Aug 12 Rockwell Collins, which is
looking to opportunities in the commercial market as its defense
business comes under pressure, is buying Arinc, an aerospace
communications company, for $1.39 billion.
Rockwell, a supplier of avionics and other electronic
systems for airplanes, said the purchase from Carlyle Group LP
would enable it to expand sales as newer airplanes are
equipped with information-management systems for the flight deck
Annapolis, Maryland-based Arinc designs systems that help
airline pilots communicate with the ground. It also provides
transport communications and systems for defense, government,
healthcare and other sectors.
Rockwell Collins is counting on commercial demand to drive
growth as the United States curbs defense spending. As of its
most recent quarterly earnings report, Rockwell Collins sales
were roughly split 51 percent-49 percent between government
sales and commercial sales.
"We're definitely ... going to shift from overweight in
defense to an overweight in commercial, and we want to
accelerate that, given the challenges we have in the defense
market," Kelly Ortberg, who assumed the CEO job at Rockwell
Collins from longtime executive Clay Jones this month, said in
an interview on Monday.
Arinc will allow Rockwell Collins "to provide a broader set
of solutions to our customers in moving digital information from
the airplane to the ground and back," Ortberg said.
He said the growth opportunities the purchase brings
Rockwell were akin to the new capabilities a home acquires when
it gets Internet access.
"We have long looked at the Arinc aviation business as a
great opportunity for us," Ortberg added.
For Rockwell, those opportunities include providing
information tied to plane maintenance and security, passenger
operations and other services.
"There's some longer-term opportunities to link what
Rockwell does on the avionics with what Arinc does in
ground-to-air communications," Michael Derchin, an analyst with
CRT Capital Group, said. "They are likely looking at longer-term
new product development that can be additive."
Derchin said Rockwell's shares were likely under pressure on
Monday because the company indicated it would issue debt to
finance the acquisition and said it would slow the pace of its
share repurchase activity, which has helped bolster recent
Ortberg said Rockwell Collins would not likely take on
another purchase of the Arinc size over the next couple of
years, but added the company will continue to consider
acquisitions that provide bolt-on capabilities.
Rockwell Collins has been hard hit by program cancellations
in recent years as the United States, the world's largest
weapons buyer, curbed spending. In response, Rockwell has
reduced its business in some defense segments, curbed
unnecessary research and development expenses and cut jobs.
Shares of Rockwell Collins were off 1.4 percent at $73.41 in
afternoon trading on Monday, while shares of Carlyle Group were
off 0.3 percent at $26.96.