Honeywell Pops As It Mulls This Move Echoing GE Aerospace

Honeywell International Inc. (HON) shares surged Monday as the conglomerate announced it is considering spinning off its high-margin aerospace business, a move backed by activist investor Elliott Investment Management. The potential separation, which echoes General Electric's (GE) 2021 decision to spin off its aerospace unit, could unlock significant value for shareholders and enhance Honeywell's focus on core competencies.

Honeywell's aerospace segment, which accounts for about 40% of the company's total sales, has been a strong performer in recent years. The unit, which builds everything from engines to cockpit components, has benefited from rising jet production and a shortage of planes, which is set to boost demand for repairs. A standalone aerospace business could be valued between $90 billion and $120 billion, according to analysts.

The aerospace market's robust growth dynamics make this an opportune time for Honeywell to consider a spinoff. The global aerospace market is projected to grow by 7.8% annually to $791.8 billion by 2028, driven by increasing demand from airlines. The International Air Transport Association (IATA) forecasts a 6.2% growth rate for 2024 and a record $1 trillion in revenue in 2025. Honeywell's aerospace unit stands to benefit from this growth, and a standalone entity could attract more specialized investors, potentially leading to a higher valuation.

However, separating the aerospace business may lead to integration challenges and potential loss of synergies with Honeywell's other segments. Additionally, the aerospace unit's success relies on the broader industry's performance, which is subject to cyclical fluctuations and geopolitical risks.



Honeywell's exploration of spinning off its aerospace business comes as the company has been on a deal-making spree this year, focusing on automation, aviation, and energy businesses while shedding segments that do not align with its plans. The company has announced plans to spin off its advanced materials business, entered an agreement to sell its personal protective equipment business, and made several acquisitions, including Carrier's security business and aerospace and defense firm CAES Systems.

Elliott Investment Management, which has taken a more than $5 billion stake in Honeywell, has been pushing for the separation of its aerospace and automation businesses. The activist investor welcomed Honeywell's announcement, stating that it believes the portfolio transformation led by CEO Vimal Kapur represents the right course for the company.



In conclusion, Honeywell's consideration to separate its aerospace business, echoing GE's 2021 move, presents strategic benefits and challenges. The aerospace sector's robust growth dynamics make this an opportune time for a spinoff, which could unlock significant value for shareholders and enhance Honeywell's focus on core competencies. However, integration challenges and potential loss of synergies should be carefully considered. As Honeywell continues its portfolio transformation, investors should monitor the company's progress and evaluate the potential impact of a spinoff on its long-term valuation.