#2 • What are some current events in your industry? What is the impact of these events on the industry?

UTC Is in Talks to Buy Goodrich

United Technologies Corp. is in talks to acquire aircraft-systems maker Goodrich Corp., people familiar with the matter said, a deal that would expand the conglomerate's aerospace business amid a boom in production of passenger planes.

The talks were advanced enough that United Technologies has had serious discussions with banks about securing $15 billion in financing for a deal, the people said Saturday.

Prices terms are unavailable, and no deal had been signed. United Technologies, which has been open this year about its interest in growing through acquisitions, is also looking at other potential targets. Goodrich, which had a market capitalization of around $11.6 billion at Friday's close, produces landing, interior and electronic systems for airplanes, while the company's defense business that accounts for a third of sales is growing despite Pentagon cuts, a rarity in the sector. The company booked $578.7 million in profit last year on $7 billion in revenue. Its results have been helped by a strong rise in demand for commercial aviation systems, as Airbus and Boeing Co. boost production rates, and a host of new aircraft are set to be launched over the next five years. Goodrich expects its revenue to grow to $8.1 billion this year.

United Technologies which makes Pratt & Whitney aircraft engines, Sikorsky helicopters, Otis elevators and Carrrier heating and cooling systems has a market value of some $68.6 billion.

The most important thing that going to happen if this deal became true is buying Goodrich would further diversify the conglomerate away from businesses tied to the struggling construction industry.

The stock spiked on reports of a deal, however. Goodrich shares rose 22% to $113 in after-hours trading Friday, having ended the session up 7.4% at $92.89.

On a call to discuss United Technologies' second-quarter earnings in July, Chief Financial Officer Greg Hayes said the company "has the appetite and capacity for large acquisitions." Two years ago, the company agreed to buy General Electric Co.'s security business for $1.8 billion.

Everyone is waiting for the true numbers, and signed or refused papers. It will be a huge deal inside this industry, because this deal may cause a huge difference in the industry's prices, deals and suppliers.

By Saoud Sulaymani

#3) What are some examples of ethics challenges that industry players have experienced?

Businesses are encompassed by many ethical challenges that surround industry players. The defense and aerospace industry depends largely in upholding integrity in bidding, negotiating and performing contracts. Companies, such as Boeing and Lockheed Martin are regarded to behave ethically towards their customers, suppliers, competitors, employees, and stakeholders (according to this website- http://www.ifbec.info/assets/globalprinciples.pdf .) These global principles highlight the essential issues that may impact ethical business conduct.

Ethics are based on both individual beliefs and social concepts that are different from situation to situation and from culture to culture. Unethical or illegal activities by either managers or employees plague companies and many firms. In order to take additional steps to encourage ethical behavior in the workplace is that many companies set up codes of conduct. Industry players have to follow standard procedures for the company they are working in and these ethical guidelines play an important role in how the company operates.


Various examples suggest that ethical responses can be learned through experience. For example, the Boeing Company (part of the defense and aerospace industry) is a public company that has major ethics programs. All managers are required to go through periodic ethics training to remind them of the importance and values of ethical decision making and in addition, updating them on current laws and regulations that can be relevant to their firms. The department of defense employees (such as directors or managers) have substantial and administrative duties that largely ties in with the successful operation of the committee and as well as the mission. Ethical challenges that these industry players have experienced can be a conduct of conflict of interest. A conflict of interest occurs when an activity may benefit the individual to the detriment of his/her employer. For example, according to a department of defense’s ethical guideline (www.dod.gov/dodgc/defense_ethics/resource.../DFO_COIguide.doc) a conflict of interest can occur when “the employee owns stock in the prime or subcontractor that supplies the weapon; the spouse of the employee owns stock in, or works for, the contractor(s).” These are just some of the ethical challenge that industry players can experience that may impact on business ethical conduct.

#2 • What are some interesting mission statements or values statements of some of the companies in your industry? What do their statements reveal about them?

            The aviation industry undergoes constant modifications in response to the needs of the public as well as innovations in the field. Boeing Corporation, the premier aerospace company in the world, has invested much time, labor, and capital into the design and production of their first newly designed jetliner in 13 years. Despite a myriad of setbacks caused by the company’s new approach of producing the jetliner, the delivery of Boeing’s first 787 Dreamliner Jet to Japan’s All Nippon Airways Co. was an enormous success. The delivery of this aircraft has potentially marked a new era in commercial travel, as long as producers have the abilities to meet the demand of companies.

            Though spirits are high at Boeing Co., many hurdles must to be leaped in order to make the 787 Dreamliner Jet a profitable investment. Due to the immense size of the orders received by Boeing, the company has decided to outsource components for the first time in its prestigious history. Not accustomed to the outsourcing process, production lines slowed as incomplete parts were installed into the crafts. Currently producing two crafts annually, Boeing is manufacturing eight less than what they project for year 2013. The values possessed by Boeing are relayed on their website (http://www.boeing.com/companyoffices/aboutus/ethics/integst.htm) and include leadership, integrity, quality customer satisfaction, etc. In producing their first 787 Dreamliner Jet, the corporation successfully demonstrated such characteristics in making sure the craft was perfect before delivery. Other companies who have jets on order are being paid in compensation for production taking longer than intended.  Competing company, Airbus, has very similar values to Boeing. According to their website (http://www.airbus.com/company/corporate-social-responsibility/ethics/), Airbus stresses on customer and stakeholder relationships in order to continue the company’s spectacular reputation. With such theories, Airbus is starting the production of their A 350 to compete with Boeing’s 787 Dreamliner Jet.  They expect to be at maximum production by 2013 and advertizing it as a simpler Jet with less new technology and more reliability in both the production and usage stages.

            Goodrich Corporation, the supplier of many parts on Boeing’s new craft, released a statement claiming that such setbacks in the production process of the Dreamliner Jet are usual and expected, and that production should increase rapidly in the near future.  Both corporations, Airbus and Boeing, contain similar values, believing that the satisfactions of the stakeholder and quality products are among the most important attributes of a successful company.  With such ethics and moral standards, it is my opinion that both corporations will turn their current projects into large successes and that there is a large enough market for both producers / manufactures to profit. Though years may pass without either company seeing any earnings from their new jets, such innovations in commercial travel will eventually yield great rewards.  

#2- What are key ethical issues this industry faces?

The long-term success of the Aerospace and Defense Industry falls into the lines of the companies upholding reliability in negotiating, bidding, and performing contracts. This industry’s companies must have the dignity to behave ethically towards all their stakeholders including employees, suppliers, customers, as well as their competitors. These points cover issues in the aerospace and defense industry that may impact on ethical business conduct.

What I think causes immorality, especially in businesses, is greed. A few weeks ago Stewart David Nozette, a former scientist for NASA, pleaded guilty for taking part in undercover work for operatives in the Israeli government in order to gain his own profit and the FBI discovered this dilemma two years ago in 2009. His self-interest drove his ambition too high, as he demanded a significantly larger amount of money than his original $50,000. Nozette has had much experience with the aerospace industry. He had worked for the National Space Council under George W. Bush’s name at the White House, earned a doctorate in planetary sciences from MIT, and did research and development for the Defense Advanced Research Projects Agency, the Naval Research Laboratory, and NASA’s Goddard Space Flight Center. The suspicion came in when the document stated that Nozette worked as a technical consultant dealing with an aerospace company that was owned by the Israeli government. Due to a selfish mind, Nozette’s attempted espionage of selling information about American military satellites to the Israeli government was indeed a failure.

Nozette’s objective to fulfill his wants and desires was money. Once someone gets away with something that is looked at as “unethical,” they’ll continue to pursue their actions especially if they benefit themselves from it. I believe there is a fine line between what is ethical and unethical, but it’s the desire that drives someone to choose one side or the other.

Discuss supply and demand in the industry.

Despite the financial concerns at this time, Airbus, a unit of European Aeronautic Defence & Space Co. NV, said it expects demand for nearly 27,800 new passenger and freight aircraft, worth a total of $3.5 trillion, between 2011 and 2030. The forecast encompasses potential demand for Airbus and its U.S. rival. This results in high demand because of the dramatic increase of population in the coming years. Airbus said the number of mega-cities which it defines as cities with 10,000 passengers flying in and out each day is expected to double to 87 by 2030 from 39 currently. Airbus said Asia-Pacific will account for approximately 34% of demand, followed by Europe and North America each taking a 22% share. In terms of passenger traffic on domestic routes, India at 9.8% and China at 7.2% will have the fastest growth rates over the coming 20 years. The demand will be on the large aircraft that seat more than 400 passengers. Next few years the world market's suppliers will face many surprises, because of the extremely demand, which will be caused not only by population growth, and even an increase in wealth and greater urbanization are also driving increased demand for planes. Airbus's increased forecast mirrors that of Boeing, which in June raised its 20-year global commercial aircraft forecast for the market by 8%, saying demand would total 33,500 aircraft worth $4 trillion.

But, the world financial problem is Still, Airbus voiced some concerns about aircraft-financing power among European banks. "We are watching a potential dollar crunch," Mr. Leahy said. ""We have the capability to help [airlines] with financing ... but we have limited ability and can't finance everything."

Late last week, the European Central Bank said it would coordinate with the U.S. Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank to ensure European banks have unlimited dollar funding through the end of the year. Aircraft purchases are funded in dollars.

• What are the basic economics of the industry? How do companies make money? What are their costs?

The defense and aerospace industry includes over a thousand companies that work togeteher to manufacture defense prodcuts from a range of military aircraft to manufacturing spacecraft. Some of the major companies that are a part of the defense and aerospace industry include Lockheed Martin, Boeing, Northrop Grumman, and many more amongst others. These companies work together to supply for the combined annual revenue of more than 100 billion dollars. In 2009, the public complany, Lockheed Martin ranked as the highest contributor of 42.7 billion dollars. However, the question links back to where all of this money comes from.

The defense and aerospace industry work hand in hand with government by revealing information to public and private companies such as, professionals working in these companies in order to provide research and development. The industry receives their supply from the following sources: defense contractors, the arms industry, and private military contractors who all work for the government to produce these products. An abundant number of these products are purchased by the federal government or by the federal space programs for these military purposes. These companies receive contracts which target the service, development, and manufacturing defense products of military equipment (i.e. aircraft, weaponry, etc.) For example, the Raytheon Co. was awarded a $1.7 billion contract by the Saudi Arabian government in order to enhance their air and missile defense system by providing protection against threats. Raytheon Co. posted revenue of $25 billion. Contracts like these display how companies profit from the risk they are taking. While going through the process of submission, these contracts are reviewed by contract specialists who work under companies, such as Boeing and Lockheed Martin, to either finalize or deny these contracts for the given amount of money. These contracts provide a purpose to try to create revenue for the company which therefore goes to the combined annual revenue of the defense and aerospace industry.

What drives revenue growth in this industry (i.e. more units sold, expanding geographic reach, lower costs for manufacturing, etc.)?

As many companies and or industries are currently being forced to deal with the detrimental effects of the recession, certain sectors of the aircraft industry are performing business as usual. The constant need for newly renovated aircrafts and updated fleets, for both military and commercial purposes, keep the supply and demand of the industry more consistent than that of companies that produce products that people do not require. United Technologies Corporation is currently communicating with Goodrich Corporation; possibly attempting to create a deal where United Technologies Corporation purchases Goodrich Corporation.

United Technologies Corporation is valued at $68.6 billion and is still expanding. Two years ago the company purchased the security sector of General Electric for $1.8 billion further widening its production. The multi-billion dollar business produces Pratt and Whitney aircraft engines, Sikorsky Helicopters, and Otis Elevators. As the expansion progresses, it fills the needs of more consumers mostly in the Business-to-Business (B2B) Market.

The company, Goodrich Corporation, which United Technologies may attempt to purchase, is a member of the aircraft industry producing a wide variety of products including landing gear, interiors, and electronics. The merger of the companies would allow United Technologies Corporation to appeal to more businesses and expand both companies’ revenues and profits. Currently Goodrich Corporation is producing at a gain and made $578.7 million in profit last year. With total revenue of roughly $7 billion the company took huge leaps. Still expanding and with the market demanding products, the company expects to increase in size $1.1 billion by next year.

Astonishing figures have leaded United Technologies Corporation to desire to purchase the ever-expanding corporation, Goodrich. This expansion would provide both companies with more resources and require less outsourcing, therefore decreasing the amount of revenue leaving the corporation. Hopefully, this would lower manufacturing costs as well as increase production. Shortly after information struck the public about such an acquisition, Goodrich’s stock price rose 22% to $113 and ended at a 7% increase at $92.89. This movement in the stock market shows that interest in the companies are high and that many speculate that the companies will prosper, either as separate or single entities.

#1– Economics of the Industry: What are some current events in your industry? What is the impact of these events on the industry?

For the past few days the Defense and Aerospace industry has been hearing much news from the Boeing Company. Boeing is the largest leading aerospace company and the largest manufacturer of commercial jetliner and military aircrafts all around the nations. Not only is it involved with aircrafts, but it also partakes in dealing with defense systems, missiles, satellites, and innovative communication systems. A big part of this company provides to NASA because it also functions the Space Shuttle and International Space Station.

On September 16^th, Franco Dutch Airline (Air France-KLM) publicized that it ordered hefty amount of airplanes from two prestigious aircraft companies: Boeing and Airbus. This firm ordered 25 Boeing 787-9 Dreamliners with 25 more of them as an option and 25 Airbus A350-900 jets with an option of 35 more of those. Air France-KLM would be spending $10.9 billion in total for Boeings product and $16.08 billion for the Airbus products. The impact this transaction makes on this airline is that these new jets will reduce more than 15% of fuel consumption. As for Boeing and Airbus, more airline companies are willing to invest in these new models not only for its fuel-efficiency but also for its advancements. General Electric and Rolls-Royce is developing engines for Boeing’s new airplane. It is projected that advances in engine technology will provide as much as 8% of the increased efficiency of the new airplane, which shows close to a two-generation jump in technology for the middle of the market.