Industry Week in Review – August 8, 2014

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Aerospace & Defense Update

Boeing and United Technologies have continued to amass reserves of titanium parts from a Russian producer to hedge against uncertainty surrounding international economic tensions as a result of conflict between Russian-backed separatists and the Ukrainian government.  As a whole, the aerospace and defense sector is the largest consumer of titanium, using the metal for various customized parts including components in landing gear and jet engines.  The two U.S. based aerospace companies purchase a significant portion of their titanium from VSMPO-Avisma, the world’s leading producer of the metal, as well as a subsidiary of a Russian government-owned company.  Boeing and United Technologies have built six month supply stockpiles of highly specialized parts.  Previously, Boeing had accumulated a three-year titanium stockpile, much of which has dried up since the company accelerated production of its 787 Dreamliner.  Ultimately, the stockpiles will provide Boeing and United Technologies the titanium necessary to keep up with production demand should trade sanctions with Russia cut off access to a large supply of the metal.

President Obama, on Thursday, authorized an open-ended military and humanitarianism mission in response to a request for assistance from the Iraqi government.  An air drop that provided an estimated 40,000 Iraqis with food, water, and other supplies kicked of the humanitarian mission earlier this week.  Following the air drop, two Navy F/A 18 Super Hornets dropped bombs on Islamic militants outside Irbil.  Although the President assured the U.S. would not reintroduce combat troops on the ground in Iraq, both air strikes and humanitarian drops will continue.

Government Technology Solutions Update

For the first time in eight years, the Federal Government has achieved the Small Business Administration’s (“SBA”) small business procurement goal of awarding 23.0% of eligible contracting dollars to small businesses.  According to the SBA, the Federal Government awarded $83.1 billion, or 23.4% of total Federal contracts, to small businesses in GFY2013.  Though the government reached its overall goal, results in subcategories were varied.  The government fell 0.7% short of its Women-Owned Small Business (“WOSB”) goal, but it exceeded the Small Disadvantaged Business (“SDB”) goal by 3.6%.

The General Services Administration (“GSA”) announced this week that it will give priority to open source software solutions for all new IT projects.  The change in policy was prompted by the GSA’s vision of using and providing Innovative, Integrated, and Intuitive (“I3”) technology solutions, not only within the agency, but across the Federal Government.  The new policy is just one part of a series of requirements that the GSA has implemented to drive innovation while reducing costs and time to development and deployment.

Big Movers

NIC, Inc. (Up 10.5%) – Shares were up this week after the Company announced a strong fiscal second quarter.  The Company reported $0.17 EPS exceeding analyst expectations of $0.15 EPS.

Rheinmetall AG (Down 11.1%) – Shares were down this week after the Company cut its sales and earnings forecast due to the cancellation of an export license tied to a deal that Rheinmetall AG had in Russia.

Relevant Transactions

Reliance Steel & Aluminum Co. acquired Aluminum Services UK Limited, a provider of aluminum castings manufactured for the aerospace, defense, domestic, automotive, and engineering industries.  Terms of the deal were not disclosed.

Vance Street Capital acquired Eirtech Aviation Ltd., a provider of aircraft maintenance services including refurbishment, painting, and engineering services. Terms of the deal were not disclosed.

HumanTouch acquired CorasWorks, a provider of applications and business software on the Microsoft SharePoint and social platform.  Terms of the deal were not disclosed.

Haystax Technology acquired NetCentrics, a provider of information technology consulting, software development, and process management firm.  Terms of the deal were not disclosed.

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Industry Week in Review – August 1, 2014

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Aerospace & Defense Update

Boeing recently released its second quarter earnings report, highlighted by a 1% rise in revenue and a 52% rise in net earnings compared to the same period last year.  The Company announced earnings per share of $2.42, beating analysts’ estimates of $1.99 by a considerable margin.  For 2014, the Company now projects full-year earnings in the range of $7.90 – $8.10 per share, up from the previous estimate of $7.15 – $7.35 per share.  Notable accomplishments during the quarter include the delivery of its first 787-9 aircraft and its 8,000th 737.  Although the company’s commercial airplanes segment boasted strong performance, its defense segment witnessed declining revenues compared to the second quarter last year, a common trend throughout the defense industry.  Furthermore, Boeing disclosed a design flaw in its KC-46A aerial refueling tanker that is costing the Company an additional $272 million.

A number of flight restrictions placed on the F-35 Joint Strike Fighters were lifted earlier this week.  The Pentagon relaxed speed restrictions on the aircraft from Mach 0.9 to Mach 1.6 and eased maneuverability limits from 3 Gs to 3.2 Gs.  Other restrictions, stemming from a June 23rd engine fire on an F-35, are still in place and threaten to delay the initial operating capability dates for the jet.  Despite a number of setbacks, top Air Force generals continued to express confidence in the aircraft.  General Mark Welsh praised the jet saying, “The F-35 is the answer, the only answer, to ensure future air campaigns are not a fair fight.”  The F-35 program was also defended by General Michael Hostage who proclaimed the U.S. will “have a fleet that will defend this country as far into the 2030s as we expect it to.”

Government Technology Solutions Update

On July 28th the House passed the National Cybersecurity and Critical Infrastructure Protection Act, a conglomerate of three bills designed to enhance public-private information sharing and expand cybersecurity efforts in the Department of Homeland Security (“DHS”).  The bills require that cybersecurity systems be updated regularly, allow entities to submit cybersecurity procedures to gain liability protection, and facilitate real-time sharing of cyber threat information between the DHS and critical industries.  Additionally, the Act intends to strengthen cyber security personnel efforts by issuing a standard classification for cyber activity employees, and using these classifications to fill in any gaps in DHS’ workforce.

The National Geospatial-Intelligence Agency is developing a new pilot program, the GEOINT Solutions Marketplace (“GSM”), to expand industry partnerships and facilitate a faster acquisition cycle for capabilities.  The GSM will be used to send out a needs statement to vendors, allow vendors to respond with their proposed solutions and capabilities, and provide an online environment where capabilities can be demonstrated.  This system will allow the industry, and especially small businesses with niche capabilities, to address broader problems that a single company may not be able to handle alone.

Big Movers

Ducommun, Inc. (Up 18.1%) – Shares were up this week after the Company announced a strong fiscal second quarter, reporting a 17.6% increase in net income over the same period last year.

KEYW Holding Corporation (Down 17.7%) – Shares were down this week after the Company released its quarterly earnings, missing both earnings per share and revenue projections.  The Company missed analysts’ earnings estimates by $.02 per share, and posted revenue of $74.2 million, a decrease of 5% versus the same period last year.

Relevant Transactions

Undisclosed Buyer to acquire Rockwell Collins Inc.’s Satellite Communications Business, a designer and manufacturer of mobile satellite communications systems for military, government, and commercial markets.  The deal is worth an estimated $10 million.

Precision Aviation Group, Inc. acquired Aviation Controls, Inc., a provider of maintenance, repair, and overhaul services for engine accessories, specializing in components for GE J-85, Honeywell LTS-101, and Rolls Royce 250 engines.

BAE Systems plc to acquire Signal Innovations Group, Inc., a provider of decision systems for various sensor and data types for government customers and industry partners in national security, public safety, and commercial surveillance sectors.  Terms of the deal were not disclosed.

Novetta Solutions, LLC acquired Global News Intelligence, a provider of sentiment and influence analytics that supports commercial and government clients in the U.S. and abroad. Terms of the deal were not disclosed.

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Industry Week in Review – July 25, 2014

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Aerospace & Defense Update

This week, Bombardier Inc. unveiled plans to revamp its organizational structure as President and Chief Operating Officer of Bombardier Aerospace since 2008, Guy Hachey, stepped down.  Previously organized as two separate divisions, Aerospace and Transportation, Bombardier is attempting to re-define its business with a new structure, which will include four unique business segments: Transportation, Business Aircraft, Commercial Aircraft, and Aerostructures and Engineering Services.  Each department will begin reporting directly to Chief Executive Pierre Beaudoin effective immediately, while the more formal restructuring plan will be developed over the next few months so that complete implementation can be finalized by January 1, 2015.  The Company cited reduced costs, increased efficiency, and improved flexibility in meeting customer needs as the rationale behind the restructuring which is expected to shed up to 1,800 jobs.  Analysts have speculated about a potential spin-off of one of the businesses for cash or strategic direction as a possible motive behind the overhaul.  The outlined changes coincide with Bombardier’s preparation for the commercial launch of its CSeries aircraft, which will compete head-to-head with narrow-body twin-engine aircraft from Boeing and Airbus.  The launch of the CSeries has been plagued by setbacks, most recently involving a major engine failure that caused damage to a test plane.  However, the Company expects test flights to resume in the coming weeks.

Government Technology Solutions Update

On July 24th, House Speaker John Boehner announced that the House will pass a short-term continuing resolution to keep the government open in September, in order to avoid a government shutdown that would otherwise take place on the last day of September.  The House will return from their August recess on September 8th, and have 10 legislative days to pass the continuing resolution which would likely expire early in December.  The Senate is scheduled to be in session for 17 days in September, providing additional time to deal with a house-passed continuing resolution.

Big Movers

Tyler Technologies, Inc. (Up 11.5%) – Shares were up this week after the Company posted earnings for the second quarter.  The Company’s earnings per share of $0.52 beat analyst estimates by $0.07, and quarterly revenue of $124.4 million far surpassed consensus estimates of $117.5 million.

Precision Castparts Corp. (Down 9.6%) – Shares were down this week after the company released its quarterly earnings, missing both earnings per share and revenue projections.  The Company posted earnings per share of $3.32, missing consensus analyst estimates by $0.03, and posted revenue of $2.53 billion, just shy of the consensus estimate of $2.58 billion.

Relevant Transactions

World Fuel Services Corp. to acquire Colt International, Inc., a provider of fuel and aviation services for private aviation clients, corporate flight departments, and vendors around the world.  The deal is worth an estimated $176.2 million.

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Industry Week in Review – July 18, 2014

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Aerospace & Defense Update

The biannual Farnborough Air Show was underway this week, drawing major players from the aerospace industry to the historic airfield in Hampshire, England.  For manufacturers, the show offers a chance to highlight new product innovations and capabilities, while for airlines, the show is an opportunity to see new designs and place purchase orders.  Companies including industry heavyweights Boeing and Airbus were in attendance, as well as many smaller firms, all attempting to book purchase orders as the week-long show winds to a close.  Airbus recorded orders for 496 jets valued at $75.3 billion, beating out rival Boeing’s 201 aircraft worth $40.2 billion.  Their combined sales figure of $115.5 billion is lower than last year’s Paris Air Show where the rivals combined for $134.7 billion in sales.  According to analyst estimates, Airbus’ great showing brings their total tally of firm orders to about 650.  However, Boeing entered the week with 649 firm orders.  Coupled with sales unrelated to Farnborough, at the end of the week, Boeing has 783 firm net orders for the year.  Both Airbus and Boeing have already booked deals for more airplanes than they can build in 2014 alone, despite a year of record-high production numbers.  However, one of the biggest stories of the week was surrounding the F-35 aircraft, valued at approximately $80 million per plane.  The aircraft was absent from the air show, as the $400 billion program has had multiple setbacks recently, with the combination of stealth, maneuverability, and attack capabilities in a single aircraft making it vulnerable to multiple complications.

Government Technology Solutions Update

The Senate Appropriations Defense Subcommittee approved a bill on July 15th that would reduce the IT budget for the Department of Defense (“DoD”), as outlined in the President’s FY2015 budget, by $500 million. The Defense Subcommittee justified lower spending levels by stating their focus on prioritizing other investments, such as advanced national security technologies and DoD medical research.

The Centers for Medicare & Medicaid Services (“CMS”) awarded 15 spots on a five-year, $7 billion Indefinite Delivery Indefinite Quantity (“IDIQ”) contract, designed to help CMS develop and test payment and service delivery models for the Children’s Health Insurance Program (“CHIP”). Services under the contract will include data analytics, modeling and simulation, and program-specific research.

Big Movers

AECOM Technology Corporation (Up 10.5%) – Shares were up this week after the Company announced plans to acquire URS Corporation in a $6 billion dollar deal

Meggitt PLC (Up 10.1%) – Shares were up this week following rumors of a potential sale of the Company, including United Technologies Corporation’s plans to submit a £5.0 billion ($8.5 billion USD) bid to acquire the Company.

Relevant Transactions

AECOM Technology Corporation to acquire URS Corporation, a provider of engineering, construction, and technical services to public agencies and private sector clients worldwide.  The deal is worth an estimated $6 billion.

Liberty IT Solutions LLC acquired Warrior Technology, a provider of applications and software development, program management, systems integration, information assurance, and enterprise architecture services.  Terms of the deal were not disclosed.

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Industry Week in Review – July 11, 2014

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Aerospace & Defense Update

Boeing released its Current Market Outlook this week for 2014 through 2023, identifying several important trends in the aerospace market over the 20-year forecast period.  Most notable among these is a 3.2% growth in global GDP, driving passenger and cargo plane traffic growth 5.0% and 4.7% annually, respectively.  These projections lead to long-term demand for 36,770 new airplanes valued at $5.2 trillion, with 70% of those aircraft characterized as single-aisle jets.  Geographically, Asia Pacific, North America, and Europe have the largest growth projections, expecting to add 13,460; 7,550; and 7,450 aircraft to their fleets by 2033, respectively.  Of the 36,770 planes being added, 42% are planned to replace aging aircraft while 58% contribute to overall growth of the global fleet.

Additionally, Boeing has finalized a deal with Emirates Airlines to deliver 150 777X wide-body jets, a deal worth $56 billion.  The 777X  is a new generation aircraft expected to go into production in 2017 with first delivery scheduled for 2020.  The deal grants Emirates the option to purchase an additional 50 aircraft, adding $19 billion in value if exercised.  This news comes as a blow to rival Airbus, particularly on the heels of Emirates’ cancellation of an order for 70 of Airbus’ A350 aircraft for $16 billion last month.

Government Technology Solutions Update

The Army released plans for a five-year, $250 million indefinite-delivery, indefinite-quantity contract developing and supporting Intelligence, Surveillance, and Reconnaissance technologies for the Army Research Laboratory Sensors and Electron Devices Directorate, with a focus on enhancing the directorate’s capabilities in persistent surveillance and open source intelligence.  The draft request for proposal outlines several functionalities, including operational support, engineering and design, and integration services.  Task orders under the contract will include work related to sensors, cloud computing, multi-source data fusion, and signal processing.

The General Services Administration (“GSA”) is considering a new category for cloud computing services in its IT Schedule 70 program.  The new Special Item Number would simplify cloud computing service purchases, and provide agencies with greater access to consolidated services.  The GSA issued a Request for Information on July 10th seeking to gain a better understanding of how companies currently sell cloud computing services, specifically as it relates to pricing and data migration requirements.

Big Movers

API Technologies Corporation (Down 15.1%) – Shares were down this week after the Company announced disappointing fiscal first half results, posting a net loss of $17.1 million.  The Company reported earnings per share of ($0.27), greatly missing consensus estimates of ($0.01).

Relevant Transactions

Vista Equity Partners acquired Social Solutions, Inc., a provider of performance management software solutions for federal, state, and local government agencies in the United States and Canada. Terms of the deal were not disclosed.

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Industry Week in Review – July 3, 2014

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Aerospace & Defense Update

Boeing had a successful week, securing two major contracts and bidding on a third.  The Company announced earlier this week it won a $1.9 billion award to produce 44 F/A-18 Super Hornet and EA-18G Growler aircraft for the U.S. Navy and the Australian government.  The contract is part of a previously announced appropriation, and not an attempt to secure additional funds for new aircraft.  In addition, Boeing also won a $2.8 billion contract from NASA to develop the core stage of a Space Launch System rocket, destined to send humans beyond the moon’s orbit for the first time.  Lastly, Boeing was one of three companies bidding on a South Korean program for refueling tanker aircraft.  Boeing’s 767-based KC-46 aircraft will need to beat competitors Airbus and Israel Aerospace Industries Ltd. to win the $1.38 billion award.  Boeing and Airbus are currently in a global competition to fill demand for refueling planes; Airbus serves Australia, Saudi Arabia, U.A.E., the U.K., and Singapore while Boeing has a hold over the U.S. market.  In 2011, the U.S. Air Force awarded Boeing a $52 billion contract to develop and buy refueling planes to replace its aging fleet.  Ultimately, the South Korean contract will serve as an important part in providing a boost in the successful awardee’s defense business.

Government Technology Solutions Update

The General Service Administration and the Department of Homeland Security are finalizing Task Order 2 under Phase 2 of the Continuous Diagnostics and Mitigation (“CDM”) program, which is meant to streamline the steps toward enhanced cybersecurity protections for agency networks and computers.  The future phases will be aimed at enhancing CDM capabilities and expanding the program’s initial focus of increasing interconnectivity on the cyber dashboard.  The six upcoming contract awards, under Task Order 2, are set to be awarded over the next nine months and are expected to “[deploy] the initial baseline capability to all of [the dot-gov] agencies to raise the cyber awareness and critical protection of [these] agencies”.

In a step towards the Obama Administration’s goal of expanding the use of cross-agency shared services, providers will implement improvement plans later this month to increase shared service capabilities and provide these services to more agencies.  The Office of Management and Budget and the Department of the Treasury are also expected to establish government-wide guidelines for shared services governance by the end of August.  Over the next few months, the Obama Administration plans to monitor the number of agencies migrating to these new shared services and review customer satisfaction and service adoption metrics to ensure progress is being made.  Ultimately, the end goal of the initiative is to reduce duplicative investments and improve government-wide transparency and reporting over the long-run.

Big Movers

API Technologies Corporation (Up 7.8%) – Shares were up this week after the Company announced it received a new order to supply high-power amplifier systems as part of a Department of Defense maritime requirement.  No terms were disclosed in the award, but it is expected to be a multi-million dollar program with first production delivery set for May 2015.

Relevant Transactions

Nexter Systems to merge with Krauss-Maffei Wegmann.  Nexter Systems provides land defense systems for the French army and other forces internationally.  Krauss-Maffei Wegmann provides wheeled and tracked vehicles for civil and military simulation, and day and night missions.  Terms of the deal were not disclosed.

H-D Advanced Manufacturing Co. acquired Sungear Inc., a provider of complex, high quality, precision gear components and assemblies for the aerospace industry.  Terms of the deal were not disclosed.

Saab AB to acquire ThyssenKrupp Marine Systems AB, a designer and builder of submarines and naval surface ships, offering independent propulsion systems, rescue systems, and mine clearance systems.  The deal is worth an estimated $51.5 million.

Defense Conseil International S.A acquired Vigie Aviation, a provider of aerial video, airborne maritime surveillance relating to search and rescue, and coastal monitoring.  Terms of the deal were not disclosed.

Versar, Inc. acquired J.M. Waller Associates, Inc., a provider of environmental, facilities, engineering, technical, and logistics consulting and management services.  The deal is worth an estimated $13 million.

Lockheed Martin to acquire Zeta Associates, Inc., a provider of software-based communications signal collection and processing systems.  Terms of the deal were not disclosed.

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Industry Week in Review – June 27, 2014

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Aerospace & Defense Update

The White House this week requested $60 billion from Congress to fund military operations in Afghanistan and other global contingencies.  The Pentagon is set to receive $58.5 billion through the 2015 overseas contingency operations (“OCO”) request, with an additional $1.5 billion requested through a budget bill amendment for State Department contingency funding.  The combined $60 billion figure is nearly $20 billion less than the $79.4 billion placeholder included in the administration’s 2015 Pentagon spending request.  Included in the request is $6 billion for new military aircraft, drones, vehicles, and bombs to fund the war in Afghanistan, $3.8 billion for the Air Force, $1.3 billion for the Army, $658 million for the Navy and Marine Corps, and $239 million for defense-wide initiatives.  The Department of Defense and State Department also requested $4 billion and $1 billion, respectively, as part of a new counterterrorism fund supported by President Obama.  Despite drastic reductions in troop levels, the White House reports the OCO budget will not decrease swiftly.

Government Technology Solutions Update

The Senate Homeland Security and Governmental Affairs Committee passed three bills on June 25th, aiming to augment cybersecurity and bolster IT management within Federal agencies.  The bills include the Federal Information Security Modernization Act, which updates the Federal Information Security Management Act standards to move toward automated and continuous monitoring of information that supports agency operations; the National Cybersecurity and Communications Integration Center Act, which focuses on the consolidation of federally managed cybersecurity resources; and the Federal Information Technology Acquisition Reform Act, which aims to strengthen the authority of agency Chief Information Officers.

The Defense Intelligence Agency is in the process of rolling out its Open Innovation Gateway initiative, a major component of the agency’s push to acquire new technologies in smaller increments and shorter procurement cycles.  The initiative is aimed at gaining a broader set of products and solutions in order to increase opportunities for small businesses and nontraditional providers, and streamline the agency’s acquisition process.

Big Movers

iRobot Corporation (Up 5.3%) – Shares were up this week after the Company announced a 7.5% increase in revenue for the most recent fiscal quarter, driven by 16.5% revenue growth in the Home Robots segment.

Relevant Transactions

Alcoa, Inc. to acquire Firth Rixson Limited, a manufacturer of rings, forgings, and metal products to OEMs, serving the aero-engine and structural components aerospace industry.  The deal is worth an estimated $2.85 billion.

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Industry Week in Review – June 20, 2014

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Aerospace & Defense Update

The U.S. House of Representatives voted this week to block the Air Force’s plan to cut its entire A-10 fleet during deliberation on the FY2015 defense spending bill.  The chamber approved the amendment, proposed by Rep. Candice Miller (R-Mich.), which would prohibit the Pentagon’s potential divestiture, retirement, transfer, storage, or cutting of any A-10 aircraft.  This vote is the latest in a prolonged battle between the Department of Defense and Congress on the future of the aging but popular aircraft.  The Air Force’s plan would replace the A-10 missions with F-15, F-16, or C-130 missions, saving the service about $3.7 billion.  Air Force Secretary Deborah Lee James supported their decision with rationale that the A-10 is a single-mission attack aircraft whose missions can be covered by other aircraft with more versatility.  However, the proposal has been met by staunch opposition in the House and Senate, which both already approved amendments to the 2015 National Defense Authorization Act prohibiting the retirement of the A-10.  Language in the bill states that the U.S. comptroller general would make multiple certifications and complete studies on the impact of retiring the A-10.  A final decision on the fate of the aircraft will not be decided until the official FY2015 defense spending bill is finalized and passed.

Technology Solutions Update

The DoD is testing the viability of cloud-based cybersecurity for certain mission-critical systems within the department. Currently, Federal Risk and Authorization Management Program (FedRAMP) approved cloud service providers (“CSP”) are able to seek DoD approval to support low and moderate-security systems, referred to as impact level-1 and impact level-2 systems. The DoD’s new pilots are aimed at addressing the security needs of more sensitive systems, referred to as impact level-3. These pilots suggest that CSPs pursuing level-3 systems will be required to meet significantly higher security standards, and authorization to support such data will be more stringent than low to moderate data types. Today, there are only a few CSP’s that have been authorized to host level 1 and level 2 systems, but the potential to support level-3 systems may present additional opportunities for qualified CSPs to receive DoD approval.

In order to improve network performance, the Navy is seeking vendors for rapid upgrades to the Navy Marine Corps Intranet (“NMCI”), the Navy’s enterprise network designed to provide secure and reliable information transfer across the continental United States. The Navy is especially interested in procuring enhanced cybersecurity capabilities, data center consolidation, and mobile computing technologies.

Big Movers

KBR, Inc. (Down 7.4%) – Shares were down this week after the Company announced disappointing fiscal first quarter results, reporting a loss of $0.29 per share. Additionally, the Company announced it will review its business strategy following continuous revenue declines.

Relevant Transactions

Sierra Nevada Corporation to acquire Orbital Technologies Corporation, a provider of space subsystem integration and liquid rocket propulsion, life science and support, and fire suppression capabilities.  Terms of the deal were not disclosed.

Lockheed Martin Corporation to acquire Deposition Sciences, Inc., a provider of thin optical film used in coating metals, lenses, lighting, and mirrors for military and aerospace customers worldwide.  Terms of the deal were not disclosed.

Saint-Gobain acquired Phoenix Coating Resources, Inc., a provider of ceramic ingots used to produce high-resistance thermal coatings for the aeronautics industry.  Terms of the deal were not disclosed.

Intelligent Decisions, Inc. acquired Quantum 3D’s ExpeditionDI Product Line, a provider of human-worn, fully immersive team simulation solutions used for infantry training.  Terms of the deal were not disclosed.

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Industry Week in Review – June 13, 2014

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Aerospace & Defense Update

B/E Aerospace, Inc. announced plans this week to split its operations into two independent, publicly traded companies, currently titled “Manufacturing Company” and “Services Company”.  The Manufacturing Company will focus on producing aircraft interior equipment, while the Services Company plans to focus on providing logistics and technical support primarily to the aerospace, oil, and gas markets.  Both companies will be free to pursue independent deal-making and change of control when the separation is expected to become finalized in the first quarter of 2015.  B/E’s interior-parts business generated nearly two-thirds of the company’s 2013 revenue and has been attempting to consolidate as development costs have risen while aircraft makers move to secure larger contracts.  While the Company’s President and Chairman have both agreed to remain involved in the steering of the new companies, the Board of Directors and management teams will be decided at a later date.  Investors reacted negatively to the announcement, driving share prices down 5% the morning of the proposed split.  This decision was one of numerous potential moves B/E said it was exploring last month in an attempt to aggressively pursue its strategic alternatives.

Earlier this week, Emirates Airlines cancelled an order with Airbus for 70 aircraft, a deal valued at about $16 billion when it was placed in 2007.  Analysts point to regional slowdowns and disappointment in the A350’s range and fuel consumption, compared to Boeing’s jets, as two potential causes for the largest cancellation in Airbus’ history.  The immediate financial impact on Airbus is softened by their current backlog of 740 aircraft and the fact that delivery would not occur until 2019 through 2032.  Airbus is hopeful that Emirates’ cancellation will drastically cut lead times on other orders and increase accessibility for other airlines interested in the A350.

Technology Solutions Update

On June 9th, the House passed a bill to reform the acquisition process at the Department of Homeland Security in an effort to increase accountability and transparency regarding the agency’s procurement process. The DHS Acquisition Accountability and Efficiency Act would authorize the chief acquisition officer at DHS to approve, modify, or cancel major acquisition programs as needed, and would create an acquisition review board within the agency that would validate procurement documents and review cost and performance schedules.

The Transportation Security Administration is asking cloud service providers for disaster recovery support for the agency’s Technology Infrastructure Modernization (“TIM”) division, which resides within the Mission Essential Services Directorate of TSA’s Office of Intelligence & Analysis. In a Request for Information posted on June 10th, TSA stated that it is seeking a cloud service provider with disaster recovery capabilities to support emergency and disaster backup efforts at TIM.

Big Movers

Science Applications International Corporation (Up 10.7%) – Shares were up this week after the Company announced positive earnings estimates for its most recent fiscal quarter with operating income up 13.5% from the same quarter last year, and earnings per share beating analyst estimates by 3.0%.

Relevant Transactions

Park-Ohio Holdings Corp. acquired Apollo Aerospace Components Limited, a provider of components and hardware, as well as supply chain solutions to aerospace customers worldwide.  Terms of the deal were not disclosed.

Zodiac Aerospace acquired Greenpoint Technologies, Inc., a provider of high-end interior completions and modifications for both widebody aircraft and private business jets.  Terms of the deal were not disclosed.

Analog Devices, Inc. acquired Hittite Microwave Corporation, a designer and manufacturer of high performance integrated circuits, modules, subsystems, and instrumentation for radio frequency, microwave, and millimeter wave detection.   The deal is worth an estimated $2.0 billion.

Exelis, Inc. acquired Celestech, Inc., a provider of technical solutions for government and commercial customers, with concentrations in advanced signal processing and communications systems.  Terms of the deal were not disclosed.

Preferred Systems Solutions, Inc. acquired Envision Technical Services, Inc. a provider of technology systems supporting mission-critical systems and applications for intelligence and defense customers.  Terms of the deal were not disclosed.

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Industry Week in Review – June 6, 2014

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Aerospace & Defense Update

Bombardier suspended flight tests of its CSeries aircraft after a Pratt & Whitney PW1500G engine suffered an unspecified failure during ground runs at the Mirabel, Quebec site last week.  This recent failure adds unwelcome pressure to the already delayed CSeries flight-test-effort.  This week, reports announced Bombardier’s CSeries planes could resume flight testing in a few weeks after the plane’s engine manufacturer believes it has found the cause of the incident that grounded the four test aircraft.  Pratt & Whitney officials said a preliminary analysis of the engine confirms the minor incident was not related to the engine’s design, and that all problems can be fixed rapidly as not to affect testing schedules.  Bombardier will disclose details about the incident and a time frame for a return to flight testing as soon as possible.  In the meantime, ground tests will continue as Bombardier attempts to keep the CSeries on track for service in 2015.

Despite President Obama’s announcement last week that the Pentagon would leave only 9,800 American troops in Afghanistan in 2015, experts stated this week they still expect the Pentagon to request between $50 billion to $70 billion in Overseas Contingency Operations (“OCO”) funding.  This range is in the middle of the $79.4 billion placeholder submitted to Congress in March, and the Pentagon’s estimate of $20 billion to support remaining troops in Afghanistan annually.  Experts say the estimate indicates the Pentagon will continue using OCO funding to soften the blow from defense spending caps in 2015 and beyond.  In addition to troop costs, the OCO budget includes funding to support the Afghan military, repair battle-worn equipment repairs, and transport equipment back to the U.S.; however, it is also used as a “treasure chest” to fund procurement of systems and services not covered by the base budget.  As Defense News stated in an op-ed this week, “OCO has been a giant slush fund that gets less oversight than the base budget.”

Technology Solutions Update

HP Enterprise Services announced a new high-security private cloud solution designed to accelerate government agencies’ migration to the cloud.  HP Helion Managed Private Cloud for Public Sector (“Helion”) allows government entities to implement shared service models across multiple departments, and enables them to achieve operational efficiencies.  Helion is currently undergoing FedRAMP assessments, and is expected to meet FedRAMP’s risk-based security requirements within the next six to nine months.  HP has made significant investments in its cloud solutions in order to capitalize on positive trends within the Federal cloud market, which is estimated to reach $18.5 billion by 2018.

The General Services Administration (“GSA”) has suspended government wide-use of the Office Supplies 2 strategic sourcing contract, the GSA’s first and highly successful program to accelerate the government’s buying power through cross-agency purchasing agreements, following a protest filed by Coast to Coast Computer Products (“CTC”).  CTC has argued that the Office Supplies 2 contract, which expired May 31st, has already been extended beyond its maximum allowable terms, and that any bridge contracts would violate requirements that give small businesses an opportunity to compete.  A decision on the protest is due from the Government Accountability Office on September 8th.

Big Movers

Comtech Telecommunications Corporation (Up 18.6%) – Shares were up this week after the Company announced strong fiscal quarter results with earnings of $0.32 per share and revenue of $88.9 million, which beat analyst estimates by 77.8% and 14.7%, respectively.

Relevant Transactions

Moelis Capital Partners acquired PATS Aircraft Systems, LLC, a provider of aircraft services, components, and integrated systems to OEMs, airline operators, governments, and corporations.  Terms of the deal were not disclosed.

Fulcrum Capital partners Inc. acquired Weatherhaven Global Resources Ltd., an engineer and manufacturer of portable shelters, camps, and systems for application in remote military sites worldwide.  Terms of the deal were not disclosed.

B/E Aerospace Inc. to acquire EMTEQ, Inc. and F+E Fischer + Entwicklungen Gmbh & Co. Kg. EMTEQ provides interior and exterior lighting systems, cabin management solutions, and power systems for commercial aircraft.  F+E Fischer provides seating products for civilian helicopters.  B/E Aerospace will pay a combined $470 million for both acquisitions.

Good Technology, Inc. acquired the security business of Fixmo, Inc., a provider of defense-grade mobile device integrity and security solutions for the public and private sectors. Terms of the deal were not disclosed.

Noblis, Inc. acquired National Security Partners, LLC, a provider of consulting and technical services to the defense and intelligence agencies. Terms of the deal were not disclosed.

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