Boeing flexes its muscle to control supplier power
The $37B worth deal of Berkshire Hathaway Inc. with Precision Castparts Corporation, a major aircraft parts supplier of Boeing had encouraged more investors in the aircraft industry. However, Boeing had been delaying its suppliers' M&A contracts.
Warren Buffett isn't alone forecasting huge profits from the rising demand of commercial aircraft. With him is the Boeing Company, using its influence as the world's biggest aircraft company to delay the merger and acquisition transactions of its suppliers, reported AOL.
Berkshire Hathaway CEO Warren Buffett saw the huge demand for commercial aircraft in the coming years, making his largest acquisition ever of Precision Castparts Corporation earlier this month as detailed in The Guardian.
Following Buffett's purchase, venture capitalists are targeting AVIC in China and Senior PLC in the UK risking their assets in the aviation business as well.
Apparently, it seems that Boeing is taking it into consideration controlling acquisition deals and regulating the contract approvals to transfer supplies between owners.
"We have an ability to have our voice heard in the M&A process and we use that ability," VP and General Manager of suppliers at Boeing said in a statement printed in The Express Tribune.
Boeing has the 'assignability clause' included in most of its contracts with the suppliers, being the largest aerospace company in the world.
As the 'assignability clause' implies, Boeing could regulate aircraft companies' mergers and acquisition. The clause gives responsibility and rights to Boeing to assign obligations in order to gain benefits from deals and other transactions before the contract ends.
The move though gained a negative reaction from investment companies and suppliers saying, Boeing does not provide a valid explanation as to why the process is being delayed.
Brian Murphy of the investment bank Meridian Capital said every time Boeing delays transaction, it is putting the deal at risk, sideways to the fact that just a slip from its major supplier can interrupt Boeing's production.
In view of this, Precision Castparts had held off products. The company is now a commercial and military aircraft engines and parts supplier.
"They couldn't undo it, so they're making sure they can exert more control over the M&A process to make sure a PCC doesn't happen again." Christian Schiller, Cascadia Capital managing director criticized Boeing while being pleased with Precision's recent progress.
Evidently, experts presume Buffett's takeover will drive more merging and acquisitions, pushing the Boeing Company to look over some of its deals that distress its suppliers.