Rockwell Collins [COL] President and CEO Kelly Ortberg said yesterday the company’s proposed $1.39 billion acquisition of ARINC Inc. is based on where Rockwell Collins sees the industry headed: toward greater connectivity and information-enabled solutions between the aircraft and ground.
The tentative deal announced Sunday will combine two players in the growing field of aviation information management, combining ARINC’s networks and services with the avionics and cabin technologies developed by Rockwell Collins, the company said in a statement.
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| Rockwell Collins CEO and President Kelly Ortberg. Photo: Rockwell Collins. |
Ortberg also said ARINC’s business model is heavily subscription-based with very high contract retention rates, which creates a consistent revenue stream that is less dependent on aircraft production rates. ARINC is a portfolio of the Carlyle Group.
“This will also provide us added stability throughout the inevitable commercial aviation business cycles,” Ortberg said yesterday during a conference call for investors.
Ortberg said the acquisition is expected to accelerate the shift of Rockwell Collins’ revenue to become more commercial and, on a pro forma basis, the company’s commercial revenue will represent about 54 percent of total sales, with the other 46 percent government sales. Ortberg emphasized the acquisition provides Rockwell Collins a platform in the “fast growing” information management space and positions the company for long-term sustainable growth.
Rockwell Collins Senior Vice President and Chief Financial Officer (CFO) Patrick Allen said yesterday during the conference call the company anticipates financing the entire $1.39 billion purchase price through the issuance of debt with approximately 2/3 allocated as long-term debt to take advantage of low interest rates. Allen also said the remainder of the purchase price will be satisfied through the issuance of commercial paper, which he said will allow Rockwell Collins to pay down those balances using the companies’ combined cash flow. Commercial paper is a short-term, unsecured note usually sold to one company to another for immediate cash needs.
Allen said the acquisition of ARINC will immediately provide revenue growth for the company, adding more than $600 million. Allen cautioned, though, that while Rockwell Collins still expects to focus primarily on growing the company, the acquisition of ARINC may limit its ability to do major acquisitions for a period of time.
“We will, though, continue to target complementary, bolt-on acquisitions of the type we have typically done to enhance our capabilities and better serve our customers,” Allen said.
ARINC broadly touches the entire aviation ecosystem, including pilots, operators, maintenance, passengers, controllers, regulators, security and airport operations, according to Rockwell Collins. ARINC also provides communications and information processing for rail, industrial security and public safety segments. In a note for investors, Jeffries investment bank analyst Howard Rubel yesterday described ARINC as the largest aeronautical data link provider in the world.
The proposed transaction is contingent on approval by federal regulators.