Industry Week in Review – August 30, 2013
With defense contractors facing uncertain defense budgets in both the United States and Europe, companies are increasingly looking to international military sales for growth. The Middle East has been an especially active market as oil-rich countries look to upgrade their defense capabilities. This past week, the Pentagon announced over $13 billion in potential Middle East military deals, with $6.4 billion of orders coming from Saudi Arabia, $4.7 billion from Iraq, and the remaining orders coming from other countries including Qatar, Libya, and Kuwait. The orders consisted of items such as a $4 billion Saudi National Guard modernization program and $1.2 billion of support for the Saudi Air Force, as well as a $2.4 billion integrated defense system and $900 million order for Stryker vehicles from Iraq.
Moving forward, analysts see continuing growth in military sales to the Middle East. Not only are U.S. defense contractors looking to diversify away from the uncertain domestic market, but the Pentagon has indicated a strong desire to bolster the defense capabilities of Middle Eastern allies against a potential Iranian nuclear threat.
In the government services space, the Army, Air Force, and Defense Information Systems Agency (“DISA”) announced a new architecture-sharing and modernization agreement that will increase bandwidth and network security and save more than $1 billion in future costs. Through the agreement, the Air Force will upgrade to the Army’s multiprotocol label switching routers and the Army will consolidate hundreds of network security stacks into 15 joint regional security stacks, which the Air Force will also use. Additionally, the Army and DISA plan to implement the joint MPLS transport cloud and continue JRSS consolidation, which will be owned and operated by DISA as a joint capability.
Big Movers
Kratos Defense and Security Solutions (Up 11.2%) – Shares continued trading up this week after the Company announced it received approximately $3.1 million in orders to produce integrated microwave assemblies for two critical U.S. Navy platforms.
Relevant Transactions
Northrop Grumman Corporation to Acquire Qantas Defence Services Pty Ltd.,a provider of support and maintenance services for Australian government and military aviation industries. Northrop Grumman will use the acquisition to strengthen its presence in fast-growing international defense markets amidst future budget uncertainty in the United States.
Rexnord Corporation Acquired Micro Precision Limited, a provider of specialized components to various markets in the United Kingdom and India. Rexnord will use the acquisition to expand its portfolio of aerospace components, sub-assemblies, and services, as well as increasing its customer base.
