Rockwell to Form Chinese JV - Analyst Blog


The aviation and military electronics maker Rockwell Collins Inc. ( COL ) has entered into an agreement to form a joint venture ("JV") with a Chinese company to manufacture commercial flight simulators and training solutions.

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 China.

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 authorities.

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. ( ATK ), Elbit Systems Ltd. ( ESLT ) and TransDigm Group Incorporated ( TDG ), all with a Zacks Rank #1 (Strong Buy).

ALLIANT TECHSYS (ATK): Free Stock Analysis Report

ROCKWELL COLLIN (COL): Free Stock Analysis Report

ELBIT SYSTEMS (ESLT): Free Stock Analysis Report

TRANSDIGM GROUP (TDG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: ATK , COL , ESLT , TDG

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