Raytheon and United Technologies Corp. (UTC) announced on June 9 an all-stock “merger of equals” that will create an industrial defense/aerospace giant. To be known as Raytheon Technologies, the new entity will bring together Raytheon’s portfolio with those of UTC subsidiaries Pratt & Whitney and Collins Aerospace (itself a 2018 acquisition and subsequent merger of Rockwell Collins and UTC Aerospace Systems).

Upon completion of the Raytheon/UTC merger, the company will become the world’s second-largest defense/aerospace company after Boeing, and the second largest U.S. defense contractor behind Lockheed Martin. Revenue will be divided roughly equally between defense and commercial sectors.

Completion of the deal is due for the first half of 2020, following the partition of UTC into three separate companies. UTC’s Otis elevator business and Carrier subsidiary (environmental control and building systems) are being spun off and will not form part of Raytheon Technologies. With Raytheon currently headquartered in Waltham, Massachusetts, and UTC in Farmington, Connecticut, Raytheon Technologies is due to be located within the greater Boston metro area.

UTC shareholders will own approximately 57 percent of the new company, with Raytheon shareholders taking 43 percent. The combined company value is $166 billion and, based on 2019 sales, the new company will generate $74 billion in annual revenue. The company’s first CEO will be Greg Hayes, UTC chairman and CEO, with Raytheon’s CEO, Thomas Kennedy, becoming executive chairman. Hayes is due to become chairman and CEO after two years. The board will comprise eight UTC directors and seven—including the lead—from Raytheon.

“The combination of United Technologies and Raytheon will define the future of aerospace and defense,” said Hayes. “Our two companies have iconic brands that share a long history of innovation, customer focus, and proven execution. By joining forces, we will have unsurpassed technology and expanded R&D capabilities that will allow us to invest through business cycles and address our customers’ highest priorities. Merging our portfolios will also deliver cost and revenue synergies that will create long-term value for our customers and shareowners.”

“Today is an exciting and transformational day for our companies, and one that brings with it tremendous opportunity for our future success,” remarked Kennedy. “Raytheon Technologies will continue a legacy of innovation with an expanded aerospace and defense portfolio supported by the world’s most dedicated workforce.”

Unlikely to meet any opposition from antitrust regulators, the merger brings together two mostly complementary businesses with little product crossover but significant potential for joint R&D programs. It will be organized with four business units. Raytheon is primarily a defense contractor specializing in radars and missiles and will rationalize its current four business units into two (Intelligence, Space & Airborne Systems, and Integrated Defense & Missile Systems) ahead of the merger, while the two UTC elements comprise engine-maker Pratt & Whitney and Collins Aerospace, the latter active in a wide variety of aerospace sectors, notably avionics, ejection seats, and sensors.

Combined R&D expenditure is projected to be more than $8 billion in current dollars, spread across seven centers of excellence. Raytheon Technologies will be well placed to rapidly advance technology in many key fields, such as hypersonic and directed-energy weapons, ISR systems, next-generation connected airspace, artificial intelligence, advanced analytics, and cyber protection.

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