Spy drone maker is sold

Hunt Valley-based United acquired by rival Textron

October 09, 2007|By Laura Smitherman, Andrea K. Walker and David Wood | Laura Smitherman, Andrea K. Walker and David Wood,SUN REPORTERS

The $1.1 billion deal announced yesterday to sell Hunt Valley-based United Industrial Corp. to a competitor is a measure of how much the U.S. military depends on unmanned spy planes to spare soldiers in two intractable wars.

United Industrial, whose Shadow drone is deployed over battlefields in Iraq and Afghanistan, will be acquired by Textron Inc., a corporation based in Providence, R.I. Textron produces Bell helicopters and Cessna aircraft and also makes golf carts, auto parts and surveillance systems. Under the agreement, United Industrial shareholders get $81 a share in cash.

The deal caps the 57-year history of United, a company that has dabbled in several industries but grew into a favorite in the defense sector when it focused on unmanned flight and became a technological linchpin in the post-Sept. 11 wars. In the past five years, its revenue has more than doubled to almost $700 million. Its stock followed the same trajectory, up 310 percent during that time. United Industrial shares climbed $4.77, or 6 percent, to $80.39 in trading yesterday. Textron shares fell $1.37, or 2 percent, to $64.01.

The company's 1,400 workers in Hunt Valley will likely remain in place as part of the deal, Textron executives said.

"The importance and success of unmanned aircraft systems in Iraq and Afghanistan strongly suggests that this technology will continue to grow for many years to come," said Ted R. French, Textron's chief financial officer, in a conference call with analysts yesterday. He said he expects unmanned systems to be "the first into and the last out of areas of future conflict."

The Shadow, manufactured by United Industrial's principal subsidiary, AAI Corp., has flown more than 200,000 hours, mostly in Iraq and Afghanistan. Each of the 18 Army brigades operating in Iraq, and the two brigades in Afghanistan, has four drones with hydraulic launchers and air-conditioned trailers that contain the operating stations.

Officials with both companies said they do not expect changes to United Industrial's 2,500-person work force and that its operations would be integrated into a Textron group that works with the defense, homeland security and aerospace markets. The combination with Textron will help it to expand, said James H. Perry, chief financial officer at United.

"Becoming part of an international organization like Textron that has resources makes it easier for us to compete in the marketplace," Perry said. "We expect the operations to stay here. Combining with Textron, hopefully, will facilitate more growth and opportunity here in Baltimore."

Perry said it has been difficult for a company of United Industrial's size to compete for government contracts that are tailored toward small or much larger companies. A lot of United Industrial's business comes from subcontracting with other companies, such as Boeing Co. He said United Industrial is looking to hire 150 people.

United Industrial was close to a takeover several years ago when activist investor Warren G. Lichtenstein, a major shareholder who now serves as chairman of the board, threatened to wage a battle for control unless management moved aggressively to sell the company. But after a year on the auction block, during which at least one proposed deal came within a signature or two of completion, the company said it was no longer for sale.

Instead, the company decided to pare itself to the AAI subsidiary. It sold a transportation division and its Detroit Stoker Co. energy business, which had been weighed down by thousands of claims related to asbestos-filled parts made by third parties and used in the company's products before 1981.

United Industrial has other divisions, repairing helicopter engines and designing factory test equipment for aircraft and satellites. But more than half its business is in unmanned aircraft systems. Its "One System" enables the Army to control various unmanned aircraft from a single video console, whether the drone was built by AAI or a competitor.

The Shadow epitomized a technologically savvy military that former Defense Secretary Donald H. Rumsfeld said could overwhelm opponents with fewer soldiers. The drones are considered a key "force multiplier" in the Iraq and Afghanistan wars with no defined front lines and hard-to-pinpoint insurgents.

The Army boasts that the spy plane was developed in a record 33 months because the need for it on the battlefield was so great that much of the normal bureaucracy was cut from the development process. The Shadow is controlled by ground combat commanders and puts "hot" tactical intelligence directly to use in the field. AAI has an exclusive contract with the Army for the Shadow fleet.

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