Woodward, Inc. [WWD] and Hexcel Corp.

[HXL] on Sunday announced a merger of equals that will create a $5.3 billion company that is the sixth largest aerospace and defense supplier.

The combined company would be called Woodward Hexcel, have more than 16,000 employees, and provide control solutions and advanced composites for commercial and military aircraft and industrial markets. Commercial aircraft make up most of the work, but the companies also participate on several military aircraft programs, notably the F-35 fighter, AH-64 Apache helicopter, and CH-53 helicopter.

The top aerospace and defense supplier is Spirit Aerosystems [SPR], followed by Arconic [ARNC], TransDigm Group International [TDG], MTU Aero, and GKN plc, according to a slide presentation issued by Woodward and Hexcel.

Both companies serve the aerospace, defense and industrial markets, with Woodward generating about $1 billion in sales last year in the power generation, transportation, and oil and gas industries, and Hexcel $300 million in wind generation, transportation, and other industries.

Under terms of the all stock deal, which has been approved by the boards of both companies, Woodward shareholders will own 55 percent of the new company and Hexcel shareholders the rest. The transaction must still be approved by each company’s shareholders and government regulators. It is expected to close during the third quarter.

The companies said that in its first full year of operations post-closing, Woodward Hexcel will spend about $250 million in research and development and will be “well positioned” to develop technologies around propulsion and aerodynamic efficiency, lightweight materials, emissions reductions, and energy efficiency.

“The future of flight and energy efficiency will be defined by next-generation platforms delivering lower cost of ownership, reduced emissions, and enhanced safety, and a combined Hexcel and Woodward will be at the forefront of this evolution,” Nick Stanage, Hexcel’s chairman, president and CEO, said in a statement. “Woodward’s innovative control systems and Hexcel’s advanced lightweight materials are designed to improve reliability, efficiency, and emissions.”

Woodward has annual sales of $2.9 billion and has capabilities in cockpit controls, engine actuation, engine controls and sensors, fuel systems, injection and ignition, thrust reverser actuation systems, actuation sensors and controls on wings, and oil and air management for engines.

Hexcel has between $2.3 billion and $2.4 billion in annual sales and provides advanced composite materials throughout aircraft and their engines.

The companies said they expect to achieve at least $125 million in annual cost savings synergies in the second full fiscal year as Woodward Hexcel. Combined free cash flow is expected to be about $1 billion annually and growing with capital deployment focused on a dividend yield beginning at 1 percent, acquisitions, and share repurchases.

Stanage will be CEO of Woodward Hexcel and Tom Gendron, chairman, president and CEO of Woodward, will become executive chairman of the combined company until one year after the deal closes, at which time he plans to retire and serve as non-executive chairman for another year. At that point, Stanage will become chairman and CEO.

Hexcel’s financial adviser on the deal is Goldman Sachs and Woodward is being advised by J.P. Morgan Securities.