Like GE before it, Honeywell will spin off its aerospace unit to meet soaring demand
Like GE before it, Honeywell will spin off its aerospace unit to meet soaring demand
The industrial giant Honeywell announced on Thursday that it plans to split into three separate companies. The move comes after activist investor group Elliott Management revealed a $5 billion stake in the conglomerate, which makes everything from air purifiers to airplane parts to materials for bullet-proof vests.
One of the companies set to come out of the Honeywell break-up will focus on aerospace equipment. And there’s an element of deja vu to all this.
Back in 2022, another conglomerate went through a break up. GE spun off its aerospace division — which shot straight to the moon, according to Jarrad Harford, a finance professor at the University of Washington.
“GE Aerospace now as a standalone is actually worth more than the combined entity was at the time of the spinoff,” he said.
Breaking up a big conglomerate that does lots of different things “gives investors the ability to buy the thing they want without it being bundled to this other stuff,” Harford said.
And one thing investors want is airplane parts, said Richard Safran, an aerospace analyst at Seaport Research Partners — “because the world is growing and more people are flying.”
Airbus and Boeing are working to fill a huge backlog of new plane orders, Safran said. That’s a golden opportunity for Honeywell, which supplies engine systems and cockpit displays. Meanwhile, as airlines wait for their new planes to arrive, they’ve gotta keep the old ones up and running for longer.
“If you don’t do the maintenance on your car, shame on you. But if you don’t do the maintenance on an airplane, you go to jail, right? It’s mandatory,” Safran said.
All that maintenance means replacement parts — more potential business for Honeywell aerospace, business that GE Aerospace is already benefiting from. Plus, Safran said the company could be in line for a payday from the military.
“We’re also — because of Trump 2.0, I think — on the verge of a major modernization effort in defense,” he said.
All together, between the public and private sector, the shortage of planes and plane parts isn’t a new problem, per aviation consultant Robert Mann.
“This is a system that has not really recovered from the pandemic era,” he said. “Some of the supply chain interruptions have been, unfortunately, very difficult to solve.”
But the shortage could bode well for Honeywell as it looks to replicate the success of GE Aerospace.
“Ultimately, air travel demand is very strong and far exceeds the ability of manufacturers to produce and airlines to operate equipment,” Mann said.
That, he added, means companies that can reliably make airplane parts should prepare for takeoff in the coming years.
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