Industry Week in Review – June 16, 2017
Aerospace & Defense Update
The 52nd biennial International Paris Air Show will take place from June 19th – 25th and will bring together 2,379 exhibitors from 47 countries to showcase the latest technological innovations in the industry. Notably, the show will include the first showing of the F-35 at the Paris Air Show and additional information regarding Boeing’s New Midsize Airplane (“NMA”). Although the F-35 has participated in other airshows, the demonstrations at the Paris Air Show will be the first opportunity for the joint strike fighters to showcase their aerodynamic capabilities through “acrobatic and high G-force maneuvers.” Boeing will also discuss the manufacturing processes and production systems that allow it to achieve a twin-aisle cross-section with single-aisle operating costs in the NMA. Most industry analysts anticipate new order announcements at the show to be light relative to past years.
During a meeting between U.S. Secretary of Defense Jim Mattis and Qatari Minister of State for Defense Khalid al-Attiyah, the U.S and Qatar signed a $12 billion letter of acceptance to finalize the sale of 36 F-15 fighter jets, spares, logistical support, and munitions. The sale was cleared by the U.S. State Department in November and was initially an agreement covering up to 72 jets rather than the signed 36. However, this agreement will still extend the F-15 production line, once at risk for closure, well into the 2020s. The deal comes at a time when U.S Gulf allies are boycotting Qatar, accusing the country of supporting terrorism.
Government Technology Solutions Update
Over the last year, the CIA has transitioned to cloud computing through Amazon Web Service’s (“AWS”) platform, which has had a material impact on the agency’s operations and security posture. The CIA’s top tech executive, John Edwards, stated, at the AWS Public Sector Summit, that cloud computing has directly led to improved security, enhanced mission quality, and reduced costs associated with the maintenance of legacy systems. Part of AWS’s success has been attributed to the Commercial Cloud Classified Marketplace, where customers can evaluate several types of software packages, developer tools, and other products to determine which one most adequately suits various needs. This marketplace contains over 100 different apps and has drastically shortened acquisition cycles, which in turn enhances mission efficiency. The cloud’s popularity spans a plethora of agencies in the federal government and its implementation has increased more than 200% year over year.
Jon Frank, former controller of NCI Inc., pled guilty on Friday to the charge of federal wire fraud. The former executive has admitted to stealing approximately $19.3 million over a 10-year period. Per the Department of Justice (“DOJ”), this was done through the creation of fraudulent documentation which masked the transfer of funds into Mr. Frank’s personal account as reimbursements to the company’s health insurance administrator. To aid in collecting lost funds, Mr. Frank must forfeit assets as well as fulfill a restitution order, and could now be facing a 20-year prison sentence as well as further civil charges. NCI is unsure how long the process will take to recover the lost funds. Despite the turbulence caused by the ongoing investigation, NCI experienced a strong first quarter in 2017, exceeding earnings expectations and raising revenue guidance for the full year, citing margin improvements caused by an increase in the contribution of fixed-price contracts to its revenue mix as well as additional task order awards. The company’s stock has risen over 50% since nearing a 52-week low in January when news of the embezzlement first broke.
Big Movers
Booz Allen Hamilton (down 17.3%) – Share prices were down this week after the company announced that the Justice Department is investigating the Company’s accounting and the way it charges the government.
Science Applications International Corp (down 7.9%) – Share prices were down after the Company reported revenue below Wall Street targets and lower margins.
Transactions
Compunetix, Inc. has acquired Circuits, LLC, a provider of built-to-spec flexible printed circuit boards for the defense, aerospace, communication, high speed computing, medical, and semiconductor markets. Terms of the deal were not disclosed.
Epec, LLC has agreed to acquire Putnam RF Filters, Inc., a provider printed circuit board based RF filters, diplexers, and other custom products. Terms of the deal were not disclosed.
Fincantieri – Cantieri Navali Italiani S.p.A. has acquired Isselnord SRL, logistic support engineering and maintenance activities related to orders in the naval sector. Terms of the deal were not disclosed.
GE Aviation has acquired OC Robotics Ltd, a provider snake-arm robots and software for confined and hazardous environments. Terms of the deal were not disclosed.
Liberty Hall Capital Partners has acquired Dunlop Aircraft Tyres Ltd., a provider and re-trader of aircraft tires. The deal is worth an estimated $135.0 million.
Nammo A/S has acquired Moog, Inc.’s European Space Propulsion Businesses, a provider of liquid rocket engines, thrusters, valves, and components for satellite and in-space propulsion. Terms of the deal were not disclosed.
Z Systems Corporation has acquired Logistics Support, Incorporated, a provider of a range of management consulting, logistics, supply chain management, and other professional services to Federal and commercial customers. Terms of the deal were not disclosed.
