Industry Week in Review – May 31, 2013
The Pentagon released its plans for initial operational capability (“IOC”) of the F-35 Joint Strike Fighter, adding to a string of positive developments for the program over the past several weeks. According to Commandant Gen. James Amos, the Marine Corps plans to be the first potential customer of the F-35B variant, indicating that the Marines plan to achieve IOC in late 2015. The IOC declaration will include ten F-35B aircraft, ten fully trained flight and maintenance crews, and sufficient spares for deployment, but the Marines expect the full squadron to consist of 16 aircraft. The Marine Corps jets will rely on the 2B software package, which offers limited weapons carriage and is expected to be delivered in 2015.
Though initially expected to wait until the more expansive 3F software package is released, The Air Force also announced that it would declare IOC with the 2B package in December 2016. The Air Force is expected to be the JSF’s largest customer, purchasing 1,763 F-35A variants, some of which will be sold to international program partners as well as Israel and Japan. Whereas the Marine Corps and Air Force are accepting an incremental approach to the fighter jet’s capabilities roll-out, the Navy emphasized that in order to move forward with its F-35C variant, the jet will have to have the full range of capabilities to track, target, and engage in various contested environments. Navy leadership announced that the service will wait for the 3F software package, estimated to be delivered in 2017, and will declare IOC in February 2019.
Big Movers
Aeroflex Holding Corp. (Up 6.5%) – shares were up for the week following the Company’s announcement of an amended credit agreement that will reduce annual interest expense by $7.3 million, or $0.05 per share. The agreement also included other more favorable terms, including the elimination of a total leverage ratio covenant from the term loan portion of the facility.
EADS NV (Up 4.9%) – shares were up for the week after Air China and its subsidiary Shenzhen Airlines agreed to purchase 100 A320 aircraft from EADS subsidiary Airbus Co. for $8.9 billion. Air China ordered 60 aircraft, to be delivered between 2014 and 2020, for $5.4 billion. Shenzhen airlines ordered 40 aircraft, to be delivered between 2016 and 2020, for $3.5 billion.
Relevant Transactions
PAE agreed to acquire the Applied Technology Division from CSC in a $175 million cash transaction. The division, which had FY2013 revenue of $760 million, provides aviation maintenance, base operations, test and training range support, and space range support services. The acquisition introduces new military and space testing and training capabilities into PAE’s portfolio, and also expands the Company’s footprint within the DoD and NASA.
Astronics Corporation agreed to Acquire PECO Inc., a manufacturer of highly-engineered aircraft interior components and systems, for $136 million. PECO projects 2013 revenue of $83 million, with EBITDA margins consistent with Astronics’ historical performance. The acquisition expands Astronics’ capabilities, particularly within Passenger Service Units, which include cabin lighting, emergency oxygen, and other cabin systems.
