Airlines Put ARINC on the Market

Its systems are the backbone for some 95% of the U.S. airline industry's air-to-ground and 70% percent of the global air-to-ground market.


WASHINGTON_ARINC, a 77-year-old military and aviation communications company owned primarily by the largest U.S. airlines, is up for sale after more than a year of deliberations about how to raise the capital necessary to grow.

No potential buyers have yet come forward.

The Annapolis, Maryland-based company, which had $890 million (€731 million) in revenue in 2005, derives two-thirds of its business from the U.S. military, for whom it provides wireless systems that allow all branches to communicate over multiple devices. Its systems are also the backbone for some 95 percent of the U.S. airline industry's air-to-ground communications, and roughly 70 percent of the global air-to-ground market.

In 2004, the most recent year for which data is available, ARINC had a profit of $9 million (now €7.4 million), matching its earnings for 2003. The company's revenue has tripled since 1997.

The company has benefited from the increase in national security spending following the Sept. 11, 2001 terrorist attacks, providing new communications networks for nuclear power plants and systems to fingerprint and identify foreign travelers. And after Hurricane Katrina knocked out much of the Gulf Coast's communications systems, ARINC played an important role in enabling emergency personnel from different agencies to interact wirelessly, ARINC spokeswoman Linda Hartwig said.

ARINC sees the boom in government-sponsored homeland security projects as "a tremendous expansion opportunity," Hartwig said.

Trouble is, the financially troubled major airlines that own ARINC, including AMR Corp.'s American Airlines and Delta Air Lines Inc., cannot afford to make the necessary investments, Hartwig said. Moreover, a sale of ARINC could generate as much as $1 billion (€820 million) that would be split among the owners, according to a report in The Wall Street Journal, which said private equity groups are the most likely buyers.

"In order to really seek business opportunities, we need equity," Hartwig explained. Aside from the airlines, ARINC's long list of stakeholders includes The Boeing Co., Ford Motor Co. and USX Corp., according to the company's 2005 annual report.

The sale is being managed by Goldman Sachs Group Inc.

ARINC was born in 1929 when the U.S. airline industry was in its infancy. The company was formed as a neutral party to manage the industry's radio frequencies.

Today ARINC's biggest customer is the U.S. Air Force, though it provides communications for all branches of the military. Other customers include the Federal Aviation Administration, the Transportation Security Administration, the Federal Bureau of Investigation and the Port Authority of New York and New Jersey.

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