Why Honeywell is separating into three companies — Explained

To discuss the future and the trajectory ahead for the company, CNBC-TV18 spoke to Jim Currier, President & CEO of Honeywell Aerospace Technologies.

Below is the edited transcript of the interview.

Q: Let me start by talking to you about that decision to split up these businesses into three separate listed entities. I guess we’ve gone through that conglomerate boom of the 1960s, and now everyone’s decided that perhaps moving into separate entities and individual businesses makes sense. The conglomerate discount perhaps has weighed on this decision as well?

Currier: There’s a prevailing sentiment that that’s the case. I will tell you, for us within Honeywell, there were some very strategic reasons why we decided to ultimately separate the business into three businesses. We announced the advanced materials business in October of last year and just recently announced that we’ll be spinning off aerospace from Honeywell as well, back in February of this year. What was really driving some of those decisions ultimately was that the strategic direction of some of the businesses was very different. The demand drivers for the businesses were very different as well. So, it was truly about looking at the business holistically and the portfolio, considering what is in the best interest of shareholders and what is in the best interest of our customers. It made sense to ultimately split the business into those three independent, publicly traded companies, which is what we’ll have going forward.

Q: The work has just begun because, as you pointed out, the decision was taken in February, and eventually, we will see this culminate in a listing of a separate entity in 2026. So, what can we expect between now and then?

Currier: It’s definitely in the early stages of planning, without a doubt. And I think if I were to focus on aerospace, what are some of our short-term goals and what are some of our long-term goals relative to what this decision means? In the short term, it’s business as usual since we’re still one Honeywell. We still have commitments that we need to meet for the organisation, and we will deliver on those commitments, both financially and from a delivery standpoint. It also means supporting our customers going forward around the world.

If you think about the longer-term trajectory, what does this really mean for Honeywell Aerospace? By separating from Honeywell, we now become very, very strategically focused on the aerospace business itself, and it provides a lot of flexibility in terms of capital allocation. We can determine how we deploy capital for organic investments, and how we want to deploy capital for inorganic investments, as well as capital deployment within the factories and our facilities to drive and enable growth. The flexibility afforded to us over a longer-term horizon provides a foundation to support our customers better and efficiently meet the needs of the industry in a much more productive manner.

Q: The Honeywell forecast projects a very strong demand outlook, not just for the year ahead but over the next decade. India continues to be one of the hot spots for commercial aviation demand. Can you provide more insight into what you’re seeing in terms of demand, and back that up with what we’re seeing regarding supply-side challenges? Have those started to ease at all?

Currier: Yes, it is starting to ease somewhat. What I would say on the demand side is that Honeywell Aerospace is in a very fortuitous position because we provide a breadth of technology to the aerospace industry, from nose to tail on the aircraft. We offer integrated avionics, flight management systems, weather radar systems, jet engines, and APUs. It’s a broad breadth of technology and innovation that we’re creating.

We also support multiple end-market segments. We’re not only a commercial business but also a defence business. Our portfolio is about 60% commercial and 40% defence. Within that defence business, about a quarter is in the international defence market. In my 20-plus years in the industry, I have never seen an opportunity where all end markets are simultaneously growing at these levels.

So now, shifting to the supply side, with the aerospace industry growing so significantly, it does create strain within the supply base. We have to look for alternatives to support the industry moving forward. One example is India, an aerospace industry experiencing substantial growth, with an unprecedented number of orders from major airline carriers. That creates an opportunity for localisation. There’s tremendous talent here, both technologically and from an innovation and manufacturing perspective. So, at Honeywell Aerospace, we’re looking closely at opportunities to build an industrial supply base in India to meet the growing demand for the Indian aerospace market.

Q: Currently, Honeywell’s exposure in India is relatively small compared to some other players. What’s the aspiration, and where do you see yourself over the next few years?

Currier: I look at our footprint in India from two perspectives. First, our technology and engineering presence—we have three centers of excellence, with over 3,000 engineers dedicated to aerospace. This is something we started over 20 years ago, investing hundreds of millions into R&D centers to build out our innovation capability. Second, on the supply side, we have been sourcing material from India, but it’s relatively small compared to our total sourcing. However, we aim to quadruple that in the coming years.

But it’s not just about the material and the engineering technology. As the Indian market grows, there’s going to have to be an ability to maintain, repair and overhaul, those aircrafts. So, we’re also looking at investing in factories to be able to develop an indigenous capability here in India that allows us to build on the maintenance, repair and overhaul that’s necessary to support the aircrafts.

Q: And regarding MROs, has the regulatory environment become more supportive?

Currier: There are ongoing discussions, and I would say yes, but there’s still a longer journey ahead to open up the industry at the speed needed to support growth here.

Q: What could it mean then, in terms of your own plans, as far as MROs are concerned?

Currier: If you think about the number of aircrafts that are going to be entering into the Indian aerospace industry, we’re talking over 1,000 aircrafts from the major OEMs, for which we have substantial content on those aircraft. Some of it is standard equipment. Some of it is selectable equipment. So, whether we’re talking APUs, environmental control systems, avionics, weather radar, radio communications, all of that equipment on those aircraft will be coming into this industry over the years, during that growth, there has to be an ability to maintain, repair and overhaul going forward. So, looking at regulatory aspects, looking at opportunities to build that infrastructure here is what’s of primary importance for us, and something that we’re committed to do.

Q: How soon can we expect a decision?

Currier: We are within a year of making that decision. We are already making the decision to actually source more material here to support the industry, but in terms of establishing partnerships and relationships to put an actual footprint for maintenance, repair and overhaul, we’re within a year of making those decisions.

Q: On defence, how do you see Honeywell’s role in India’s indigenisation process?

Currier: It creates tremendous opportunity. Most of the products that we develop can be applied to either commercial aircraft and or military aircraft to support the defence industry. So, a lot of what we’re doing here indigenously, in terms of the technology and the innovation that we are creating, we can apply that into the defence market as well. Historically, India has been a net importer of defence technology. As local capability grows, I anticipate an opportunity for India to become a net exporter of defence technology.

Q: Regarding defence budgets and geopolitical shifts, how is Honeywell positioning itself?

Currier: The geopolitical landscape is shifting, leading countries to invest more in domestic defence capabilities. And I think the recognition of the geopolitical landscape changing in the manner that it has, has caused countries to realise they have under invested in their own indigenous defence capabilities. And hence why you’re seeing a lot of rhetoric coming out of the EU in particular about increasing defence spending, becoming more self-reliant on their defence needs on a go forward basis, that will create a lot of opportunity ultimately. So, we’re strategically positioning ourselves to meet growing international defence needs with our products, technology and innovation.

Q: You talked about how you’re coping with the changing geopolitical landscape. But let’s also talk about the changing geo-economic landscape and the threat of tariffs. At this point in time, we’re counting down to the 2nd of April, when we will see the Trump administration finally take forward what it intends to do regarding tariffs. How does that impact your plans? How does it impact the supply chain in general for the industry, which has already been quite stressed and fragile?

Currier: It does create a little bit of anxiety within the supply base, without a doubt. I think the lack of clarity in certain respects regarding how tariffs will apply, when, and how much they will be, creates a little bit of anxiety. Anxiety creates uncertainty, and uncertainty creates a little bit of trepidation about how to manage your supply base. What I will tell you is that we’re a global company, and as a global aerospace company, I have manufacturing facilities all over the world that support the industry at large, whether civilian or defence-related. So, we closely monitor what is occurring. I look at the current tariff situation, and although it’s very dynamic and can change from one day to the next, but under the current set of circumstances that are in play for us at Honeywell Aerospace, the impact on our business would be negligible, and it wouldn’t change our desire and our continued efforts to focus on investments in the supply base and to continue growing.

Q: How do you then look at building supply chain resilience? Because we saw this happen after the pandemic, where most people were talking about diversifying risk and diversifying supply chains. In this current context, where there seems to be an effort to move manufacturing back to the US, what does it really do for supply chain expansion and diversification plans for a company like yours?

Currier: Well, first and foremost, thinking about the demand that is out there requires a completely different set of considerations and decisions to be able to meet that demand. The geopolitical landscape is a factor in that. So, we have looked at our supply base from start to finish, and we started evaluating whether we were single-sourced or lacked dual or multi-source suppliers. Do we have some specialised capability internally that allows us to move some products in-house? So, we are revamping our internal supply base within Honeywell Aerospace by looking at dual sourcing, multi-sourcing, and moving around our supply base to address geopolitical concerns where they may exist. We are also considering where demand is growing— for example, in India, establishing a local supply base to support our products there. So, you kind of have to track where the demand is moving and position yourself accordingly.

Q: So what will that then mean in terms of capital deployment? You talked about how the restructuring will give you more flexibility in deciding how you use your capital. So, in this current scenario, where you see demand and opportunity, what could it potentially mean for a market like India?

Currier: I mean, for us, when I think about the demand cycle here, we talked about maintenance, repair, and overhaul facilities. We’re seriously considering, and we’ll make that decision in the near future, whether to invest a substantial amount of capital to build that capability in the region to support growing demand. We are also assessing where to deploy that capital, where to set up factories, and what other capabilities to establish. But that flexibility allows us to be very agile and responsive to industry needs. It also positions us to be more supportive of our customers.

Q: So, a ballpark figure to establish MRO capabilities—what does it take in terms of capital requirements?

Currier: It depends on the level of investment you want to make for certain capabilities—mechanical or avionics. You could be looking at investments ranging from hundred million to a few hundred million dollars. We are considering both mechanical and avionics capabilities, and we are also looking at how to establish a footprint from scratch and then expand it as the industry grows. Another key consideration is whether there are regional partners we could collaborate with to enable that capability. That’s part of the equation when we make these decisions.

Q: So, partnerships could entail joint ventures, or could they entail mergers and acquisitions (M&A)?

Currier: All of the above.

Q: Anything on the radar at this point in time?

Currier: Nothing I can speak about of course. However, from an M&A standpoint, just across the board, Honeywell Aerospace remains very active in this space. We acquired two companies last year— Civitanavi is one and CAES is another company that we acquired for over $2 billion. These companies bring great technology, great capability, and great platforms, particularly in the defence industry. Both acquisitions focused on defence capabilities because we recognise defence as a key growth area. We are also evaluating other assets to determine how they align with Honeywell Aerospace’s future defence strategy.

Q: Clearly, M&A is a priority area. What other gaps do you intend to address through M&A?

Currier: We focus on technology gaps. We don’t just want to add assets for the sake of expansion; instead, we assess whether a company’s capabilities align with ours. Are they serving the same customers? Are there synergies between our technologies? Can we integrate their technology with ours to create more value for our customers? That’s why our M&A outlook remains very strong, but only select opportunities will move forward.

Q: How large is your M&A budget?

Currier: As large as we can make it.

Q: Talking about technology, let me ask you about AI and the role that AI, and generative AI specifically, is likely to play when we talk about both safety as well as sustainability, and what that means for your plans going forward.

Currier: AI and the incorporation of AI within the Honeywell Aerospace business is very strong. We’re moving very diligently in that regard. I’ll give you a couple of examples of where we’re incorporating AI. If you think about avionics for a moment, you think about pilot state monitoring. By incorporating AI algorithms that can look at physiological and physical attributes of a pilot to determine: Is there stress? Is there fatigue? Are they being overworked as well? That’s one example.

Another example would be navigational systems. An issue that is occurring in our industry today is operating aircraft in a GPS-denied environment, which is becoming more prevalent, as we can see. So how do you develop AI algorithms to look at alternate means of navigation, whether it’s visual, celestial, or magnetic? We’re developing technology in that realm to produce alternative navigational capability for operating in a GPS-denied environment.

And then just engineering in general, across Honeywell Aerospace. We look at using AI as a tool for productivity, efficiency, and improving the quality of software loads. Whether we’re doing testing and validation, training AI algorithms to analyse software requirements, and code structure, and then ultimately enabling AI to create code for your platforms and products—again, with an underlying principle of productivity, efficiency, safety, and quality.

Q: Sustainability and sustainable aviation fuel have been something that Honeywell has been backing for a while now. Are you seeing a greater degree of enthusiasm for adoption at this point in time, or is it low on the list of priorities?

Currier: It’s high on the list of priorities, particularly in the aviation industry. I think collectively, as an industry, we’ve all made commitments to being net zero in carbon emissions by 2050. A big path to achieving that is the incorporation of sustainable aviation fuel. So, there’s going to have to be a greater incorporation of that fuel into the aerospace ecosystem to achieve net zero carbon emissions.

Q: From pilot projects to actual adoption—even India has conducted its first SAF-powered flight—but where are we in terms of large-scale adoption?

Currier: So, it’s starting. I would characterise it as being in the early stages of adoption. Part of the problem is the lack of feedstocks to be able to create sustainable aviation fuel, and that’s where Honeywell has come in and developed some very innovative solutions for that.

Some of the refining processes and capabilities that we’ve developed allow for the production of sustainable aviation fuel from multiple and varied feedstocks. So, now you’ve got feedstocks that span multiple sources, feeding into sustainable aviation fuel refining capabilities. That’s a major advancement that needs to happen for further adoption.

Specifically, in Honeywell Aerospace, we have to ensure that our equipment—our turbo machinery, our jet engines, our APUs—are capable of operating on sustainable aviation fuel without sacrificing efficiency, performance, or reliability. We take a holistic approach to help drive the industry toward greater adoption.

Q: SAF is one thing, but in terms of fuel efficiency—and I think that’s a big challenge across the aviation sector because fuel costs are not in your control and depend on commodity market fluctuations. What can technology do, specifically the technology that you’re working on, to drive efficiencies there?

Currier: Ultimately, it’s going to be SAF incorporation, but then its going to be operating an aircraft more efficiently. And that could take on many different forms.

Two examples are the incorporation of our auxiliary power units. We’ve integrated some technology and software that enable operation in what we call a high-efficiency mode. So, the APU will operate according to environmental conditions, optimising fuel savings.

Another example is electrification—minimising the consumption of sustainable aviation fuel by incorporating electrification across aircraft platforms. This allows engines to operate more efficiently and enhances overall aircraft productivity.

Q: We’ve talked about the tailwinds at this point in time for the sector, specifically for your business. What could be the potential headwinds? What could cause some turbulence down the road?

Currier: A key challenge is demand outpacing supply. We must continue to build out the aerospace industrial supply base and the complete ecosystem to support current demand.

Another challenge is airspace congestion. With passenger traffic expected to double in the next 15 years, there will be more aircraft flying, leading to more congested airspace, particularly around airports and air traffic control corridors.

At Honeywell, we’re developing technology focused on safety and situational awareness in the cockpit to enhance safety-critical features and functions for pilots. Given the incidents occurring globally, this is a critical issue that must be addressed.

Another headwind is pilot demand. If air traffic doubles, we will need more pilots to support that growth. Ensuring a sufficient pipeline of trained pilots will be a challenge going forward.

Q: What’s the outlook for the next four or five years are concerned for Honeywell Aerospace?

Currier: We’re projecting mid-to-high single-digit growth this year. I anticipate that trend continuing over the next few years as we capitalise on current industry growth while investing heavily in new technologies.

We’ve committed significant organic investment into developing new technologies, features, and functions across our entire portfolio. There isn’t a single part of our portfolio where we’re not investing in innovation for the future.

Q: India has been a high-growth market for the conglomerate. For aerospace in particular, what is the role and relevance of India over the next few years?

Currier: India is a key growth market. The aircraft backlog and increasing demand reflect that. Several factors are driving India’s aviation growth: a strong economy, rising tourism, and more disposable income.

Additionally, India’s aviation infrastructure is improving, with better connectivity. This presents a tremendous growth opportunity, and Honeywell is ensuring we are well-positioned to capitalise on it.