Aerospace firms Woodward and Hexcel have announced plans to merge in a deal that would bring more than $125m of estimated annual cost synergies by the second year.
The firms, both key suppliers to embattled Boeing, said costs would be cut by optimised sourcing strategies and enhanced purchasing power.
Costs will also be reduced through the elimination of duplicative corporate costs and shared IT infrastructure and services.
Boeing is Woodward’s biggest customer, making up 15% of its annual sales, and Hexcel's second biggest customer, accounting for 25% of sales, according to Reuters.
In Woodward’s 2019 fiscal report Tom Gendron, chairman, CEO and president, said sales in the aerospace and industrial sector were “somewhat offset by headwinds from the 737 Max grounding”.
However, according to Bloomberg, executives have said the deal wasn’t a response to the Boeing 737 Max grounding crisis but was part of efforts to better compete in the pursuit of more fuel-efficient engines.
The new company would be worth an estimated $6.43bn and be among the world’s largest independent aerospace and defense suppliers by revenue, claimed the firms.
Nick Stanage, chairman, CEO and president at Hexcel, said: “The future of flight and energy efficiency will be defined by next-generation platforms delivering lower cost of ownership, reduced emissions, and enhanced safety – and a combined Hexcel and Woodward will be at the forefront of this evolution.”
Woodward manufactures and supplies advanced technology for the aerospace and defence sector including actuation and flight control systems and Hexcel produces composite materials for aircraft structures and engines.
The new firm would expect to spend $250m on research and development in the first year.
Gendron said: “Our two companies are each independently working toward addressing the sustainability and efficiency needs of our customers.
“This merger accelerates our technology investments and creates greater benefits and growth opportunities than either company could have achieved alone. We will be stronger together and are committed to delivering even greater value to all our stakeholders.”
The deal is subject to shareholder and regulatory approval.
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