Industry Week in Review – May 4, 2018
Aerospace & Defense Update
On Tuesday, Boeing announced its intention to acquire KLX, Inc., a provider of aerospace fasteners, consumables, and logistics services to customers worldwide for $4.2 billion. The acquisition will include KLX’s Aerospace Solutions Group, but will not include KLX’s Energy Services Group, which Boeing plans to divest. KLX Aerospace will be integrated as a subsidiary of Aviall, which manufactures aerospace parts within Boeing’s Global Services business unit. The Global Services unit was launched last year as part of Boeing’s broader strategy of expanding into the higher-margin aviation aftermarket business by providing maintenance, spare parts, and other services. Boeing’s CEO, Dennis Muilenberg, has set the goal of tripling the division’s sales to $50 billion over the next decade, which will likely fuel consolidation amongst the current aviation aftermarket providers.
Spirit AeroSystems has agreed to acquire the parent company of aerospace-components maker, Asco Industries, for $650 million. The Belgian-based company is a supplier of high-lift wing structures, mechanical assemblies, and major functional components to original equipment manufacturers and Tier-1 suppliers within global commercial aerospace and military markets. The acquisition is in line with Spirit AeroSystems’ strategy of diversifying its main focus away from aerostructures manufacturing. Asco will help Spirit AeroSystems expand into parts manufacturing for the Airbus A320 and A350, as well as Lockheed Martin’s F-35 fighter jet, and provide greater access to commercial customers to expand its fabrication business.
Government Technology Solutions
The White House’s National Security Council is pushing to rescind the Presidential Policy Directive 20 (“PPD-20”), a memorandum that guides the approval process for government-backed cyberattacks, with a more streamlined channel for military leaders to get their offensive cyber operations greenlit. The move comes as lawmakers openly question whether the U.S. Cyber Command, the nation’s premier cyber warfare unit, is hamstrung from responding to Russian meddling due to bureaucratic red tape. Currently, PPD-20 requires government agencies to run approvals for offensive operations through a chain of command that stretches across the Federal Government, even requiring the direct blessing of the President for operations of “significant consequence”. However, the move faces resistance from the Intelligence Community (“IC”) and several federal agencies, particularly as intelligence officials express concern over whether rescinding the directive will affect their own active missions. It remains unclear whether giving military leaders more leeway to conduct hacking operations will lead to more effective missions.
As the Department of Homeland Security (“DHS”) prepares a new cybersecurity strategy, lawmakers have called on the DHS to improve its information-sharing program. DHS has worked to quicken the pace at which it shares information with the private sector, touting its Automated Indicator Sharing program. However, Rep. Dutch Ruppersberger argued in a report released Monday that U.S. networks can no longer rely solely on such reactive, indicator-based sharing programs. President Trump’s fiscal 2019 budget includes $1.7 billion for cybersecurity at DHS, which Ruppersberger hopes will be put towards investing in information-sharing. The report comes as DHS awaits congressional approval of a reorganization that would change the National Protection and Programs Directorate, its bureau for protecting the cyber and physical security of critical infrastructure, into a dedicated cybersecurity bureau renamed the Cybersecurity and Infrastructure Security Agency. The focus of DHS’ new strategy will be to curb the “systemic” cyber risk of the nation’s infrastructure by using private and public sector collaboration to better connect the dots on threats.
Big Movers
Fluor (down 24.0%) – Share prices were down this week after the company reported a net loss per share in the first quarter and reduced its full-year EPS guidance range from $3.10 – $3.50 to $2.10 – $2.50 per share.
Spirit AeroSystems (up 4.4%) – Share prices were up this week after the company agreed to acquire Asco Industries for $650 million.
Transactions
American Industrial Partners has agreed to acquire L3 Technologies’ subsidiary, Vertex Aerospace, a provider of sustainment & support and aviation & aerospace technical services for the DoD, government agencies and foreign governments. The deal is worth an estimated $540 million.
Boeing Co. has agreed to acquire KLX, Inc., a provider of aerospace fasteners, consumables, and logistics services worldwide through its Aerospace Solutions Group. The deal is worth an estimated $4.2 billion.
Ontario Systems, LLC, a portfolio company of Arlington Capital Partners, has acquired Justice Systems, Inc., a provider of court case management, prosecutor and public defender case management, and electronic payments software for state and municipal court systems. Terms of the deal were not disclosed.
Pinewell Capital, LLC has acquired Avon Engineered Fabrications, Inc., a provider of military-grade performance inflatable products to various DoD and US military branches, as well as the other commercial clients worldwide. Terms of the deal were not disclosed.
Spirit AeroSystems Holdings, Inc. has agreed to acquire Asco Industries N.V., a provider of high lift wing structures, mechanical assemblies, and components to OEMs and Tier-1 suppliers. The deal is worth an estimated $650 million.
