Industry Week in Review – January 15, 2016

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Aerospace & Defense Update

The U.S. Air Force selected Orbital ATK and SpaceX to develop prototypes of rocket engines as a part of the persistent push to end reliance on the Russian RD-180 boosters for military space launch.  Orbital ATK secured a $47.0 million contract to develop prototypes of its GEM 63XL strap-on solid rocket motor, the common booster segment solid rocket motor, and an extendable nozzle for Blue Origin’s BE-3U engine.  The potential value of the contract, including all options, is estimated at $180 million.  Additionally, SpaceX won a $33.6 million contract to develop the Raptor rocket engine prototype for the company’s Falcon launch vehicles.  The contracts are part of the Air Force’s Evolved Expendable Launch Vehicle (“EELV”), a program that intends to find an American alternative to RD-180 boosters and ensure U.S. access to space.

Government Technology Solutions Update

According to Bloomberg Government, Federal contractors could soon compete for $1.9 billion in funds provided for 40 new programs in the fiscal 2016 omnibus bill.  The recent analysis identified programs by performing a search on the omnibus bill and a companion explanatory statement for which Congress allocated specific funding amounts for the first time.  New projects, such as new vessel construction for the National Oceanic and Atmospheric Administration and headquarter consolidation for the Department of Homeland Security, provide attractive contract opportunities as they offer companies a timely reason to demonstrate how their capabilities would help meet congressional directives.  Under the omnibus appropriations law, defense primes, construction companies, and technology services providers will have the greatest number of newly funded potential opportunities.

Earlier this week, Pentagon officials completed a classified assessment of the efficacy of Defense agencies’ cybersecurity measures.  The aim of the comprehensive review is to determine what threats are being mitigated, and how valuable those mitigation tools and capabilities are to the agencies.  This initial step was conducted by the Defense Information Systems Agency (“DISA”), the Office of the Defense Department Chief Intelligence Officer (“CIO”), and the National Security Agency (“NSA”).  This effort represents part of a broader campaign to evaluate cybersecurity capabilities and deficiencies, which includes a cybersecurity scorecard to grade agencies’ preparedness.  While the specific details of the findings are classified, the report uncovered myriad vulnerabilities which Department of Defense (“DoD”) officials will use as a basis for making future investments in cybersecurity services and solutions.

The final Request for Proposal (“RFP”) for First Responder Network Authority Umbrella (“FirstNet”), a nationwide, wireless, interoperable broadband communications network for first responders, was issued earlier this week.  The $6.5B RFP has over 50 sections, maps, and tables generated from over a year of dialogue as part of a public / private partnership to reach a consensus on the objectives and scope of the overall mission.  Though there is no specific designation as to the types of bidders the RFP is looking for, telecommunications carriers are the clear choice, as the winning bidder will need to build and operate a system with 20 MHz of 700 MHz broadband spectrum.  Despite the recent release of the RFP, the Department of Homeland Security (“DHS”) has already expressed interest in exploiting this emerging mobile communications technology.

Big Movers

Aerojet Rocketdyne (Up 7.1%) – Shares were up this week after the Company announced a partnership with NASA to mature the development of new propulsion systems

BAE Systems (Down 10.1%) – Shares were down this week after Digital Ally, Inc. launched a lawsuit over patent infringement for law enforcement body cameras

Transactions

Aavid Thermalloy, LLC acquired Niagara Thermal Products, LLC, a designer and manufacturer of compact heat exchangers and heat transfer surfaces.  The terms of the deal were not disclosed.

Preferred Systems Solutions, Inc. acquired Tetra Concepts, LLC, a provider of system architecture and software design to the DoD, Intelligence Community, and commercial health firms.  Terms of the deal were not disclosed.

Mission Solutions Group, Inc. acquired Marshall Communications Corporation, a provider of broadband satellite communications and intellectual property (“IP”) multimedia services to Federal agencies and commercial customers.  Terms of the deal were not disclosed.

Battle Resource Management, Inc. (BRMi) has acquired Clearsoft, Inc., a provider of IT services, including custom enterprise software development and systems integration, to Federal and commercial clients.  Terms of the deal were not disclosed.

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Industry Week in Review – January 8, 2016

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Aerospace & Defense Update

Lockheed Martin secured a $5.3 billion contract to deliver 78 C-130J Super Hercules aircraft to the U.S. armed forces from 2016 through 2020.  The C-130J aircraft, one of the longest-running military aircraft programs, is a versatile tactical airlifter used in many different types of missions for the U.S. Air Force, Marine Corps, and Coast Guards.  The contract is primarily for the Air Force, which will receive 72 out of the 78 aircraft, with the remaining six provided to the Marine Corps.  This is the second multi-year contract Lockheed Martin has been awarded to provide C-130Js, with the first one coming from 2003 – 2008 for 60 C-130J aircraft to the U.S. armed forces.  The announcement is a major victory for Lockheed Martin, especially after worries in 2015 that a potential long-term continuing resolution could cause the Air Force to cancel the deal. Looking ahead, Lockheed Martin is eager to provide the C-130J to France, which has indicated the intent to purchase four C-130Js at an estimated $650 million.

BOC Aviation, the aircraft-leasing arm of Bank of China, ordered 30 Airbus A320 narrow-body jets valued at $3.1 billion (at list prices), comprising of 18 A320neo and 12 A320ceo aircraft.  The order is part of the company’s initiative to increase its fleet ahead of its expected 2Q16 $3 billion initial public offering, having previously ordered 22 Boeing 727s only two months ago.  The company is witnessing strong demand, as Asia continues to be one of the fastest growing regions for airlines, with capacity more than doubling since 2010.  Robert Martin, BOC Aviation’s CEO, stated the order underscores their confidence in the reliability and popularity of the A320 family.  However, Airbus recently announced that it had fallen short of its goal to deliver the first A320neo at the end of 2015, citing documentation issues for the delay. That being said, the delay will have negligible financial impact and Airbus expects to deliver the first A320neo within the next few weeks.

Government Technology Solutions Update

The National Institute of Health and Information Technology Acquisition and Assessment Center (“NITAAC’”) lowered contract fees on its three Government Wide Acquisition Contracts (“GWAC”) this week.  CIO-SP3 fees decreased from 1.00% to 0.65%, CIO-SB3 fees decreased from 0.79% to 0.55%, and CIO-CS fees decreased from 0.50% to 0.35%.  As IT acquisition processes become more efficient and streamlined, pressure has been increasing on Federal customers to lower fees while offering access to targeted IT solutions. These fee reductions highlight an increasingly competitive GWAC market between NITAAC, NASA, and the General Services Administration (“GSA”), as agencies lower fees to better align costs with GWACs from other government entities.

The Interior Department (“DOI”) became the first Federal department to transition its financial management system to the cloud, completing the migration of its SAP and Compusearch systems on January 5th.  Unisys and Virtustream aided DOI, and will manage the accounting infrastructure of the department post-transition.  The transition comes as DOI strives to complete its five-year IT modernization plan from 2011.  It also marks a milestone in the broader Federal IT cloud-migration effort, which seeks to promote Federal agency adoption of the cloud to increase government efficiency and cost savings.

Big Movers

The Boeing Company (Down 10.1%) – Shares were down this week as macroeconomic trends outweighed the news that the company reported a record number of deliveries in 2015

BAE Systems (Up 2.5%) – Shares were up this week as tensions between Saudi Arabia (BAE’s third largest customer) and Iran escalated to high levels, potentially increasing future demand for the company

Transactions

Mitcham Industries Inc. acquired L-3 Communications Klein Associates Inc., a designer, developer, and manufacturer of sonar equipment, and waterside security and surveillance/maritime domain awareness systems.  The deal is worth an estimated $10.0 million.

Royal Adhesives & Sealants, LLC acquired Adhesive Systems Inc., a developer, manufacturer, and marketer of engineered adhesives and application solutions for aerospace, aviation, military, and many other applications.  The terms of the deal were not disclosed.

Intel Corp. acquired Ascending Technologies GmbH, a developer and manufacturer of autopilot systems, unmanned aircraft systems, and multi-rotor technology for professional, commercial, civil, and research Unmanned Aircraft System (“UAS”) applications.  The terms of the deal were not disclosed.

Spanawave Corporation to acquire multiple product lines of Giga-Tronics, Inc., a manufacturer of power meter, amplifiers, sensors, and signal generator products for defense electronic and aeronautic applications.  The deal is worth an estimated $1.5 million.

Ascent Aerospace to acquire Gemcor II, LLC, a developer and manufacturer of automated fastening systems that are used by airframe manufacturers throughout the world.  The deal is worth an estimated $44.0 million.

SCST, Inc. acquired Talentscale, LLC, a provider of aircraft maintenance and logistic services.  The terms of the deal were not disclosed.

Phoenix Logistics acquired Silverado Cable Co., a provider of aerospace manufacturing services.  The terms of the deal were not disclosed.

Sage Capital, LLC acquired DIT-MCO International Corporation, a provider of electronic test equipment and automated wiring analyzers for commercial and military aircraft, defense communications, and weapon systems.  The terms of the deal were not disclosed.

Industry Armament acquired Predator Tactical, LLC, a provider of custom firearms and training solutions for the military, law enforcement, and civilian markets.  The terms of the deal were not disclosed.

System One acquired Alta IT Services, a provider of IT consulting services to Federal customers.  Terms of the deal were not disclosed.

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Industry Week in Review – January 1, 2016

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Aerospace & Defense Update

The Israeli Defense Ministry announced that Israeli firms received ~$770 million worth of work from Lockheed Martin in conjunction with a cooperation package associated with Israel’s F-35I stealth fighter purchase.  Elbit Systems, producer of the F-35 helmet mounted display system, and state owned Israel Aerospace Industries, producer of wing sets, were the two largest recipients of the industrial cooperation package.  The industrial cooperation is expected to exceed $4 billion if Israel opts to procure all 75 aircraft approved by the U.S. for export.

The omnibus spending bill passed on December 18th included an increase in funding authorities for the Special Defense Acquisition Fund (“SDAF”) from $100 to $900 million.  The SDAF program allows the State Department to look ahead at what partner nations need to procure in the coming year, and pre-order the systems.  The increase in funding comes at a time when foreign partners, the Pentagon, and members of Congress are raising concerns that the U.S. foreign military sales (“FMS”) process is moving too slowly to keep up with modern threats.  Although foreign partners will still undergo the FMS process, the SDAF enables faster delivery than if the nation had to wait for Congressional approval of the sale in order to start production.

Government Technology Solutions Update

The White House recently issued a cyber deterrence policy outlining U.S. response to cyber attacks in an effort to define the exact measures which will be taken in response to attacks from malicious actors.  Similar to the rationale supporting nuclear deterrence theories, the push by Congress to establish specific criteria for violations and retaliation measures aims to prevent cyber attacks against the U.S.  The policy leverages several avenues for retaliation using cost imposition processes including law enforcement measures, sanctions, and both offensive and defensive cyber operations aided by military force.  This move comes in tandem with increased U.S. support for other countries attempting to build capabilities to combat cybercrime.  In an effort to coalesce cohesive international support, the U.S. encourages countries to join the Budapest Convention on Cybercrime, an organization that defines a framework for deterring cyber attacks and gives law enforcement agencies the necessary authority to investigate and prosecute cybercrime.   This newly implemented policy highlights the continued emphasis on government agencies to combat cyber attacks and bolster defensive capabilities to protect critical systems and sensitive data.

Despite pressure to replace aging legacy systems with modern technology, analysis of Federal spending still shows agencies spending about 80% of their IT budgets maintaining the outdated systems.  Supported by Senators Jerry Moran and Tom Udall, the Cloud Infrastructure Transition Act of 2015 aims to make it easier for agencies to migrate to the cloud.  Currently, agencies have expressed difficulty financing and obtaining authority to transition to commercial cloud systems.  However, the new bill would give the Federal Risk and Authorization Management Program (“FedRAMP”) the authority to quickly offer accreditation to commercial providers, establish a framework for working capital funds earmarked specifically for IT modernization, and establish strict reporting requirements to expose reliance on obsolete technologies.  Although the bill is still in the early planning stage, it will continue to draw attention to the long-term goal of IT system modernization as Federal agencies attempt to migrate to more secure and cost effective cloud solutions.

Big Movers

Triumph Group (Up 15.6%) – Shares were up this week after the company announced the appointment of its new president and CEO, Daniel Crowley

CSRA (Up 7.1%) – Shares were up this week after the Company was awarded a $247 million GSA ARNG EOSS III Task Order

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Industry Week in Review – December 25, 2015

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Aerospace & Defense Update

SpaceX, led by Elon Musk, completed a historic feat by launching an updated version of its Falcon 9 rocket and then landing a large portion of the rocket back on earth.  This unprecedented accomplishment comes just six months after a high-profile launch explosion of its Falcon 9 rocket.  The launch this past Monday delivered 11 commercial satellites into low-earth orbit and then used its thrusters to carefully land the rocket back on earth.  Typically, a large portion of the rockets either fall into the sea or burn up into the atmosphere, however, this accomplishment paves the way for the its goal of developing a reliable fleet of reusable rockets.  The ability to reuse the largest and most expensive sections of boosters can provide significant cost savings and can change the landscape of the industry.

Frank Kendall, the Pentagon’s acquisition chief, stated that the Pentagon and other U.S. government agencies are weeks away from completing a proposal to allow regulators to block proposed mergers based on national security reasons.  Previously, regulators were only allowed to halt potential mergers based on antitrust reasons.  This development followed Kendall’s statements in September, days after the U.S. Justice Department approved Lockheed Martin’s acquisition of Sikorsky Aircraft, when he cited concerns about consolidation in the defense industry reducing innovation and competition.  However, industry giants, such as Lockheed Martin, claim there is no evidence that consolidation will reduce innovation or competition.  Kendall believes it is “unclear” whether or not this proposal will get passed, especially since it will be considered during an election year.

Government Technology Solutions Update

The Department of Defense (“DoD”) recently announced the award of the Cyber Security and Information Systems Technical Area Tasks (“CS TAT”) contract.  The Multiple Award Contract (“MAC”) indefinite delivery / indefinite quantity (“IDIQ”) vehicle has a contract ceiling of $5 billion over 5 years.  Ten contractors were awarded on a Full and Open (“F&O”) basis, while six companies were awarded under a Small Business (“SB”) set-aside basis.  The contract falls within the DoD Information Analysis Centers (“IAC”), and focuses on providing information assurance and management, cyber security, and modeling and simulations.  The vehicle will be available to all agencies, departments, services, and directorates under DoD, and is part of a larger DoD effort to stimulate innovation and technological research across the department.

In order to better utilize and manage new and advancing technologies, the Environmental Protection Agency (“EPA”) is reorganizing its Chief Information Officer’s (“CIO”) office.  This is the office’s first reorganization in over 16 years, as low budgetary visibility created barriers to internal reform.  According to Ann Durkin, EPA’s CIO, the reorganization will focus on the better provision of digital services to external users and constituents.  It anticipates doing so by creating new offices, such as the Office of Customer Advocacy, Policy, and Portfolio Management, as well as the Office of Enterprise Information Programs, devoted to improving the external user’s access and the EPA’s own management of information and services.  The EPA’s reorganization reflects broader trends within the Federal Government, including the Federal IT Acquisition Reform Act, which called for the reorganization of CIO offices across the Federal Government.

Big Movers

Harris Corporation (Up 8.2%) – Shares were up this week after the company received a $66 million in orders to provide a Middle East nation with the Falcon III wideband tactical radios and accessories.

HEICO Corp. (Up 10.4%) – Shares were up this week as the company announced it will acquire Robertson Fuel Systems for $255 million.

Transactions

Cubic Corporation acquired TeraLogics, a provider of real-time Full Motion Video processing, exploitation, and dissemination for the DoD, Intelligence Community, and commercial customers.  The transaction is worth an estimated $39 million. KippsDeSanto & Co. acted as the exclusive financial advisor to TeraLogics, Inc.

Cubic Corporation to acquire GATR Technologies, a provider of inflatable satellite communication antennas and terminals that enable deployment and high-bandwidth communications in remote and hard-to-reach areas.  The transaction is worth an estimated $233 million.

HEICO Corporation to acquire Robertson Fuel Systems, a designer, developer, and manufacturer of primary and auxiliary fuel systems for rotary and fixed winged aircraft and ground combat vehicles.  The transaction is worth an estimated $255 million.

Apax Partners to acquire the Commercial Satellite Communications Business of Airbus Group SE, a provider of satellite communication services for the maritime, mining, energy, and other markets.  The terms of the deal were not disclosed.

Kongsberg Maritime to acquire Ship Modelling & Simulation Centre AS, a provider of maritime courses and simulation of marine operations.  The terms of the deal were not disclosed.

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Industry Week in Review – December 11, 2015

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Aerospace & Defense Update

The U.S. has brought a World Trade Organization (“WTO”) case against China for their alleged discriminatory taxes on smaller aircraft.  U.S. officials are claiming that China has imposed a 17% value-added tax (“VAT”) on imported aircraft, hurting smaller U.S. made planes and part makers and creating a preferential tax policy for its domestic aerospace industry.  In 2014, the U.S. exported $13.9 billion in civilian aircraft, engines, equipment, and parts to China, more than double that in 2011.  This trade dispute is occurring at a time when the White House is prioritizing the enforcement of existing trade rules in an effort to put forth a comprehensive Pacific trade agreement that does not include China to a congressional vote next year.

Boeing rolled out the first of its 737 MAX jetliner in front of thousands of employees in its Renton, Washington facility.  The 737 MAX is the newest update to Boeing’s 737 model, but is considered to be a “next generation” update rather than an incremental one.   The new aircraft includes more powerful engines and is 14% less costly to operate than the current 737.  The 737 series has become one of the most popular choices for short and medium term flights, but is facing increased competition with rival Airbus’ A320 family of jets.  Airbus expects to deliver its A320neos to its first customer, Qatar Airways, in the next few months, which is significantly sooner than the 737 MAX’s 3Q17 delivery schedule.  However, Boeing has received nearly 3,000 orders from 60 customers worldwide for its 737 MAX series and believes it is poised to capture market share from the A320 family.

Government Technology Solutions Update

The Air Force activated five new cyber squadrons this month, marking an expansion of the department’s effort to improve its cybersecurity capabilities.  The squadrons will be comprised of over 500 cyber professionals that will operate across the Air Force’s air, space, and cyberspace domains to provide information operations support, as well as engineering and infrastructure capabilities.  Further, three cyber professional teams within the newly minted squadrons will focus on defending the Department of Defense’s (“DoD”) most valuable and sensitive networks.  Overall, the Air Force contributes 1,700 individuals to the DoD’s cyber force, including through a newly announced cyber proving ground for development of new ideas and devices.

CACI announced the acquisition of L-3’s National Security Solutions (“NSS”) group, a provider of big data and intelligence operations support to defense and intelligence customers.  The $550 million transaction is expected to add $1 billion in annual revenue, and be at least 10% accretive to CACI’s diluted earnings per share by FY17. The addition of L-3 NSS will enhance CACI’s access within the defense and the Intelligence Community (“IC”).  The transaction will also expand CACI’s capabilities in the areas of intelligence support, data analytics, and cybersecurity.  The acquisition is CACI’s largest since its acquisition of intelligence contractor Six3 Systems in October 2013 for $820 million.

Big Movers

AeroVironment (Up 14.4%) – Shares were up this week after the Company announced profits increased 23% due to strong sales of its unmanned aircraft systems.

Airboss of America Corp. (Down 6.6%) – Shares were down this week after the market reacted to director Rick Crowe selling 9,500 shares of the Company’s stock.

Transactions

CACI International acquired L-3’s National Security Solutions (“NSS”) group, a provider of big data and intelligence operations support to defense and intelligence customers.  The transaction is worth an estimated $550 million.

Tronair Inc. acquired Eagle Industrial Truck Manufacturing LLC, a provider of tow tractors and tugs for commercial aviation and military customers.  The terms of the deal were not disclosed.

Trescal S.A. acquired Laboratory MCI, a provider of calibration services for aeronautics and defense applications.  The terms of the deal were not disclosed.

Trescal S.A. acquired Quality Systems Laboratory, a provider of calibration and validation services for aeronautics and life science applications.  The terms of the deal were not disclosed.

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Industry Week in Review – December 04, 2015

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Aerospace & Defense Update

I / ITSEC, the largest modeling, simulation, and training conference, was held this past week from November 30 – December 4th in Orlando, FL.  At the conference, Maj. General James Lukeman, the commander for Marine Corps Training and Education Command, stressed the importance for affordable high-fidelity training devices that can be deployed with Marines where they fight.  In an increasingly budget-conscious era, Lukeman was optimistic about the potential for affordable mobile simulation training available to Marines and sailors.  As the Marines turn their operations toward the sea after more than a decade of war focused on land, Lukeman also highlighted training for ship mechanics, crew members, and staff as a growth opportunity.  The burgeoning selection of mobile solutions would enable Marines across all of their operations to train more frequently, without being removed from their daily operations.

The U.S. Air Force Secretary Deborah James Lee announced the service’s interest to buy 100 Long Range Strike-Bombers (“LRS-B”), a figure at the high-end of the 80 to 100 aircraft purchase the service predicted earlier.  The Air Force faced increased pressure in recent months to procure more LRS-Bs than the projected 80 to 100 in order to mitigate rising security concerns.  Critics, who include lawmakers and security analysts, called for as many as 200 next-generation bombers in order to project power in an increasingly uncertain security situation.  A study released November 18th by retired Lt. General Michael Moeller stated that, “limiting production of the new bomber, LRS-B, to 100 airframes would severely decrease the options available to national decision-makers during times of crisis or periods of instability.”  The recent development provides a rare glimpse into the Air Force’s plans for the contract recently awarded to Northrop Grumman.

Government Technology Solutions Update

A review of government security standards following this year’s high-profile Internal Revenue Service (“IRS”) and Office of Personnel Management (“OPM”) breaches has identified several potential areas for security improvement.  Significant investment will be required in select priority areas, including the overhaul of aging legacy systems, thorough employee training programs and security awareness, revamped recruiting and hiring efforts, and increased information-sharing technology, all with the purpose of bolstering security capabilities and functionality.  Legacy systems like Common Business Oriented Language (“COBOL”) are still used by many agencies, despite the fact that its largely outdated capabilities have failed to meet the robust demands of today’s sophisticated cyberattacks.  With this increased focus on modernizing legacy systems, improving existing processes, and launching new programs, the expected increase in spending will potentially translate into significant opportunities for security-focused contractors.

On November 30th, CSRA Inc. debuted as a newly formed public company, signaling the closing of the merger between SRA International and the North American Public Sector division of Computer Sciences Corporation.  CSRA represents the largest pure-play government services firm in the market, with an estimated $5.5 billion in annual revenue and 19,000 employees.  Under the terms of the deal, CSC common stock holders received one CSRA common share for every CSC common share held, representing an 85% stake in the combined company, with SRA shareholders receiving the remaining 15%.  CSRA opened trading on the New York Stock Exchange (“NYSE”) Monday morning at $29.39 per share and closed the week at $29.00.

 Big Movers

VSE Corporation (Up 7.6%) – Shares were up this week after the Company announced $59 million in new contract awards received since October 1, 2015.

 Computer Sciences Corporation (Down 55.4%) – Shares were down this week after the Company completed its separation with CSRA

Transactions

FLIR Systems acquired DVTEL, a provider of thermal imaging, visible-light imaging, locator, measurement and diagnostic, and threat-detection systems.  The deal is worth an estimated $92 million.

Stellar Capital partners Limited to acquire Tellumat, a provider of electronic and related technology products for aviation, communications, defense, and electronic contract manufacturing markets.  The deal is worth an estimated $11.6 million.

UTC Aerospace Systems acquired N2 Imaging Systems, a provider of infrared imaging systems used for soldier vision enhancement, surveillance, and threat detection-and-targeting under low visibility.  The terms of the deal were not disclosed.

Moog acquired a majority stake in Linear Mold and Engineering, a provider of metal additive manufacturing for aerospace, defense, energy, and industrial markets.  The terms of the deal were not disclosed.

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Industry Week in Review – November 27, 2015

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Aerospace & Defense Update

President Obama signed the annual defense authorization bill on Wednesday, marking it the 54th consecutive year the bill has passed.  One of the major highlights of the bill is an overhaul of the military retirement system, which is expected to provide a form of retirement compensation to roughly four out of five service members, a significant improvement from the current system that benefits only one out of five members.  The current 20 year “all-or-nothing” retirement plan will no longer be in place for newly enlisted troops starting in 2018. The new system will be a hybrid between an investment and pension system that presents an opportunity for personal contributions to be matched by the Government.  However, the signing of the authorization bill is only half of the annual budget process, as the defense appropriations bill, which will start new defense programs and acquisitions plans, has yet to be signed.  Congressional leaders are hopeful the defense appropriations bill will be signed by December 11th, the deadline set forth by the current continuing resolution.

As demand for air travel in China continues to grow, three of the region’s top aircraft leasing companies are expected to file for an Initial Public Offering (“IPO”) in the medium term.  Two of the companies, BOC Aviation and China Development Bank’s leasing business (“CDB Leasing”), are expecting to raise between $1.0 – $1.5 billion in IPO’s next year.  BOC Aviation and CDB Leasing fleet size of 253 and 180 aircraft respectively, are significantly smaller than AerCap Holdings fleet size of 1,300 aircraft, the world’s largest aircraft leasing company.  However, BOC Aviation has already committed to purchase 203 more aircraft, while CDB Leasing plans to double its fleet size.  With rising incomes for the middle class and strong growth in air travel, the top Chinese aircraft leasing companies are poised for strong growth prospects in the near future.

Government Technology Solutions Update

The Air Force has added 10 companies to its Cyber Security and Information Technical Area Tasks project.  The 10 companies were added under the large business portion of the contract, and joined the six small-business companies already on the program.  The 5-year contract is a multiple-award indefinite-delivery / indefinite-quantity (“IDIQ”) and is worth $5 billion.  The program will focus on research and development (“R&D”), and test and evaluation services for data management and sharing, software analysis, and simulations.  Companies will be awarded work through task orders under the program, which will determine the location and specific type of work.

In order to address what some consider a capabilities gap within the cyber domain, the Army recently began its Cyber Innovation Challenge to focus on developing, acquiring, and deploying cyber situational awareness capabilities.  The program will utilize the Department of Defense’s (“DoD”) “Other Transaction Authority,” which allows the DoD to purchase prototype products through fast-moving, streamlined transactions outside of traditional contract procedures.  The challenge will bring in a host of industry, government, and academic experts, including companies that do not traditionally work with the DoD, to develop important cyber products.  The DoD will purchase completed products in small amounts to test in the field before entering into larger procurements, allowing for a faster and more responsive acquisition process better able to meet the cyber needs of soldiers in the field.

Big Movers

BBA Aviation (Down 10.4%) – Shares were down this week in response to concerns for future air travel, as tensions between Russia and Turkey rise due to the downed Russian fighter jet.

Wesco Aircraft (Up 4.8) – Shares were up this week after the Company announced it has extended an agreement with Triumph Group to provide integrated supply chain services for aerospace C-class hardware.

Transactions

Chemring Group plc to acquire Wallop Defence Systems Ltd., Certain Assets, a provider of infrared decoy flare countermeasure products used by military forces in the protection of aircraft from air-to-air and ground-to-air missiles.  Chemring Group acquired these assets from Esterline Corporation as part of Esterline’s long-announced portfolio review.  The terms of the deal were not disclosed.

VIC International Holding Corporation to acquire AIM Aviation Ltd., a designer, manufacturer, and marketer of cabin interiors for airlines, airframe OEMs, and regional aircraft manufacturers.  The terms of the deal were not disclosed.

Comtech Telecommunications Corp. to acquire TeleCommunications Corp., a provider of wireless communication technology across the world, serving both commercial and government customers.  The deal is worth an estimated $431 million.

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Industry Week in Review – November 20, 2015

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Aerospace & Defense Update

The annual National Business Aircraft Association (“NBAA”) conference, one of the largest meetings of business and general aviation manufacturers and suppliers, was held this past week, November 17-19th, in Las Vegas.  There were mixed messages surrounding the business jet market, as various suppliers and original equipment manufacturers (“OEMs”) are witnessing a weaker larger-cabin market, while small / midsize cabin markets are expecting growth.  Weakness in the larger-cabin market can be attributed to weaker demand, and oversupply.  In Honeywell’s annual Global Business Aviation Outlook and Forecasts, demand for new airplanes from 2015 – 2025 is expected to be 9,200 units, down from last year’s 9,450 forecast.  The decline is largely attributed to weakness in emerging markets that represent significant sources of demand such as China, Russia, and Brazil.  In addition, the total number of airplanes less than 10 years old, which typically compete with new airplanes for sale by OEMs, increased moderately to ~640 aircraft.

On the other hand, there is excitement revolving around new developments announced at NBAA.  GE introduced its entry into the turboprop engine market by launching a family of advanced turboprop (“ATP”) engines following its selection by Textron to power the Company’s next-generation single-engine aircraft.  The new GE offering contests Pratt & Whitney’s (“P&W”) dominance in the business and general aviation turboprop market and is set to compete with P&W’s popular PT6 engine.  Cessna, a Textron company, also revealed the Longitude and Hemisphere jets in an ongoing effort to move upmarket.  After years in which demand for light and medium jets staggered behind larger jets from the likes of Bombardier, Dassault, and Gulfstream, Cessna’s new offerings expand its focus to the middle and upper-middle market segments.  The Hemisphere is the Company’s first large-cabin jet and is expected to enter service in 2020, and the Longitude will fit between the Hemisphere and midsize Latitude in size and range.

Government Technology Solutions Update

Department of Defense (“DoD”) agencies have submitted budget requests for GFY2016, giving the government contracting community insight into developing trends and priority spending areas.  Rather than altering their overall goals, DoD agencies are instead shifting the way they evaluate and acquire new technologies.  The current budget deal funds the government through December 11th and raises spending caps in GFY2016 by $50 billion as agencies continue to prioritize spending on cyber and cloud capabilities.  The Army saw its GFY2016 IT budget request increase 3% to $7.6 billion as it attempts to leverage the use of commercial cloud applications and unified communications capabilities.  Similarly, the Air Force IT budget request increased 5% to $5.3 billion as the branch looks to incorporate more advanced cyber and Intelligence, Surveillance, and Reconnaissance (“ISR”) capabilities.  Lastly, the Navy saw an increase in their GFY2016 IT budget request of nearly 4%, bringing the total to $6.5 billion.  Specifically, the Navy looks to increase its data modeling, mining, and predictive analytics competencies as part of a broader focus to enhance existing command and control systems.

On November 18th, the Federal Acquisition Regulations Council released a newly proposed rule that will provide greater opportunities for future competition and reduce costs to taxpayers.  Currently, a proprietary number provided by Dun & Bradstreet, referred to as a DUNS number, has allowed the government to uniquely identify entities receiving Federal awards.  According to the executive director of the Data Transparency Coalition, Hudson Hollister, the DUNS system uses proprietary data standards to prevent public information from being freely shared and consumed.  The current contract was awarded to Dun & Bradstreet in 2010 and is set to expire in 2018 with a total estimated cost of $154 million.  One of the major critiques of the DUNS system is that information is paid for repeatedly every time it is used, rather than once when it is initially generated.  While the government does not plan on replacing the DUNS system overnight, it is currently asking agencies and vendors for input on establishing a more transparent process to explore alternatives.  This newly proposed rule has gained the support of Congress, industry players, and even Dun & Bradstreet as a means to create a fairer and open environment for contractors.

Big Movers

OSI Systems Inc. (Up 15.4%) – Shares were up this week in response to a contract award to deliver explosive detection system units to Charles de Gaulle and Orly international airports.

Textron (Up 6.4%) – Shares were up this week after the Company introduced its new Hemisphere and Longitude jet.

Transactions

NEXEYA acquired Tech S.A.T GmbH Technische Systeme Fur Avionic Und Test, a provider of design, integration, testing, and maintenance of embedded aircraft systems.  The terms of the deal were not disclosed.

Magellan Aerospace acquired Lawrence Ripak Co., a provider of nondestructive testing and metal finishing services.  The deal is worth an estimated $24 million.

Honeywell International to acquire Satcom1 Aps, a provider of aeronautical satellite communication solutions and support.  The terms of the deal were not disclosed.

Kraken Sonar Systems acquired Marine Robotics, a developer of underwater robotics technology, intellectual property, and related physical assets.  The terms of the deal were not disclosed.

ParkerGale Capital acquired Aircraft Technical Publishers, a provider of information management and services for manufacturers, owners / operators, and maintenance providers in the general aviation industry.  The terms of the deal were not disclosed.

Senior Plc to acquire Steico Industries, a provider of precision tube and welded assemblies for the aerospace, medical, and high-tech industry.  The deal is worth an estimated $75 million.

TransDigm Group to acquire Breeze-Eastern Corporation, a developer of products and services for engineered mission equipment in specialty aerospace and defense applications.  The deal is worth an estimated $194 million.

AUSY North America to acquire Celerity, provider of digital business solutions including mobile app development, agile methodologies, and enterprise IT integration.  Terms of the deal were not disclosed.

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Industry Week in Review – November 13, 2015

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Aerospace & Defense Update

The 2015 Dubai Airshow had very few contract announcements, as commercial and defense customers were not very active during the show.  There were no major orders announced on the first day, which is disappointing in contrast to the record $192 billion orders on the first day of the 2013 Dubai Airshow.  While many expected commercial orders to be low considering commercial aircraft needs have already been met, the relative inactivity during the first day still came as a surprise to many.  However, on the second day of the Dubai Airshow, Boeing received an $8 billion order from India’s Jet Airways for 75 737 Max 8 narrow-body jetliners.  The deal, which was previously listed as an order from an undisclosed customer, includes upgrading its prior commitment of 25 current version 737’s for the new “Max” jetliner, in addition to a provision to purchase 50 more aircraft.  The 737 Max jetliner will be introduced in 2017, but Jet Airways won’t receive its first delivery until 2018.  India’s growth in air passenger travel is one of the key drivers of the agreement, as domestic airplane passengers are expected to double over the next seven to eight years according to Jet Airways Chairman Naresh Goyal.

Government Technology Solutions Update

Federal spending on Big Data and cloud services is likely to increase according to a recent Deltek analysis.  Deltek projects that Federal demand for cloud computing services and Big Data will increase by a Compound Annual Growth Rate (“CAGR”) of 21.4% and 14.4%, respectively, between GFY15 and GFY20, growing from a combined $4.0 billion in GFY15 to a combined $9.4 billion in GFY20.  The growing trend reflects concerns about cybersecurity as well as an increased emphasis on improving efficiency. While these technologies exist within Federal agencies already to some degree, the near-term focus of Federal cyber officials will be on better understanding the entire spectrum of capabilities available, as well methods to procure them under traditional acquisition procedures.

As part of a broader effort to improve cybersecurity at the Department of Homeland Security (“DHS”), the Office of Personnel Management (“OPM”) approved the hiring of 1,000 new cyber professionals at DHS.  The new hires will be on-boarded between now and June 30, 2016.  Since OPM has yet to establish specific qualifications for cyber professionals, DHS needed special hiring authority to increase the number of its cyber-focused personnel.  The new employees will be tasked with aiding DHS’s already significant cybersecurity mission, conducting risk and strategic analyses, incident handling, and vulnerability assessments, among other duties.

Big Movers

KEYW (Down 22.7%) – Shares were down this week in response to the company reporting worse than expected loss during its 3Q15 earnings.

Boeing (Down 3.6%) – Shares were down this week as macroeconomic influences outweighed its announcement of receiving an $8 billion order with India’s Jet Airways.

Transactions

Kaman Aerospace Group to acquire GRW Bearing GmbH, a developer and manufacturer of high-precision miniature ball bearings for manufacturing operations.  The terms of the deal were not disclosed.

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Industry Week in Review – November 6, 2015

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Aerospace & Defense Update

The Boeing-Lockheed Martin team has filed a formal protest against the Air Force’s award of the $80 billion LRS-B contract to Northrop Grumman. The protest process will likely take a minimum of three months to play out, further delaying the start of one of the highest-priority Air Force programs.  Northrop Grumman issued a statement saying that the company “is disappointed that its former LRS-B competitors have decided to disrupt a program that is so vital to national security.”

Lawmakers reduced the 2016 defense policy bill by $5 billion in order to satisfy the requirements of the two-year budget deal between Congress and the President. Under the new plan, fiscal 2016 spending would be increased to $607 billion, compared to the $612 billion top-line authorizers budgeted before the deal.  The reduction includes $2.6 billion in “adjustments” to acquisition programs.  The new budget deal will provide stability and increase the likelihood of finalizing a budget agreement before the end of the Continuing Resolution (“CR”), avoiding a government shutdown.  The cuts were imposed across several dozen line items, including a $230 million decrease in funds for the Long Range Strike-Bomber (“LRS-B”) due to repeated delays in the contract award, and several other aircraft programs, such as the unmanned MQ-9 Reaper, C-130, and H-1 helicopter.  The source of the savings were found in negotiations between the House and Senate authorizers, and defense appropriators, according to House Armed Services Committee Chairman Rep. William “Mac” Thornberry.  Apart from programs, the largest source of savings was ~$1 billion from fuel costs that were lower than previous projections.

Government Technology Solutions Update

Under the new budget deal, the $5 billion spending reduction to the defense policy bill would affect few IT programs and would only require modest budget cuts in IT logistics, Army intelligence, and electronic warfare. The revised plan trims approximately $10 million from the Army’s Distributed Common Ground System, a multibillion-dollar program for sharing and analyzing intelligence.  Other notable programs receiving cuts include $12.5 million less for the Defense Contract Management Agency’s IT development program and $6.5 million less for the Joint Electronic Advanced Technology Program.  Many contractors are generally pleased due to the relatively small magnitude of the cuts and the increased visibility for agencies to plan their budgets accordingly.  Though the bill would require slight reprioritization within the Department of Defense (“DoD”), members of the IT Alliance for Public Sector as well as Paul Brubaker, former DoD deputy CIO, agreed that the budget deal, currently passed in the House, sends a positive signal to the defense contracting base.

The Defense Information Systems Agency (“DISA”) held its industry day on November 2nd in Washington, D.C. The event served as a platform for DISA to outline forthcoming contracts covering programs ranging from enterprise resource planning (“ERP”) to cybersecurity analytics.  One of the major contracts unveiled, Telecommunication Services and Enterprise Acquisition Services (“TSEAS”), aims to support DISA’s back-office needs through a comprehensive ERP solution with the Request for Proposal (“RFP”) expected to be released in 2Q16.  Additionally, DISA used the event to showcase the overhaul it underwent in January to be more responsive to industry demands and an increased emphasis on transitioning to automated processes.  An estimated 80% of all emails received by DoD accounts are comprised of spam, phishing, or other forms of junk mail.  As part of their response, the agency is looking to evolve from manually intensive tools to automated capabilities, particularly for cybersecurity needs and will soon release an RFP for an Enterprise Email Security Gateway Solution.

Big Movers

DigitalGlobe (Up 14.5%) – Shares were up this week in response to an announcement of an increase in the Company’s share repurchase program of $130 million

Leidos (Up 4.9%) – Shares were up this week in response to a $662 million award to upgrade the Army’s Airborne Reconnaissance Low-Enhanced (“ARL-E”) fleet

Transactions

Point Blank Enterprises acquired The Protective Group, a provider of ballistic armor and system integration. The terms of the deal were not disclosed 

PAS Technologies acquired Bolton Aerospace, a supplier of precision machined products to commercial, aerospace, and defense manufacturers. The terms of the deal were not disclosed

Resonetics acquired Mound Laser & Photonics Center, a laser micro / nano fabrication center, which provides laser machining services. The terms of the deal were not disclosed

IAP Worldwide Services acquired the Aviation and Logistics Business of DRS Technologies, a provider of aircraft repair management, logistics, and mission support services. The terms of the deal were not disclosed

IAP Worldwide Services acquired the Tactical Communications & Network Solutions Business of DRS Technologies, a provider of engineering, information technology, and communications support solutions to the U.S. Department of Defense and other agencies

Honeywell to acquire Satellite Equipment business of COM DEV International, an international provider of space-based wireless communications products and subsystems. The deal is worth an estimated $345 million

Rift Valley Equity partners acquired Arlington Machine and Tool Co., a provider of CNC machining services to the aerospace, defense, industrial, semiconductor, and healthcare sectors. The terms of the deal were not disclosed

Aerospace Turbine Rotables to acquire the Aircraft Battery and Power Supply Repair divisions of Foxtronics, Inc., an FAA and EASA 145 certified repair station and battery services center, which provides service, new product sales, and support throughout the U.S. The terms of the deal were not disclosed.

Booz Allen Hamilton acquired the Software Services Business of SPARC, LLC, a provider of software development services for Federal and commercial sectors, including the Space and Naval Warfare Systems Command (“SPAWAR”) and Veterans Affairs (“VA”), among others. Terms of the deal were not disclosed.

Preferred Systems Solutions acquired GSM Consulting, Inc., a provider of innovative software and IT solutions for the Federal Government and Fortune 500 companies. Terms of the deal were not disclosed.

Oasis Systems acquired MAR, Incorporated, a provider of systems engineering and integration, IT / cybersecurity, specialized facilities management, and intelligence and special programs. Terms of the deal were not disclosed.

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