Carlyle Group is buying Annapolis aero radio firm
By Meredith Cohn
Sun reporter
July 6, 2007
ARINC, the Annapolis company that has been the primary provider of communications technology to the nation's airlines for nearly 80 years, announced yesterday that it is being sold to the Carlyle Group.
The company, primarily owned by the six largest U.S. airlines, has been looking for an infusion of equity for the past year to finance technology development and rapid growth. Officials said yesterday that the giant private equity firm in Washington was just what ARINC was looking for.
The deal will provide some needed cash for ARINC's airline owners and continue a monthlong buying spree for Carlyle that includes deals for General Motors' Allison Transmission unit and nursing home operator Manor Care Inc., as well as an offer to buy British telecom company Virgin Media.
Over the past 20 years, Carlyle has invested $28.3 billion in 636 transactions that required a total investment of $132 billion.
ARINC said yesterday that it expects to retain all 3,300 employees in more than 100 offices.
The sale is expected to close by the end of October.
ARINC was founded in 1929 as Aeronautical Radio Inc. to provide communications for commercial airplanes, and its technology remains the standard around the world.
"This is an important step in the evolution of ARINC," said John M. Belcher, the company's chairman and chief executive, in a statement.
"We have worked very hard to find a partner who shares our vision, and believe that Carlyle's international presence, financial resources, and expertise in the aerospace, defense and communications sectors will be instrumental in the continued expansion of our business."
The sale price was not disclosed, but some of its shareholders yesterday filed documents with the Securities and Exchange Commission detailing their expected income.
American Airlines, which owns 30 percent of the company, expects proceeds of $194 million for its ARINC shares, and to report a gain of about $140 million. United expects to receive more than $125 million and to record a gain of more than $40 million.
Andrew Backover, director of financial public relations for AMR Corp., parent of American, said yesterday that proceeds could be used to improve the company's balance sheet. He declined to give more details because the deal hasn't closed.
The airlines will continue to use ARINC's telecommunication systems, as well as newer technology such as remote check-in systems for travelers from hotels, cruise ships and airport kiosks.
Philip Finnegan, director of corporate analysis for the Teal Group, an aviation consultant in Fairfax, Va., said the sale is good for the airlines.
"Airlines need cash themselves right now," he said. "It's difficult for them to provide the cash a company like ARINC needs. At the same time, a group like Carlyle has a lot of experience in aerospace and defense and is willing to invest what is needed. It makes a lot of sense."
Sales in areas other than airline communications systems, such as homeland security, where business rose 40 percent last year, helped ARINC to report record revenue of $919 million in 2006, up from $891 million in 2005. However, net profit fell to $10.2 million from $11.9 million in 2005.
The businesses are complementary for Carlyle, which focuses on an array of industries including aerospace and defense, transportation, energy, health care, technology business services and telecommunications. Carlyle says it has $58.5 billion under management.
"We believe that ARINC is well positioned to capitalize on several favorable macro trends in both its commercial and government market segments."
