Industry Week in Review – October 20, 2017
Aerospace & Defense Update
Airbus has acquired a majority stake in the Bombardier C-Series jetliner, creating an avenue for Bombardier to avoid a potentially damaging trade dispute with Boeing where the U.S. Department of Commerce threatened a 300% tariff on C-Series imports. The agreement gives Airbus a 50.01% stake in Bombardier’s C-Series Aircraft Limited Partnership and would allow Bombardier to avoid the tariff through performing final assembly of the aircraft at Airbus’ factory in Alabama, making the aircraft a domestic product. The deal benefits Bombardier by improving the C-Series’ economies of scale and providing access to a broader sales distribution network. For Airbus, the deal will support the bottom end of its narrowbody aircraft portfolio and help to expand its global network through the potential expansion of further deals in Canada spanning other sectors.
The U.S. Navy may ask Congress to purchase two new aircraft carriers at the same time in order to decrease construction costs for each ship, partially in response to President Trump’s initiatives to lower the costs of the service’s fleet. After Navy Secretary Richard V. Spencer requested companies develop cost-reduction plans for the warships, many companies responded that buying two aircraft carriers at the same time could improve efficiencies and translate into potential cost savings. The Navy has set out a plan for a 355-ship fleet, adding more than 50 ships to its current portfolio. This expansion includes four additional aircraft carriers, which the Pentagon anticipates will cost $43 billion.
Government Technology Solutions
Federal Chief Information Officer Margie Graves announced that the final version of the technology modernization report by the White House’s American Technology Council and Office of American Innovation Technology will be released shortly. This report lays out the current and envisioned state of Federal IT, while providing recommendations to implement these improvements. Additionally, The White House is waiting on Congress to implement the Modernizing Government Technology Act (“MGT”), which will change funding structures within agencies to allow for unspent budgets to go towards IT modernization projects. The Office of Management and Budget (“OMB”) will set up funding structures quickly so agencies can protect their assets immediately. The OMB and National Institute of Standards and Technology (“NIST”) have formed a joint working group to determine better security protocols for identity verification and other security measures. Considering the cybersecurity hacks reported in the past few weeks (e.g., Equifax and the Federal Deposit Insurance Corporation), Graves has emphasized the importance of the MGT and different solutions to increase its efficiency.
Due to the growing popularity of blockchain, government agencies are weighing whether to implement this new and rapidly growing technology. As a decentralized currency, blockchain transactions are visible to all users, potentially making it a more efficient and cheaper alternative to standard currency. Agencies have cited that blockchain could be used for identity management, alternative payment models, and auditing, among other services. However, government leaders are worried about privacy issues and do not believe that blockchain would pass regulatory constraints. The General Services Administration (“GSA”) has been one of the biggest agencies working on blockchain because it realizes hundreds of potential benefits, but is delaying the implementation of any new policies as it further analyzes the potential risks. Additionally, the State Department is considering blockchain usage in diplomacy to potentially track foreign aid and police illegal mining. Overall, government agencies realize the potential benefits of blockchain, but are waiting to implement the digital currency in a broader context as it weighs its feasibility in the broader market.
Big Movers
Astronics (up 10.1%) – Share prices were up this week after the company was selected by six major North American airlines to install in-seat power systems on up to 1,400 narrow-body and regional jet aircraft.
GKN (down 5.4%) – Share prices were down again this week after the company gave analysts guidance that profits would be below expectations due to two external claims expected to cost $53 million.
Transactions
AEA Investors LP has agreed to acquire Excelitas Technologies Corp., a provider of photonics technology solutions, with core capabilities in detection, optics, illumination and advanced electronics. Terms of the deal were not disclosed.
CSRA has agreed to acquire Praxis Engineering Technologies, a provider of software and systems engineering services to agencies in the intelligence community with a particular emphasis on mission application development and engagement. The deal is worth an estimated $235 million.
Intelligent Decisions, Inc. has acquired privately held Manning Services, Inc., a provider of custom application development and cloud migration services. Terms of the deal were not disclosed.
Spectris plc has acquired privately held The Omnicon Group, Inc., a provider of engineering solutions for the aerospace, automotive, and defense sectors. The deal is worth an estimated $29 million.
