Rockwell Collins Acquires NLX Corporation: Competition Heats Up

Published: 20 Nov 2003

by Jerry Weltsch, Principal Analyst

On October 17, 1003, Rockwell Collins announced its decision to acquire NLX Corporation. Rockwell Collins is a leader in military and commercial airborne electronics and military communications and display systems. NLX is a second tier player in the markets for military and commercial training simulators. What does each of these companies gain through this new relationship and what can the training and simulation markets expect from NLX as a result?

Born of the merger and acquisition craze of the 1990s in the aerospace & defense industry Rockwell Collins has established itself as a leader in the military and commercial airborne electronics and military communications and display systems markets. Since the end of the late 1990s, Rockwell Collins has made numerous acquisitions that fit very nicely into these particular markets. Most of these acquisitions still operate independently as wholly owned subsidiaries.

First, in December 1997, Rockwell Collins acquired Hughes-Avicom, a leader in the inflight entertainment systems market. This acquisition started Rockwell Collins on a trend of acquisitions toward building itself as a complete commercial and military airborne electronics systems supplier. Through this acquisition, the company formed Rockwell Collins Passenger Systems, which operated independently for a number of years. However, soon after the acquisition and amalgamation of competitor Sony Trans Com in July 2000, Rockwell Collins Passenger Systems was integrated into the Commercial Systems Business unit.

Rockwell Collins acquired Flight Dynamics, a company specializing in head-up displays for aircraft cockpits, in April 1999. Although the head-up display technology is a key compliment to Rockwell Collins’ core avionics business, Flight Dynamics still operates as a subsidiary.

Kaiser Aerospace and Electronics was acquired by Rockwell Collins in December 2000 and specializes in electro-optics and electronics systems that support military and commercial systems in which Rockwell Collins is already involved with avionics and communications business. Kaiser too operates as a subsidiary, despite the close relationship between Rockwell Collins’ core offerings and those of Kaiser.

As an exception to the rule of acquisitions operating independently, in March 2002 Rockwell Collins acquired Communication Solutions, Inc., a signals intelligence (SIGINT) technology component vendor, and integrated the company into its Government Systems Business unit. Again, the COM-SOL line of products is very complimentary to the core business offerings of Rockwell Collins.

The most recent acquisition by Rockwell Collins prior to NLX was that of Airshow in August 2002. Airshow is an inflight entertainment systems vendor to the business and general aviation market segments. Despite the integration of Rockwell Collins Passenger Systems into the Commercial Systems Business unit, Airshow still operates independently of the Business and Regional Systems Business unit.

The common thread of this acquisition history is the synergy of products and systems to the core focus of Rockwell Collins. The NLX acquisition deviates from this trend. While the core competencies of NLX’s training simulator offerings are flight simulators and training devices for different aspects of commercial and military aircraft, there is little obvious synergy between that of Rockwell Collins and NLX.

What Rockwell Collins gets out of this acquisition is a rapidly growing company in a stable aerospace and defense market. The markets for training and simulation are a growth market, but over the past five years, NLX’s growth has outpaced that of its market. Could this be Rockwell Collin’s first volley into diversifying itself to become a larger player in the overall aerospace and defense industry? If so, it is a great first step.

What NLX gets out of being acquired by Rockwell Collins is a large parent company in the industry that has the cash to spur its growth more rapidly into a greater competitive position in the training and simulation market. At the same time, NLX will continue to enjoy its independence as a wholly owned subsidiary in to the foreseeable future, a safe assumption when reviewing the recent acquisition history of Rockwell Collins.

Despite the uncharacteristic move for both of these companies, in this new relationship I expect both to benefit greatly. Together, they have discovered a synergistic move that was not obvious on the surface, but through a more deep exploration of the motives and benefits, should prove to be a winner in the short and long term.

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