Dive Brief:
- A potential takeover of Rockwell Collins by United Technologies (UTC) is causing concern for Boeing, The Wall Street Journal reported Monday. Shortly after the $23 billion dollar acquisition's announcement, Boeing expressed doubt that customers and the industry at large would benefit from the move.
- Boeing said it may cancel some contracts with the two suppliers if their pairing limits competition within its supply chain. Both Rockwell and UTC supply avionics systems to Boeing, but Boeing also receives these parts from Honeywell and its own in-house facility, Boeing Avionics, launched at the end of July, according to the Seattle Times.
- In response, UTC CEO Greg Hayes said he believes the lack of product overlap between UTC and Rockwell will result in savings for customers. The New York Post reported that Goldman Sachs told Boeing to make a rival bid on Rockwell after UTC's announcement, but there's no confirmation Boeing has actually made a bid.
Dive Insight:
Limiting supply sources is always dangerous for buyers, who must ensure continual product availability.
More than 40% of companies fail to evaluate causes of disruption within their supply chain, even after experiencing a delay. One particularly damaging type of disruption includes the failure of suppliers to weather a catastrophic storm, leaving a buyer without alternative resources. Factors that can aid buyers in such situations include supply chain visibility, such as evaluating the number of single-source suppliers and searching for additional options to add to the available chain.
But Rockwell is not a single-source supplier for Boeing, so for Boeing to be up in arms about the acquisition suggests the aerospace manufacturer is upset that its own in-house supplier, Boeing Avionics, will have tougher competition. After all, Boeing launched Boeing Avionics barely a month ago to broaden its profit margin, and now the UTC-Rockwell merger is threatening to cut into these new profits.
Yet according to the Post, Boeing may have a shot at buying Rockwell instead, which would ensure the manufacturer's control over the supply of avionics systems. If UTC's deal goes through, the suppliers will hold more power, and Boeing will likely struggle to keep its new profit margin and exercise absolute control over its supply chain.
