GE / Honeywell’s Failed Merger
GE, while only encompassing a limited stake in the aerospace industry, nevertheless faced challenges in its merger with Honeywell due to its market share in the Large Regional and Large Commercial aircraft segments. Additionally, the “portfolio effect” of the merger and GE’s potential to reach “end to end” monopolization of the value chain through the bundling of its financing arm (GE Capital), its leasing subsidiary (GECAS), and Honeywell’s avionics manufacturing and MRO capabilities worried European Commission regulators. This merger would be categorized as both vertical and horizontal. As a horizontal merger, the companies overlap within the “installed base” large regional aircraft segment. GE is a manufacturer, financer, servicer leaser and buyer of engines for this segment and Honeywell is a manufacturer and servicer of the same. Vertically, there is integration with GE Capital to finance a finished “bundle” of GE engine and Honeywell non-engine aerospace equipment (avionics) parts. The most significant synergies created by the merger were derived from the combined engine manufacturing capabilities of the two companies and the complementary services each company provided to the other to control the value chain. First, GE’s vertical integration of financing through GE Capital created a competitive advantage for GE to sell engines at a discounted rate, allowing it to win contracts. This advantage was perpetuated, since the airlines benefitted from commonality in the fleet. Honeywell would be helped tremendously by this financing advantage and the ability of both companies to bundle both the engine and avionics products together would put them at a distinct advantage in project bids. Specifically in the “installed base” segment, airlines would be incentivized to make one bundled purchase of both sets of equipment, which would not only generate revenue for GE in the short run but also go a long way in securing future contracts...
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