What Now for the New Honeywell

When AlliedSignal and Honeywell announced their merger at the 1999 Paris Air Show, it was the biggest news story from an industry event that generates a lot of big news.

Then the two companies entered into a "quiet period," in which they quite confidentially scrutinized their different staffs, product lines and company cultures. They agreed that this process of amalgamation, was to be completed quickly–within six months–to create a homogenous new entity as soon as possible.

Meanwhile, the U.S. Department of Justice approved the merger in November, and the European Union gave its clearance on Dec. 1. Thus was launched the all new Honeywell, a company with combined worth of some $24 billion.

Although, the merger has been officially completed, and on schedule, a hint that the dust was not fully settled at the headquarters of the newly formed Honeywell Aerospace Electronics Systems emerged when Avionics Magazine visited in mid-January to interview the company’s president, Michael A. Smith, and Honeywell’s executive vice president in charge of aerospace businesses, Robert D. Johnson. In Smith’s new office, in north Phoenix, Ariz., boxes of papers were stacked and framed pictures leaned against a wall.

Nevertheless, we were able to settle around a table in Smith’s office. In a symbolic show of unity, Smith, an "old Honeywell" official wore a shirt colored in AlliedSignal blue, while Johnson, from AlliedSignal, wore a bright, Honeywell red shirt. In an interview that was to bring to light the merger’s challenges and the new company’s future, the two Honeywell officials assured me that the union is, in fact, complete.

Avionics Magazine: Are the two companies now truly one?

Johnson: Well, it’s done. It was done in December, in terms of being official.

Our goal was to get an integration plan put together that was not one or the other company’s, but made us the best of both. We had a sales conference in San Diego. We had to hold people off to make sure they didn’t start working together early before we had the approval, because there was such an excitement to do that.

Smith: Once we got the approval by the Department of Justice and the European Commission and we could talk to one another, we brought 400 people together, here in Phoenix, from the Allied side and the Honeywell side, and we basically put together a team of people to address product areas, technology areas, the functional areas of the business.

I think this will end up being viewed as a best practice in terms of how to bring companies together. We called it "the summit," when we brought everybody together, and I couldn’t be more pleased with the results of the summit.

Avionics Magazine: Mike, could you tell us about Honeywell Aerospace Electronics Systems, this new company you now lead?

Smith: Well, Bob is responsible for our entire aerospace unit, and I’m responsible for what we call the Aerospace Electronic Systems part. And that’s where we really put the old Honeywell Space and Aviation business, which was our business that involved the commercial and the space sector and our defense systems and defense products business, together with the AlliedSignal avionics and lighting business. And we have merged those together to where we will have common products.

Avionics Magazine: The merger brought some redundancy–in fact, more layoffs than you originally anticipated, correct?

Johnson: When we went in, we chose to be conservative. When we got into it, we found that the savings at a corporate level exceeded what we thought. We found that with the application of Six Sigma [quality control process–Ed.] and the practices of both companies, we could integrate supply chains and get better benefits.

We also had some redundancies–a minimal amount–that were identified by the Department of Justice. And I think, down through the company, the savings from shared services all resulted in some synergy that was very nicely spread around–not all in one place.

For a company with 120,000 employees, the census reduction was 8,000. While that’s a large number, it represents a fairly small percentage. Most redundancies, if not all of them, are on the inside. Mike had a minimal number of redundancies. Most of our savings happened at a corporate level.

Smith: On the Aerospace Electronics side, there were a few people [dismissed–Ed.] in many different locations. It wasn’t a large number of people in any given one locale. There are nearly 20,000 in our Aerospace Electronics Systems business.

Avionics Magazine: What about in your service and support network?

Johnson: We have some places where we both have staff, but what we’ve said is, that’s not the first place we’re going to effect a change. The change is going to be on the inside…and we’re going to make this painless and invisible to our customers. In some few cases where that means integrating [service and support representatives] into a single office or location, fine.

Our first step is to get them to know each other and share best practices, and over time, any plan to integrate them into a single facility is up to them and to design a customer-invisible non-affected process.

Smith: In customer support, that’s one of the easier organizations for us to bring together. What we do is we take a look at things customer by customer by customer, and we determine what it is they want in terms of interface, what makes sense for them, and we set up a process with each customer and make sure we service them at the level that they want and that we’ve got individuals that they feel comfortable working with.

Avionics Magazine: So there is no deadline for your field organizations to become one?

Johnson: No. The customer interface will be…it’s gradual.

Avionics Magazine: AlliedSignal and Honeywell had quite different corporate philosophies. How are they blending?

Johnson: I look at it as more things that were the same than were different. We’re both engineering cultures. The headquarters for both divisions of aerospace were here in Phoenix, which made it pretty easy. Our employees have worked together over the years around organizational structures to be able to combine products. They met each other in the marketplace, but not very often as competitors.

On the AlliedSignal side, we had a broader set of products; we had a Six Sigma process of change. On the Honeywell side, we had some close relationships with common customers and a different way of being with the customer and making designs from the outside in.

The most powerful combination that comes from that is to put that Honeywell quality value system together with Six Sigma and connect it to the customers, to the supplier. We call that "Six Sigma Plus."

Avionics Magazine: There must have been some challenges to the merger.

Johnson: Sure, with a merger, people have some concern about the effect it’s going to have on them. I think one of the reasons that that didn’t become a big issue was because every week we sent out communications to our employees. We told them what was going to happen, why it was going to happen, what had happened.

Smith: The challenge is really on the execution side. In terms what of people’s intentions are and people’s belief in our ability to work together; that’s not an issue at all. It’s just a question of how you get through the methodologies.

Avionics Magazine: You also have another challenge. Your CEO, Michael Bonsignore, talks of 8% to 10% annual growth.

Smith: When we came out of the summit, all of our plans rolled up and met the targets that needed to be accomplished, and at the same time, do it in this transparent way that we talk about, without negatively impacting any of our commitments with the customers.

Avionics Magazine: I guess bringing companies together is not new to Honeywell and AlliedSignal. You’ve collectively absorbed King, Bendix, Sperry.

Smith: Those were all practice. (Laughter)

Avionics Magazine: Do you plan to merge your engineering files?

Smith: We don’t have a plan at the moment to merge engineering files. We will share our technologies and share our products, but there is no intent whatsoever to come up with a common engineering system, at least in the near term.

Avionics Magazine: What about joining your two engineering and design groups?

Johnson: We formed technology teams, which really are centers of excellence, so that instead of doing design work separately and autonomously, we could integrate them. As Mike integrates the various electronics technology centers of excellence, that gives us another easier method of integrating the technologies from engines and systems with the electronics systems, so that we can integrate some of those utilities across the whole airplane.

Smith: As an example, we will have a center of excellence for displays, a center of excellence for our RF [radio frequency] products, etc. And we’ll do that in a location. Irrespective of where those products go and where those technologies go into the marketplace, all the work and the design development gets done in one location.

Johnson: I guess to facilitate all this, we spent time with consultants, looking backwards over a lot of major mergers, many of which had great practices. Also, where those [mergers] hadn’t gone well or they had taken too long, we looked at what were some of the failure points or what were the bumps that they ran into.

To the extent that we’ve learned all that, we’ve critiqued the process, and we’d make that available to other people in an industry that’s probably still going to have consolidation.

Avionics Magazine: Does the merger bring up any warranty issues?

Smith: I’m sure there’s some amount of coordination, relative to warranties, that we’ll do at some point in time. On new applications, when we go out and sell a package of equipment, I’m sure they’re going to want a common warranty across a particular aircraft or a particular airline.

Our warranties are not terribly different. It will differ a little bit on certain products. Warranty policies tend to end up being set by the OEM and the people that we’re selling to.

Johnson: And our merger wouldn’t impact in any negative way our ability to live up to the warranties that are already issued.

Avionics Magazine: Let’s talk about product redundancies.

Smith: Well, there were two or three. On the AlliedSignal side, the Department of Justice said we had to divest ourselves of our space and navigation business out of Teterboro [N.J.], that we had to divest ourselves of the MicroSCIRAS product line, which is a MEMS (michro-electromechancial systems) technology and that we had to get rid of a helicopter radar line.

And then on the old Honeywell side, we had to divest ourselves of our TCAS [traffic alert and collision avoidance system] product line.

The first three that I mentioned, those are already divested. The TCAS product line is in the process of being divested. [In early March a Honeywell official said the TCAS deal is "imminent"–Ed.]

Avionics Magazine: Europe’s Sextant seeks to be on Boeing airliners. Do you see the day when an integrated Honeywell package will be on Airbus aircraft?

Smith: That’s one of the nice things about the way we can bring our products together. There are different levels of systems integration that we can do. We are quite flexible to deal around whatever the OEM wants.

Johnson: What we want to offer people is to have an open architecture of products, systems, and services where people can pick and choose what fits their needs at the time. But beyond that, we’d like to be a bigger solution provider to customers, in terms of sharing Six Sigma Plus best practices [for] people that are going through mergers, our merger integration process.

Avionics Magazine: We see smaller companies being nimble and innovative in the general aviation market. Is this a market in which Honeywell can effectively compete?

Smith: I think we have a very strong position with the Bendix-King line. We know there are competitors out there that also do a very nice job in that marketplace. We think we can take advantage of some of the technologies and capabilities in the old Honeywell side, in some of our larger systems, work to help bring along a better solution for the general aviation end of the marketplace. I think you will be as surprised in terms of the work that’s going on in that end of our market.

Johnson: We’re also working at how [general aviation pilots/operators] can all be integrated into a system that makes it easy to fly. We’re kind of excited about that.

Avionics Magazine: Why isn’t the Honeywell name on Bendix-King products?

Smith: Honeywell recently conducted a study of current brand names, and the results of the survey was that the Bendix-King name continues to have excellent market value in the general aviation market.

Avionics Magazine: Can you give us a thumbnail sketch of your business in the various markets?

Johnson: The business in the general aviation market is about 20% of our revenue; air transport and regional is about 45%, so the rest of that is defense and space. We think there are a lot of opportunities in our regional airline market, [and] the business jet market just continues to grow. Defense, while not a lot of growth, obviously is ready for economies and asset management and supply. And while there are not a lot of new platforms, there are lots of opportunity for mods and upgrades, to backwards integrate many of the new products we have.

Avionics Magazine: How much will the anticipated flatness of the air transport industry impact you?

Smith: We recognize what’s happening on the new airplane production side of things, but an awful lot of airplanes are out there flying, they’re going to have to be changed for CNS/ATM [communications, navigation, surveillance/air traffic management] kind of upgrades at some point in time.

Johnson: I look at our marketplace as every plane that will be built and every plane that’s around that was built. So our marketplace is still flying. There are more planes [and] flying hours are up.

Smith: The way I think about it on the electronics side is that we kind of move from flight deck to the back of the airplane, and we’re doing a lot in the airport infrastructure/systems business.

Avionics Magazine: Considering all the activities involving Free Flight, where will Honeywell be placing its emphasis?

Smith: We have a key role to play in providing the technology that will enable the evolution of the Free Flight environment. Our products–many of which come under the general umbrella of the term "WorldNav"– support all categories of airspace users and all types of communication, navigation and surveillance needs. Our current technology developments include VHF data radios, communication management functionality, flight management systems supporting RNP [required navigation performance] capability, GPS landing systems, datalink, and display systems enabling ADS-B, and of course, our industry-leading flight safety products, which provide the enhanced situational awareness needed in a Free Flight environment.

While we’re not placing an emphasis on any particular area of technology, we’re increasing our efforts in the operational application of these technologies.

Avionics Magazine: You have an alliance with the in-flight entertainment (IFE) company, Matsushita, but might you acquire or launch an in-house IFE business?

Smith: Being a major player in growing and evolving information technology in the aviation industry is a key strategy for us. We’ve already announced in the past several offerings: TAIS (Total Airplane Information System), OneLink, OneView and SkyTracks.

Honeywell will be a major player in the flow of information on-board an aircraft. The form of our involvement will take varying forms as we go forward.

We would consider acquiring our own IFE capability, but do not believe that owning the capability is imperative to success. Our current partnership with Matsushita is a very acceptable approach to bringing the solution to the market.

Avionics Magazine: On a more philosophical note, does your merger represent part of the consolidate-then-diversify cycle, or does it represent a trend in the aviation industry?

Johnson: My view is that it’s an industry that hasn’t reached perfect. People are trying to find the right combination that makes flying more economical, more reliable, more efficient. That’s a natural evolution.

[Consolidation] happened at the airplane manufacturing level, it’s moving down to this level of suppliers, and it will go down to different tiers. It continues until we reach a point where the solutions are just at the right level to satisfy customers’ needs.

Avionics Magazine: You’ve also been acquiring companies. How would you define your acquisition strategy?

Johnson: We’ll make acquisitions that compliment or fill in some gaps. We’ll make some acquisitions to fill in some niche capabilities in some of our propulsion and mechanical systems business. Some [acquisitions] will be small; some big. It’s all going to be focused on how we can be the best solutions company for our customers.

Visit www.honeywell.com, www.cas.honeywell.com, or www.sac.honeywell.com for more information about Honeywell and its aerospace business.

Honeywell Leadership at a Glance

Michael A. Smith

Position: President, Honeywell Aerospace Electronic Systems (December 1999)
Birth Place: Mason City, Iowa
Birth Date: Dec. 25, 1943
Education: B.A. in Business Administration, Arizona State University. Also: Arizona State Management Institute, Stanford University Executive Institute, and Aspen Executive Institute
Positions Held:

Honeywell Inc.

Acting President, Space and Aviation Control, May 1999 to December 1999
President, Commercial Aviation Systems Business, 1999
Vice President and General Manager, Business & Commuter Aviation Systems, 1991
Director of Operations, Business & Commuter Aviation Systems, 1984

Raytheon Corp.

Various positions through 1973

Board Memberships:

West Economic Development Corp., Arizona Business Leadership for Education
Peoria Educational Enrichment Foundation
General Aviation Manufacturers Association
National Business Aviation Association
Associate Member Advisory Council
Arizona Children’s Action Alliance

Robert D. Johnson

Position: Executive Vice President and Chief Operating Officer overseeing Honeywell’s aerospace businesses (December 1999)
Birthplace: Zanesville, Ohio
Birth date: Aug. 19, 1947
Education: Miami University, Oxford, Ohio
Positions Held:

AlliedSignal