Market affected by the merger
General Electric and Honeywell merger is one of the big events of the last ten years in the market. Even taken alone these companies had a large market share on their respective markets. In fact, both of the companies operated in several markets but their merger would affect significantly the aviation industry in particular. This is because for Honeywell the primary products were avionic related ones. This company was well known in the industry for equipment necessary to control and navigate in an airplane as well as for communication and weather determination functions. These equipments account for up to 5% of the purchase cost of an airplane. On the other hand, GE is an important player in aircraft engine and parts market as well as in maintenance and servicing to airplanes. So, the new merger would impact greatly on aircraft components and parts markets as well as on servicing and maintenance. Since the two companies combined offer a variety of diversification of the servicing for airplanes, many airlines would be tempted to make servicing or part replacement contracts with the new merging company.
GE has also a partnership with Boeing. And this is the problem. Because of this partnership Boeing could benefit from the new merger with Honeywell. In the European market this would directly have an impact on the other large manufacturer, Airbus. Airbus could suffer price increase in aircraft servicing and components. All the other airline industry companies related (having a partnership) with Airbus will have the same difficulties. Another market to be influenced by this merger is the financing market. GE Capital is a strong part of GE and it is a significant player in the financing sector of the markets worldwide.
It will provide the companies in this merging with all the necessary liquidity. But, as it has done with GE, GE Capital is one of the financing leaders for many airlines and aircraft manufacturers. This situation can help the new company to win more easily servicing or aircraft components contracts. The other service offering, or part replacement, companies would suffer from this situation.
Combined market share
The combined market share of the two companies would be ‘devastating’ for others. In the aircraft engine related market the in both engine installed base and engine order backlog is quite considerable (quasi veto power) in any form of jets, corporate, medium or large regional. In large regional jets the combined share is from 90%-100% and in medium jets from 70%-90%. Only in corporate jets it is ‘smaller’, 40%-70%. Practically, it is a market dominium for the new company after the merger. We must not forget that Honeywell is also a provider for engine components. This would make competition to GE’s manufacturing of aircraft engines almost impossible for other companies. We have taken the aircraft engines sector as a whole but if we are to use a narrower definition of the market we have to say that the new company will be unrivaled in engine components market, in engine maintenance and in engine manufacturing. In a broader sense the engine related costs for an aircraft combined with those of communication and navigation equipment, make up 40%-45% of the total cost of a jet. Even in this sense we got a company with the strongest position possible in the market.
Market to raise concern and remedies
As we can read from above, the main concern for the EU commission could be the aviation engine part manufacturing and servicing. Here the new company would have a pre dominant market share. Especially this is true regarding the regional and large jet’s sectors of the market. With this market share it will be almost impossible for other companies to rival it. Mario Monti could require from the two companies to revise their agreement regarding the above mentioned sectors. The revision could go from not allowing them to merge this sectors or focus in one sector, that of engine components of servicing in order to leave open market for other companies.
Case arguing
Jack Walsh could argue that the merging will be a very productive force. It is true that through it the new company will control the engine manufacturing and servicing market sectors in aviation but this new ‘power’ would spark new innovative ideas. This innovation force will positively impact even other airline companies which would be the primary beneficiaries.