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Garmin Targets Growth In Aviation GPS Market

By | August 4, 2003

      Garmin International, a unit of Garmin Ltd. [Nasdaq: GRMN], is looking to strengthen its already formidable position in the general aviation GPS market through its proposed acquisition of UPS Aviation Technologies, a subsidiary of Atlanta-based United Parcel Service [NYSE: UPS], for $38 million in cash.

      The acquisition, subject to closing conditions, is expected to close in the third quarter and result in a change in UPS Aviation’s name to Garmin AT. UPS Aviation then would become a wholly owned subsidiary of Garmin International, an Olathe, Kan.-based supplier of navigation, communication, surveillance and audio systems for new and retrofit general aviation aircraft.

      In addition, Garmin is looking for other acquisitions to maintain what company officials describe as its “leadership position” in GPS applications for aviation and consumer products.

      UPS Aviation, headquartered in Salem, Ore., designs and manufactures multiple lines of communications, navigation and surveillance products for general aviation and air transport customers. The company employs about 150 people and is known for innovation in the development of automatic dependent surveillance broadcast (ADS-B) technology aimed at enhancing flight safety and situational awareness.

      An appealing attribute of UPS Aviation is that it is participating in the Federal Aviation Administration (FAA) demonstration programs with ADS-B, including the Safe Flight 21 and Alaskan Capstone programs. In addition, UPS Aviation’s CNX80 GPS navigation receiver recently became the first integrated panel-mounted product certified by the FAA for primary navigation using the Wide Area Augmentation System (WAAS), an enhancement to GPS technology.

      Min Kao, president of Garmin International, said the UPS Aviation’s “strong product line,” ADS-B technology and loyal customers are key reasons why he supported the purchase.

      Both companies are engineering-driven and are staffed by workforces that should mesh well together, Garmin officials said. The combination of Garmin and UPS Aviation capabilities should form a strong basis to serve both OEM and retrofit customers with state-of-the-art avionics to enhance safety, they added.

      UPS Aviation became available for sale because UPS did not see development and marketing of aviation technology as part of its long-term strategic direction.

      This “non-core” business of UPS should boost Garmin’s annual sales by roughly $30 million to $50 million, depending on rationalization of expenses, wrote Marc Nabi, a Merrill Lynch satellite analyst, in a research note last week. At the same time, UPS Aviation is running only at breakeven levels compared to Garmin’s 40 percent margins.

      What Garmin is paying for is additional research and development capabilities and reduced product development time to deepen its penetration in the existing general aviation market, Nabi explained.

      The acquisition fits “right in” with Garmin’s strategy of growing the aviation portion of its business, said Garmin official Ted Gartner. The purchase also will help Garmin take a leading position in capturing marketplace opportunities amid a trend of providing general aviation aircraft with an integrated cockpit, he added. –Paul Dykewicz

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