Industry Week in Review – April 13, 2012

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This week the Pentagon released its 30-year aviation plan which forecasts to spend $770 billion on aircraft purchases, operations, maintenance, and construction between fiscal year 2013 and 2022, with annual funding levels set to peak at $80 billion in fiscal year 2022. The capabilities of aircraft identified in the plan reflect five principle investment objectives identified by the Pentagon:

  • Meet the demand for persistent, multirole intelligence, surveillance, and reconnaissance (“ISR”) capabilities
  • Provide sufficient enabler capability and capacity
  • Acquire fifth generation fighter / attack aircraft, while maintaining sufficient inventory capacity
  • Modernize long-range strike capabilities; and
  • Emphasize modernization and readiness.

Along with the surprise announcement that a new Air Force One presidential transport has been included in the 30-year plan (the first time the Pentagon has mentioned a replacement to the long standing Boeing 747 jet transport), the Pentagon released plans to increase its fleet of armed and long-haul surveillance drones by 45 percent over the next 10 years. The U.S. inventory of UAV’s will increase to 645 aircraft by 2022, from about 445 aircraft in 2013. Even as drones are set to play an ever increasing role in the Pentagon’s future, “smaller and leaner” force, the U.S. military is buying fewer than originally planned due to budget restrictions.

Big Movers

Hexcel Corp. (Up 8.5%) – Shares are up this week amid speculation that Hexcel Corp. will submit a counter bid for British aerospace parts supplier Umeco Plc. Cytec Industries Inc. has already made an offer valued at roughly $439 million, however analysts believe that were Hexcel to counter bid, it would be the likeliest candidate. Umeco’s shares rose as much as 48% on Thursday, following the initial bid.

Embraer SA (Up 2.8%) – Shares rose this week after the Company announced it had entered into a partnership with Boeing targeted to pursue several areas of cooperation, including research, technology, and sustainable aviation biofuels.

Relevant Transactions

L-3 Communications to acquire the assets of Thales Training & Simulation Ltd., a provider of simulation and training systems for military aircraft to government, defense, aerospace, and air travel industries, for $132 million. L-3 plans to integrate the civil aircraft simulation and training business into its link simulation and training organization, within its electronic systems group. The acquired assets are expected to generate sales of approximately $150 million for the 12 months ending December 31, 2012.

Thunderbird, LLC acquired Excaliber Precision Machining LLC, a developer of precision machining and assembly of aerospace parts, for an undisclosed amount. The acquisition will add complimentary machining skills to Thunderbird’s capabilities. Following the change of control, the business will be renamed Excaliber Precision Manufacturing LLC.

Trimble Navigation Limited acquired Gatewing N.V., a Belgian provider of lightweight unmanned aerial vehicles for photogrammetry and rapid terrain mapping applications. The acquisition broadens Trimble’s platforms for surveying solutions. Terms of the deal were not disclosed

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