Textron Buys UAV Makers AAI & Aerosonde
United Industrial Corporation designs, produces, and supports aerospace and defense systems through its wholly owned subsidiary, AAI Corporation of Hunt Valley, MD, and AAI Corporation’s direct and indirect wholly owned subsidiaries (AAI Services Corporation, Aerosonde Pty Ltd, Aerosonde North America Incorporated, ESL Defence Limited, McTurbine Inc., and Symtx, Inc.). It is probably best known for its Shadow UAV, which serves as the de facto battalion-level/Class II UAV in the USA’s current and future force, and for its OneSystem ground station that can control UAVs from several manufacturers. Other products and services include unmanned aircraft systems, aircraft and satellite test equipment, training systems, counter-sniper devices, armament systems, aviation ground support equipment, logistical and engineering services, and maintenance, repair and overhaul activities. The firm has 2,500 employees worldwide, with projected 2007 revenues of approximately $700 million.
Now Textron Inc. of Providence, RI, has announced a definitive agreement to acquire UIC in a cash transaction valued at approximately $1.1 billion (inclusive of UIC stock expected to be issued to bondholders, pursuant to the terms of the $120 million 3.75% convertible senior notes issued by the company in September 2004). The per-share offer is a 7.1% premium to UIC’s closing price on Oct 5/07.
DID discusses the deal’s terms below, and adds some thoughts re: the UAV market. Rationales for the acquisition have been stated by a number of parties:
The board of directors of both companies approved the terms of the transaction, in which Textron will acquire all of the outstanding shares of UIC common stock for $81 per share in cash by way of a tender offer, followed by the merger of a wholly owned subsidiary of Textron into UIC, with UIC surviving the merger as a wholly owned subsidiary of Textron. The tender offer is expected to commence on or about Oct 16/07. The deal is expected to close during the fourth quarter of 2007, subject to the completion of certain legal and regulatory requirements. Textron’s financial advisors were Merrill Lynch & Co. and Rothschild Inc., while J.P. Morgan Securities Inc. acted as exclusive financial advisor to UIC.
UAV makers AAI & Aetosonde will become part of helicopter subsidiary Bell Textron, while other elements of UIC will become part of Textron Systems Corporation.
Textron Chairman, President and CEO Lewis B. Campbell:
“AAI is a superb strategic fit for Textron. It is in perfect alignment with our strategy to add important capabilities to our existing aircraft and defense businesses, adding new products and capabilities to further serve our government, military and homeland security customers. Textron is a recognized leader in manned, fixed and rotary wing aircraft. The addition of AAI broadens our leadership into unmanned vehicles. This combination of capabilities represents a very powerful growth platform, both in the near and long term.”
Textron Chief Financial Officer Ted French:
Robert Stallard, a New York-based analyst with Bank of America:
“It will add to Bell’s nascent unmanned capabilities… We like Textron’s continuing evolution into an aerospace and defense company.” He believes the merger will propel the Textron Systems division to a $2 billion business.
Warren G. Lichtenstein, Chairman of the Board of UIC and founder and managing partner of Steel Partners II, UIC’s largest investor:
“This deal recognizes the value of UIC’s aerospace and defense technology as well as the Company’s operational excellence. I am proud to have been a part of UIC’s transformation into a world-class company since 1999 and foresee an exciting future with Textron.”
Dick Millman, president and CEO of Bell Helicopter:
“In addition to Textron Systems’ expertise in situational awareness, intelligence gathering and precision weapons, we have experience in surveillance and reconnaissance with groundbreaking unmanned aircraft systems, such as Bell Helicopter’s Eagle Eye – the first-ever unmanned tiltrotor aircraft. Our ability to address these growth opportunities will be strengthened by AAI’s capabilities. Further, AAI’s engine overhaul capability supports one of the key growth areas for Bell Helicopter, complementing our $1 billion helicopter support and service business.”
The Eagle Eye is a tilt-rotor UAV, derived from Bell’s work on the V-22 Osprey. It was intended to be part of the Coast Guard’s Deepwater modernization plan, and development has had no problems, but the program is currently on hold. It may well end up being replaced by the Northrop Grumman’s MQ-8B Fire Scout helicopter UAV, which is being purchased by the US Army and US Navy.
Frank Tempesta, president of Textron Systems:
“As with our recent acquisition of Overwatch Systems, AAI’s products complement our existing portfolio and provide an essential building block for our precision engagement strategy. AAI will enable us to deliver broader and more integrated solutions to our customers – whether deploying our precision weapons, networking our unattended ground sensors, integrating with our intelligence software, or benefiting from the service and logistics that support them all. Just as important, we are also gaining some of the industry’s top talent and AAI’s established, highly loyal customer base.”
DID Analysis


Textron Inc. is an $11 billion multi-industry company operating in 32 countries with approximately 40,000 employees. The company leverages its global network of aircraft, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell Helicopter, Cessna Aircraft Company, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, Textron Systems and Textron Financial Corporation.
What it hasn’t had to this point is a strong presence in UAVs; and its setbacks in the MRAP program have cost the firm a significant defense market opportunity. Protestations of continuing M1117 orders aside, there was a general feeling that management needed to do something.
UIC may represent an opportunity, and the growing expectations of UAV control from helicopters et. al. make some kind of position in the UAV and controller markets highly desirable. The longer term question for Textron is sales volume over the long term.
Australian UAV maker Aerosonde has interesting technology that has demonstrated excellent performance since 1998, but hasn’t made much of a dent in the global market. AAI, meanwhile, has a solid product in the Shadow UAV series – but when the US production contract runs out, what replaces it? Expansion of the Shadow fleet runs smack into the lessons from that UAV’s Iraq deployment, in which “deconfliction” issues with other aircraft in their airspace made Shadow deployment far more complex, and created long lag times.
The solution is “sense and avoid” hardware, which already exists in commercial aircraft. Europe’s EDA already has a program aimed at making civil certification possible for UAVs, and they are not alone in these research efforts. The challenge is making it small enough to fit UAVs, without taking all of their payload space and weight. In that realm, the Shadow and its ilk have less weight and space available for trade than larger UAVs like the MQ-1 Predator, whose demand continues to be strong. Which means that barring a breakthrough, it is likely to take another miniaturization cycle or two before they can be fitted with this option.
That gap is likely to create more opportunities at the higher end of the UAV market in the short-medium term, while leaving the squad-deployed mini-UAVs more or less untouched. Meanwhile, a number of less-advanced countries see small to medium UAVs as an opportunity to engage their own local aerospace industries in a project they can handle. All of these developments tend to converge competitive pressure on the small-medium/ battalion-level/ Class II segment – precisely where AAI is positioned.
In order to profit from AAI beyond the short term, Textron will need to break the deconfliction dynamic and grow sales in advanced countries – or find enough new customers for Shadow who find its price attractive, have no local program to compete with it, and don’t mind the lack of weapons carriage or near-term deconfliction packages. Could integration with Bell’s popular helicopters offer the necessary leverage? Bell is about to find out.
Additional Readings & Sources
- Textron (Oct 8/07) – Textron Reaches Agreement to Acquire United Industrial Corporation
- AAI (Oct 8/07) – United Industrial Corporation to be Acquired by Textron
- Bloomberg (Oct 8/07) – Textron to Acquire United Industrial for $1.1 Billion (Update4)
- Maryland Daily Record (Oct 8/07) – Textron buying AAI parent
- US Army (Oct 2/07) – UAS Video Terminal Connects Boots on the Ground to Eyes in the Sky. Covers OneSystem. “The OSRVT is soon to be one of the Army’s premier programs of record,” said Col. Don Hazelwood, Army UAS project manager. PEO Aviation fielded the first of 1,000 OSRVTs in February, and the system will soon be common throughout the modular force. Laptop units are in use by ground combat teams, while 12 command and control UH-60 Black Hawk helicopters are already equipped with this system. OSRVTs have been integrated into 28 Strykers headed to Iraq, and the system will be in Apache cockpits by next summer.”
- DID (May 29/07) – EDA Funding Civil UAV Integration Effort
- Aerosonde (June 22/06) – Aerosonde acquired by AAI Corporation
- DID (Nov 15/05) – Field Report on Raven, Shadow UAVs From the 101st
- Bell Helicopter – The Bell Eagle Eye UAS