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Rolls eyes Pratt merger?
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January 3, 2000: 6:36 a.m. ET
Report: U.K., U.S. aero-engine makers may combine to rival General Electric
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LONDON (CNNfn) - British aero-engine maker Rolls-Royce is considering a plan to merge with U.S. rival Pratt & Whitney, according to a weekend press report.
A merger of Rolls-Royce, the world’s second-largest manufacturer of commercial jet engines with Pratt, a unit of United Technologies, is viewed by analysts as the natural combination to compete with the market leader, General Electric’s GE Aircraft Engines.
While the commercial jet aircraft market has consolidated into a pitched battle between Boeing and Airbus Industrie, the engine market remains split between three players. This has slashed profits on engine sales and generated plans for further consolidation as manufacturers face huge costs to develop the next generation of engines.
Rolls-Royce, which is no longer linked to the luxury auto maker, declined to comment on the report published in the London-based Sunday Business newspaper. Alongside its aero-engine business, the company is also the world’s largest producer of marine engines.
The report claimed the merger plan had been drawn up by Rolls’ advisor, the investment bank NM Rothschild.
Rolls, GE and Pratt & Whitney all also compete in the military jet engine market, though analysts believe the commercial-aircraft operations of Rolls and P&W could be split apart from that business to overcome regulatory objections. These are most likely to come from the U.S. government, which remains cautious about transatlantic mergers of defense companies.
With Rolls’ 1998 aerospace sales of 3.48 billion pounds ($5.61 billion) and P&W’s $7.87 billion, the pair would overtake GE Engines’ 1998 sales of $10.29 billion.
P&W has lost its market leadership in the commercial jet market in recent years, largely because of gains by Rolls-Royce. The two companies examined merger plans in the early 1990s.
Shares in United Technologies (UTX), which also owns Otis Elevator Co. and a range of companies providing aerospace support services, rose 7/8 to 65 Friday. Rolls-Royce (RR-) shares ended last week at 214 pence. 
-- from staff and wire reports
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