Industry Week in Review – November 11, 2011
In order to bridge the gap caused by delays in the F-35 Joint Strike Fighter program and the termination of the F-22 program, the U.S. Air Force has announced plans to upgrade more than 300 Lockheed Martin F-16s and, potentially, Boeing’s F-15s. The proposed structural and avionics upgrades are projected to increase the service life of the F-16 by 8 years and cost $9.4 million per aircraft. The upgrades could provide near term revenue opportunities for both Lockheed and Boeing, who would provide structures such as wing boxes; Northrop Grumman and Raytheon, who have already responded to requests for information to install radars; and Rockwell Collins, who is likely to provide the avionics.
The Air Force has enough F-16s to upgrade as many as 600 aircraft to cover any fighter shortfall should there be further F-35 delays, however, the Air Force has already begun upgrading 176 F-15/Ds, extending their service lives to 2025 and therefore, likely will not need additional F-15s/F-16s beyond the proposed 300.
Big Movers
Force Protection Inc. (Up 30.9%) – Shares rose this week following the announcement that General Dynamics will acquire Force Protection for $5.52, representing a 50% premium from prices just a week before the announcement.
Computer Sciences Corporation (Down 18.3%) – Shares were down this week after the company released 2Q2012 earnings. Revenue increased slightly to $3.97 billion up from $3.94 billion the same period a year before. Operating cash flow was a loss of $268 million, down from last year’s $178 billion.
Aeroflex Holding Corp (Down 11.9%) – Shares were down this week after announcing 2Q2012 estimates below analysts’ expectations. The company estimated 2Q2012 revenue between $160 million and $170 million and EBITDA between $26 million and $30 million. Analysts’ had expected revenue and EBITDA of $187 million and $44 million, respectively.
Recent Acquisitions
General Dynamics to acquire Force Protection Inc., a manufacturer of blast- and ballistic-protected vehicles for U.S. and foreign militaries, for $5.52 a share; representing $275 million or 10x LTM EBITDA. The acquisition complements and strategically expands General Dynamics’ armored vehicle business and will enable the combined company to quickly scale product offerings and offer additional services to meet demand.
TransDigm Group Incorporated to acquire Harco Laboratories, Inc., a manufacturer of highly engineered thermocouples, sensors, engine cable assemblies, and related products, for around $84 million. Harco’s long established proprietary business with significant aftermarket content, modest military exposure and highly engineered products fits well with Transdigm’s overall strategy and will allow it to expand its content for certain engine applications. Harco reported fiscal 2011 revenue of approximately $37 million.
