The aviation and military electronics maker
Rockwell Collins Inc.
) has entered into an agreement to form a joint venture ("JV")
with a Chinese company to manufacture commercial flight
simulators and training solutions.
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The 50:50 JV - ACCEL (Tianjin) Flight Simulation Co. LTD. - with
Beijing Bluesky Aviation Technology will design, manufacture and
market commercial flight simulators primarily for the Chinese
market and then spread out worldwide. Beijing Bluesky Aviation
Technology Co. Ltd is an affiliate of the state-owned aerospace
and defense company Aviation Industry Corporation of China. Per
the agreement, both parties will be contributing financing,
tangible assets and intellectual property equally. Products of
the JV will include simulators of the Airbus A320 and Boeing 737
and will serve airlines and flight training institutions in
ACCEL will create a simulation and training center of excellence
in China to offer flight simulation and training solutions. The
facility will be located in the Airport Economic Area in Tianjin
with a first phase investment of $50 million. Tianjin Airport
Economic Area is a growing hub for the aviation and aerospace
industry in the country.
The JV - scheduled to be operational by the end of 2014 - will be
managed by Andrew Morris, a Rockwell Collins employee with 38
years of experience in the simulation and training industry. The
deal is subject to approval from the government and regulatory
Rockwell Collins is the foremost global supplier of
communications and avionics equipment for both commercial and
military customers. ACCEL will utilize Rockwell Collins' CORE
Simulation Architecture technology and leading visual systems,
and Bluesky's expertise in Chinese commercial aircraft flight
simulation training and local service and support. Hence, this
collaboration is a significant step in the development of
commercial simulation and training in one of the fastest growing
regions of the world.
We appreciate Rockwell Collins' efforts towards managing risks
related to the ongoing defense budget sequestration. The company
is currently focusing more on expanding its international
businesses, which will in turn help to secure a stable revenue
stream going forward. In addition, the company is upgrading its
core competence besides engaging in innovation.
Despite the aforesaid positives, we remain cautious about the
company's short-cycle products, the U.S. government's delayed
funding authorizations, program execution risk and high exposure
to fixed price contracts. These negatives may to some extent
challenge Rockwell Collins' future performance.
Rockwell Collins currently has a Zacks Rank #3 (Hold). Stocks in
the sector that are better ranked include
Alliant Techsystems Inc.
Elbit Systems Ltd.
TransDigm Group Incorporated
), all with a Zacks Rank #1 (Strong Buy).