Collins Aerospace

Collins Aerospace is a global behemoth in the aerospace and defense industry. It was formed in 2018 through the massive merger of Rockwell Collins, a leader in aviation electronics (avionics), and United Technologies Aerospace Systems (UTAS), a powerhouse in aircraft components. Today, Collins Aerospace operates as a key business unit of RTX Corporation (formerly Raytheon Technologies), one of the world's largest aerospace and defense conglomerates. In simple terms, Collins designs, manufactures, and services a staggering array of systems and components for virtually every major aircraft flying today. If you've ever flown on a commercial jet, you've almost certainly been surrounded by Collins' technology—from the flight deck displays guiding the pilots to the seats, lighting, landing gear, and even the coffee maker in the galley. It's a critical, deeply embedded supplier to aircraft manufacturers like Boeing and Airbus, as well as to business jets, military aircraft, and space programs.

Understanding Collins is like taking apart a modern airplane piece by piece. Its business is vast, but it can be broken down into its core products and its brilliant business model.

Collins’ product catalog is immense, covering nearly every part of an aircraft. For investors, it's helpful to think of them in a few key categories:

• Avionics: This is the 'brain' of the aircraft. It includes the sophisticated glass cockpit displays, flight control computers, navigation and communication systems, and weather radar that allow pilots to fly safely and efficiently.
• Interiors: This covers everything you see and touch as a passenger. Collins is a major player in aircraft seating, cabin lighting, oxygen systems, lavatories, and galleys. They aim to make the flying experience lighter, safer, and more comfortable.
• Mechanical Systems: These are the 'bones and muscles' of the plane. This includes crucial components like landing gear, wheels and brakes, propellers, and engine controls. These parts are essential for safe takeoffs, landings, and overall flight operations.
• Power & Controls: This acts as the aircraft's 'nervous system'. It encompasses the electrical power generation and distribution systems, engine sensors, and various other control mechanisms that keep the aircraft's systems running smoothly.

Collins makes money in two primary ways, one of which is particularly attractive to value investors.

1. Original Equipment Manufacturer (OEM): This is the initial sale of parts and systems directly to aircraft manufacturers like Boeing and Airbus for installation on new planes. While this generates significant revenue, the real magic lies in the second part of their business.
2. The Aftermarket: This is Collins' golden goose. Once its equipment is installed on an aircraft, Collins generates a long stream of high-margin, recurring revenue for decades by providing spare parts, maintenance, repairs, and upgrades. An airplane has a lifespan of 20-30 years, and Collins gets paid to service its components throughout that entire period. This creates a massive, reliable, and highly profitable business that is far less cyclical than new aircraft sales.

For investors, Collins Aerospace represents a classic wide-moat business, meaning it has strong, sustainable competitive advantages that protect its long-term profits.

Collins’ dominance is protected by several powerful factors that form its Economic Moat:

• High Switching Costs: Once a component from Collins is designed into an aircraft platform (like the Boeing 787 or Airbus A350), it is incredibly difficult and expensive for the aircraft manufacturer to switch to a competitor. Any new part would need to undergo a lengthy and costly re-certification process with regulators like the FAA (Federal Aviation Administration).
• Intangible Assets: The company holds a treasure trove of patents, proprietary technology, and decades of engineering expertise. More importantly, its products are certified for safety and reliability, an intangible asset that is nearly impossible for a newcomer to replicate.
• Installed Base: With its parts on tens of thousands of commercial, military, and business aircraft worldwide, Collins has a guaranteed customer base for its lucrative aftermarket services for decades to come. This is a classic “razor-and-blades” model on a massive scale.

No investment is without risk, and investors should be aware of a few key challenges:

• Cyclicality: The aerospace industry is sensitive to the health of the global economy. Recessions can lead to a sharp drop in air travel, causing airlines to delay or cancel orders for new aircraft, which impacts Collins' OEM business.
• Parent Company Structure: Collins is not a standalone, publicly traded company. Investors can only own it by buying shares of its parent, RTX. This means you are also investing in RTX's other major businesses, like engine-maker Pratt & Whitney and the defense-focused Raytheon segment. Your investment thesis for Collins must fit within the broader context of the entire RTX conglomerate.
• Execution Risk: The company is exposed to production delays at its major customers (Boeing and Airbus) and is vulnerable to global supply chain disruptions, which can impact costs and delivery schedules.

Collins Aerospace is a premier industrial business with a powerful and durable competitive advantage. Its massive installed base and the resulting high-margin aftermarket revenue provide a stable and growing stream of cash flow. For a value investor, it represents a high-quality asset that is deeply entrenched in the global aerospace duopoly. However, because it is part of the larger RTX Corporation, any investment decision must be made after a thorough analysis of the entire parent company and its various moving parts.