proposed acquisition, Rockwell Collins will be able to expand significantly on a portfolio that has mainly focused on communications and computing equipment for aircraft. Ortberg said the merger would triple the value of the Cedar Rapids, Iowa-based aircraft component maker’s supplies for an average widebody jet and double the value of supplies for a narrowbody.

A drop in widebody jet orders and sluggish trend in the business jet market are two of the challenges currently confronting companies such as Rockwell Collins and B/E Aerospace. Ortberg is however optimistic of improvement over the coming years, noting upgrades would soon be needed for many older widebody aircraft.

Rockwell Collins’ stock price is down about 8.5 percent this year, but that of B/E Aerospace is up by nearly 20 percent. The earnings of the Boeing supplier rose 13 percent in the last quarter, while that of its new acquisition jumped 82 percent in the quarter from a year ago, according to results reported on Sunday.

The deal still has to be approved by shareholders and regulators. It is scheduled to close early next year.