Aerospace suppliers Woodward Inc. and Hexcel Corp. set plans for an all-stock merger in what executives said was a response to the rising tide of climate-change pressures facing the industry.
The U.S. companies make parts for Airbus SE and Boeing Co. jets, including the grounded 737 MAX, which Boeing halted production of this month. Woodward and Hexcel said their merger would allow them to expand spending on research and development of more efficient engines and lightweight aircraft parts.
The combined company—which would be known as Woodward Hexcel—would rank among the aerospace industry’s largest suppliers, with combined sales of $5.3 billion last year and 16,000 staff. The companies’ combined market capitalization is $13.7 billion.
Airlines and aircraft makers are under increasing pressure to address the industry’s emissions and noise footprint. The airline industry accounts for around 2% of global greenhouse-gas emissions, but rapid traffic growth has made it a target for environmental concerns. Executives at Woodward and Hexcel said those forces drove their plans to merge.
“There’s huge pressure on the aerospace industry to reduce greenhouse-gas emissions,” Woodward Chief Executive Tom Gendron said on an investor call. Hexcel CEO Nick Stanage said the enlarged company would boost research spending to almost 5% of annual sales.
The proposed deal would be the first big transaction in the industry since Boeing said it would freeze production of the MAX. Many potential deals have been placed on hold or abandoned because of uncertainty over future production of the MAX, said aerospace bankers.
Both Woodward and Hexcel have reported a limited impact on their businesses since production was reduced last year, though sales of spare parts have been hit by the absence of deliveries.
Mr. Stanage said the companies would await guidance from Boeing on future MAX production, but that lower rates could allow resources to be diverted to other programs and could boost aftermarket sales as airlines rely more on other aircraft.
Spirit AeroSystems Holdings Inc., the largest MAX supplier, last week said it planned to lay off an initial 2,800 staff producing fuselages and engine parts for the jet. Other suppliers are waiting for guidance from Boeing on future MAX production plans, with the jet’s return to service after two fatal crashes hinging on securing regulatory approval for changes to its flight control systems and training regime.
Woodward and Hexcel have diverse portfolios that include most commercial and military jets, as well as sales to the auto, power generation and other markets.
Fort Collins, Colo.-based Woodward makes cockpit systems and actuators—the motors that control wing flaps and other flight-critical functions—for commercial and military aircraft. Stamford, Conn.-based Hexcel is a specialist in composite materials such as carbon fiber, which are increasingly used in aircraft and their engines systems because they are lighter than metal and alloys.
The proposed deal would be structured as a merger of equals, with Woodward shareholders owning 55% of the combined entity. Mr. Stanage would lead the combined company with Woodward’s Mr. Gendron becoming executive chairman.
The proposed terms call for Hexcel shareholders to receive 0.625 Woodward shares for each one they hold.
On Friday, Woodward shares fell 0.2% to $121.96. Hexcel shares lost 1.9% to $72.91.
Write to Doug Cameron at doug.cameron@wsj.com
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