Eaton Finds a Purchaser for Its AIL Unit : Rockwell Agrees to Buy Troubled Defense Firm

Rockwell International agreed Wednesday to purchase Eaton’s AIL subsidiary for an undisclosed amount, but securities analysts said the deal was potentially worth more than $350 million.

Eaton has long been seeking a buyer for the troubled AIL unit, which was responsible for building the B-1 bomber’s electronic warfare system. The Air Force says the system does not work properly and has canceled AIL’s contract.

The two companies put out cryptic announcements saying the deal would be valued at AIL’s net book value as of Dec. 31, but spokesmen for the firms declined to supply information about the value.

The most recent net book value was reportedly posted at $350 million, according to Seidler Amdec analyst Robert Hanisee. In addition, AIL owns as much as $80 million in real estate that is not shown on its balance sheet, he said.

‘Natural Acquisitor’

New York-based AIL has 4,400 employees. The unit’s annual sales are not disclosed by Eaton, but they are estimated at $400 million, based on a rough rule in defense electronics that each employee generates about $100,000 in sales.

Analysts said Rockwell, headquartered in El Segundo, is the logical aerospace firm to acquire the AIL unit, since Rockwell was the prime contractor for the B-1 bomber airframe. The Air Force contracted separately with Cleveland-based Eaton for the B-1’s electronic warfare system.

“Rockwell is the only company that would have ever bought AIL,” Hanisee said. “It is the natural acquisitor. Whether they are going to make any money off it is another question.”

The Air Force has not yet decided whether to force the company to pay for the cost of fixing the deficient system. Those costs could amount to $200 million, Hanisee said.

Rockwell said the deal is subject to a definitive agreement, a financial risk review of the AIL business and approval by the company boards. The transaction is scheduled to be completed during the first quarter of next year.

AIL is headquartered in Deer Park, N.Y., and has manufacturing facilities in Melville and Hauppauge, N.Y., and in Westlake Village, Calif.

Separately, Rockwell announced Wednesday that its board has authorized an extension of a stock repurchase program by an additional $500 million.

Starting in May, 1986, the program has so far repurchased 59.5 million shares for $1.2 billion. At current share prices, the additional repurchase just authorized would reduce the company’s outstanding common shares by about 8%, Rockwell said.