Industry Week in Review – May 11, 2012

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On May 7th, the U.S. House of Representatives’ Budget Committee passed a plan to circumvent across-the-board cuts in January and reverse billions in reductions that were made last fall.  The Republican-led effort aims to restore cuts in the defense budget that were approved as part of the Budget Control Act of 2011. 

The plan is accompanied by two bills, from both the House Armed Services Committee and the Defense Appropriations Subcommittee, to spend the additional funds.  Rep. Paul Ryan (R-Wis) commented, “In our view, we shouldn’t be taking more from hardworking Americans to fix Washington’s mistakes.  Instead, we should be solving the problem with structural reforms to our entitlement programs… [there is] strong bipartisan agreement that the sequester is a bad policy.”

However, on May 10th, the Pentagon immediately rejected both spending plans, which will likely be dead on arrival when the Democrat-controlled Senate finalizes its military spending recommendations.  Defense Secretary Leon Panetta commented, “The Department of Defense, and I believe the administration, are not going to support additional funds that come at the expense of other critical national security priorities…if members [of Congress] try to restore their favorite programs without regard to an overall strategy, the cuts will have to come from areas that could impact overall readiness.”

Big Movers

Aeroflex Holding Corp. (Down 23.2%) – Shares traded down this week after the company issued Q4 2012 guidance below Wall Street estimates.  The company reported that it expects net sales to be between $180 million and $195 million and adjusted EBITDA between $41 million and $51 million.  Analysts were previously expecting the company to report revenues of $202 million and EBITDA of $58 million.

GeoEye, Inc. (Down 16.1%) – Shares traded down this week after DigitalGlobe’s Board of Directors rejected GeoEye’s proposal to acquire the company for $17.00 / share.  Later in the week, a secondary drop-off occurred when Macquarie analysts downgraded GeoEye’s stock to “Neutral” from “Outperform.”

Wesco Aircraft Holdings Inc. (Down 10.4%) – Shares traded down this week after announcing earnings results on Monday, in which it reported earnings-per-share of $0.22, missing analysts’ consensus estimates by $0.03.  However, the company did report revenue that was up 3.5% as compared to the same quarter last year.

Relevant Transactions

GTCR announced that it has acquired CAMP Systems, a provider of maintenance management, flight scheduling, inventory control, and engine control trend monitoring solutions for $675 million.  The auction process was orchestrated by Credit Suisse AG, who also drew bids from Bain Capital and Welsh Carson, Anderson & Stowe for the Warburg Pincus-backed company.  According to sources close to the deal, the company was generating EBITDA ~$45 million.  The deal reportedly closed on April 7th.

Kratos Defense & Security Solutions, Inc. has agreed to acquire Composite Engineering, a provider of ballistic missile target systems, augmentation and payload equipment, and launch solutions, for $155 million.  The company primarily provides miniature jet targets for the U.S. Air Force and U.S. Navy. According to Kratos, the company earned ~$94 million in revenues in 2011, up 25% over 2010, and has a qualified pipeline in excess of $1 billion.  The deal includes a $20 million component of Kratos stock.

General Dynamics C4 Systems has agreed to acquire IPWireless, a provider of LTE mobile broadcast solutions for government and public safety customers, as well as integrated mobile broadcast solutions for 3G mobile data offload applications, for an undisclosed purchase price.  General Dynamics consummated the transaction to tap into the “fast current of growth” in the rapidly expanding 3G and 4G wireless market.  The acquisition will also provide General Dynamics with a technological and pricing edge in future upgrades to secure communications networks programs for U.S. military and civilian customers.  IPWireless reportedly has ~90 employees and expects to generate between $65 million and $75 million of revenue this year.

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Industry Week in Review – May 04, 2012

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As the Army continues to bring its tactical wheeled vehicles home from Afghanistan, it is now faced with the decision of what vehicles to keep, what vehicles to reset, and what vehicles to buy. With an inventory of 270,000 vehicles across the range of vehicle platforms, including tens of thousands of new MRAPs, M-ATVS, Strykers, and up armored Humvees, the Army needs to either position vehicles into its revamped force structure or divest them. Army leadership is conducting a “fleet mix analysis” to determine just which vehicles to support, however there is one vehicle where plans appear to be set.

“For combat, we know the Humvee is no longer feasible,” Maj. Gen. Tony Cucolo, director of force development for the deputy chief of staff, G-8 said. Army officials have stressed that the Humvee still has a future within homeland security and logistics operations, however, once the vehicle leaves Afghanistan it will not see the battlefield again.

After years of debate over finding a replacement for the Humvee, it now appears that the Joint Light Tactical Vehicle (“JLTV”) will fill this role. A joint venture between the Army and the Marine Corps, the JLTV is currently moving towards a prototype and testing phase that could result in production orders for more than 55,000 vehicles. The JLTV program is expected to cost well over $10 billion, though some estimates have put this figure as high as $70 billion, depending on the final per-vehicle cost and total quantity ordered.

Big Movers

DigitalGlobe, Inc. (Up 35.5%) – Shares are up this week after the satellite imagery company GeoEye, Inc. offered to purchase DigitalGlobe for $792 million in a cash-and-stock deal. A deal between the two companies would create the world’s largest fleet of commercial imagery satellites. (note: DigitalGlobe has since rejected GeoEye’s unsolicited offer)

Chemring Group plc (Up 4.6%) – Shares rose this week after Non-Intrusive Inspection Technology, Inc. (“NIITEK”), a U.S. subsidiary of Chemring, was awarded an Army sole source contract for the Ground Penetrating Radar Husky Mounted Detection System worth up to $579 million. The Company has already been awarded an initial order of $161 million.

ManTech International Corporation (Down 21.8%) – Shares fell this week after ManTech missed analysts expectations for the second quarter in a row and cut its 2012 outlook sighting slowing revenue from overseas contingency operations. The Company now expects FY2012 revenue of $3 billion and net income of $113 million.

CACI International, Inc.(Down 20.3%) – CACI’s shares saw their steepest decline since April 2011 this week after the Company cut its sales forecast from $4.05 billion down to a range of $3.73 billion to $3.83 billion. Analysts had estimated $3.95 billion. CACI blamed the shortfall in part on slower-than-anticipated procurement by customers, uncertainty in government budgeting, and the drawdown in Southwest Asia.

Relevant Transactions

Kanders & Company, Inc. to acquire BAE Systems’ Safariland, LLC, a manufacturer of protective equipment for law enforcement agencies, including gloves, holsters, and riot gear, as well as armored combat vehicles, ships, and satellite systems for the military. The proposed $114 million sale is another step in BAE’s ongoing plan to streamline its organization and further align its business portfolio and strategy. The sale is expected to close in the second or third quarter.

GeoEye, Inc. to acquire DigitalGlobe, Inc., a provider of commercial earth imagery products and information services worldwide, for $792 million in cash and stock. In the face of increased defense budgetary pressures and internal competition, a combined company will be better able to provide the U.S. government with geospatial intelligence. GeoEye has offered to pay $17.00 per share for DigitalGlobe, a 26 percent premium to Thursday’s close. (note: DigitalGlobe has since rejected GeoEye’s unsolicited offer)

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Industry Week in Review – April 27, 2012

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This week, U.S. House lawmakers, seemingly frustrated by Air Force and Army decisions to cancel weapons in the 2013 budget, have taken the first steps toward reinstating funding for those programs. In its markup of the 2013 defense authorization bill, the House Armed Services subcommittee on tactical air and land forces recommended adding $1.1 billion above what the Pentagon requested for certain weapons programs.  The draft legislation blocks the previously speculated cancelation of the Northrop Grumman Block 30 Global Hawk.  If the legislation is approved, it will not only add $263 million to the requested $75 million to fund continued operations, the Air Force will be required to operate the unmanned aircraft through the end of 2014.

The subcommittee seeks to fully fund procurement of 29 Lockheed Martin F-35 Joint Strike Fighter aircraft, and to buy the additional 12 General Atomics MQ-9 Reaper unmanned aircraft, the subcommittee recommends a $180 million addition to the Air Force’s $920 million request.  The markup also authorizes multiyear procurement of the Bell-Boeing V-22 Osprey, funds production of 21 tilt-rotor aircraft in 2013, extends the Boeing F/A-18E/F Super Hornet multiyear for a fifth year, and funds 26 F/A-18s and 12 EA-18G Growler electronic attack aircraft.

Army budget requests were also revisited. In its markup of the authorization bill, the subcommittee says there is not enough information available about the Army’s future needs or the risks associated with temporarily closing the combat vehicle production lines.  In the absence of the force-mix study results and a quantitative analysis of the impacts to the combat vehicle industrial base, the subcommittee recommends providing funding to keep those production lines open.  The subcommittee recommends an additional $181 million for continued M1 Abrams tank upgrades and $140 million for upgrades to the Bradley fighting vehicle. It also adds $62 million to increase 2013 production for the M88A2 Improved Recovery Vehicle.

Big Movers

Dynamics Research Corp. (Down 23.3%) – Shares are down this week after the Company further reduced 2012E expectations, citing continuing deferral of procurement decisions and program cuts, together with intensified price competition as the main drivers for the downward shift.

Safran SA (Up 14.3%) – Shares rose this week as brisk overhaul demand for jet engines underpinned stronger than expected first quarter sales.  The Company posted first-quarter revenue of 3.1 billion euros ($4.1 billion), above market forecasts of around 3 billion, boosted by a 15.1% rise in the economically sensitive after-market for civil jet engines.

Relevant Transactions

Blackland Aerospace acquires Lewis Machine Company, a provider of complex precision-machined components for clients in the commercial and military jet engine, airframe, missile and power plant industries. The acquisition of Lewis Machine represents the third in fourteen months and reaffirms Blackland’s commitment to building a leading platform in the sector. The terms of the transaction were not publically disclosed.

Six3 Systems acquires Ticom Geomatics, a provider of interoperable, mission-ready, precision Geolocation and ISR systems and services. The acquisition combines Ticom’s expertise in Tactical precision Geolocation and COMINT with Six3’s strong capabilities in the National ISR/SIGINT and Cyber market. Together the Company will be able to offer customers comprehensive solutions and services that span from National through Tactical ISR needs and address all elements of the Multi-INT market. While some reports show Ticom’s latest reported revenue to be almost $30 million, the specific terms of the transaction were not publically disclosed.

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Industry Week in Review – April 20, 2012

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A recent DoD report, released on April 18, suggests that Congress should lift restrictions on commercial satellite exports to eliminate existing headwinds in the U.S. space manufacturing market.  Currently, commercial satellite exports are regulated by the U.S. Munitions List (“USML”), grouped with other defense-related artifacts such as firearms, missiles, military vehicles, and warfighter training equipment.  The Obama Administration’s current proposal suggests moving commercial satellites to the Commerce Department’s Commerce Control List in an effort to reduce pressure on the U.S. commercial satellite industry and alleviate associated risks to broader national security.  The revision of the regulations is part of a comprehensive strategy to rebuild the USML and introduce new export control reforms, with an overall goal to create “higher walls around fewer items.”

In a related story, the Air Force announced this week its intention to launch the second Advanced Extremely High Frequency (“AEHF”) communications satellite on May 3, as part of the effort to replace the legacy Milstar constellation and provide secure, high-integrity, jam-resistant communication support to senior military and government officials.  The third AEHF satellite is expected to launch in September 2013, a fourth satellite is on contract, and two more are expected to be procured by the end of the upcoming summer.

Big Movers

MAXIMUS, Inc. (Up 7.0%) – Shares rose this week after the company announced that it has signed a definitive agreement to acquire Denver, CO-based Policy Studies Inc. (“PSI”) for $67 million.  PSI helps administer various government health programs, including Medicaid and the Children’s Health Insurance Program, welfare-to-work programs, and child support enforcement initiatives.  The acquisition is expected to help bolster MAXIMUS’ position in the increasingly lucrative government health market.

TransDigm Group Incorporated (Up 5.4%) – Shares rose this week after analysts reported confidence that the company will raise adjusted earnings-per-share (“EPS”) estimates meaningfully during reports next month.  Analysts rationalize the higher EPS estimates through a combination of further McKechnie upside, AmSafe accretion, and continued aftermarket strength.

Relevant Transactions

HEICO Subsidiary Radiant Power Corp. acquires the aerospace assets of Mortiz Aerospace, a designer / manufacturer of next generation wireless cabin control systems, solid state power distribution and management systems, and fuel level sensing systems for business jets, military / defense aircraft, and general aviation consumers.  The acquisition enables Radiant Power to provide a full suite of power control and cabin electronics solutions.  Terms of the deal were undisclosed.

Venture Aircraft, LLC acquires certain assets of Swift-Cor Aerospace, Inc., a producer of precision computer numerical control (“CNC”) machined and sheet metal parts, as well as assemblies, for commercial jets, business jets, and military aircraft, among other aerospace platforms.  The combined entity will now operate as Impresa Aerospace; management views the acquisition as instrumental towards being able to tackle growing demand driven by rapidly increasing aircraft build rates.  Terms of the deal were undisclosed.

Waveland Investments acquired NTE Aviation, an aftermarket reseller of airplane engine and airframe components.  NTE engages in the sourcing and reselling of engine and airframe parts to / from MRO facilities, OEMs, airline operators, and leasing companies.  The company is well recognized within the aviation industry as a specialist in the regional airline turboprop engine and airframe segment, in addition to Boeing 737 Classic applications.  Terms of the deal were undisclosed.

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Industry Week in Review – April 13, 2012

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This week the Pentagon released its 30-year aviation plan which forecasts to spend $770 billion on aircraft purchases, operations, maintenance, and construction between fiscal year 2013 and 2022, with annual funding levels set to peak at $80 billion in fiscal year 2022. The capabilities of aircraft identified in the plan reflect five principle investment objectives identified by the Pentagon:

  • Meet the demand for persistent, multirole intelligence, surveillance, and reconnaissance (“ISR”) capabilities
  • Provide sufficient enabler capability and capacity
  • Acquire fifth generation fighter / attack aircraft, while maintaining sufficient inventory capacity
  • Modernize long-range strike capabilities; and
  • Emphasize modernization and readiness.

Along with the surprise announcement that a new Air Force One presidential transport has been included in the 30-year plan (the first time the Pentagon has mentioned a replacement to the long standing Boeing 747 jet transport), the Pentagon released plans to increase its fleet of armed and long-haul surveillance drones by 45 percent over the next 10 years. The U.S. inventory of UAV’s will increase to 645 aircraft by 2022, from about 445 aircraft in 2013. Even as drones are set to play an ever increasing role in the Pentagon’s future, “smaller and leaner” force, the U.S. military is buying fewer than originally planned due to budget restrictions.

Big Movers

Hexcel Corp. (Up 8.5%) – Shares are up this week amid speculation that Hexcel Corp. will submit a counter bid for British aerospace parts supplier Umeco Plc. Cytec Industries Inc. has already made an offer valued at roughly $439 million, however analysts believe that were Hexcel to counter bid, it would be the likeliest candidate. Umeco’s shares rose as much as 48% on Thursday, following the initial bid.

Embraer SA (Up 2.8%) – Shares rose this week after the Company announced it had entered into a partnership with Boeing targeted to pursue several areas of cooperation, including research, technology, and sustainable aviation biofuels.

Relevant Transactions

L-3 Communications to acquire the assets of Thales Training & Simulation Ltd., a provider of simulation and training systems for military aircraft to government, defense, aerospace, and air travel industries, for $132 million. L-3 plans to integrate the civil aircraft simulation and training business into its link simulation and training organization, within its electronic systems group. The acquired assets are expected to generate sales of approximately $150 million for the 12 months ending December 31, 2012.

Thunderbird, LLC acquired Excaliber Precision Machining LLC, a developer of precision machining and assembly of aerospace parts, for an undisclosed amount. The acquisition will add complimentary machining skills to Thunderbird’s capabilities. Following the change of control, the business will be renamed Excaliber Precision Manufacturing LLC.

Trimble Navigation Limited acquired Gatewing N.V., a Belgian provider of lightweight unmanned aerial vehicles for photogrammetry and rapid terrain mapping applications. The acquisition broadens Trimble’s platforms for surveying solutions. Terms of the deal were not disclosed

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Industry Week in Review – April 6, 2012

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Following the recent International Society of Transport Aircraft Trading (“Istat”) conference and this week’s Engine MRO Forum put on by Aviation Week, debate over the surging demand for new jets and whether Boeing and Airbus are producing too many new narrow body plans has begun to escalate. 

In 2011 Airbus and Boeing received more than 2,200 net orders, nearly double the level in 2010 and well beyond the 1,011 jets they delivered.  Subsequently, the two airframers are sitting on backlogs equivalent to about seven years of output. And, production increases underway will soon have Airbus and Boeing completing 42 A320 and 737 narrow body jets a month, respectively, by 2014, with aims to go higher

The debate revolves around whether surging demand for new jets will fall flat and leave the market flooded with an oversupply of new jets. Skeptics question how many small and struggling airlines can expect to take delivery of the planes they have ordered. India’s Kingfisher Airlines, for example, currently on the edge of collapse, has ordered dozens of Airbus A320s, A330s and A350s.

Additionally, demand for relatively young, used jets appears to be stuck in low gear. The lack of demand for these planes is forcing owners to park jets sooner than anticipated, flooding the market with used engines and depressing prices. Three years ago Rolls-Royce leased individual engines for Boeing and Airbus narrow body jets for $120,000 a month.

Today, these engines can only command $50,000 a month. Republicans and lessors, alike, are pointing at the government’s export banks, complaining that their loan guarantees are enabling Tier III buyers to purchase new jets rather than taking used models. Guarantees of financing for aircraft purchases hit a record $11 billion last year.

Big Movers

CPI Aerostructures Inc. (Up 10.3%) – Shares rose this week after CPI was upgraded to “Buy” from “Hold,” with a price target of $17 per share. CPI was rated “hold” on March 19th this year, when the stock was trading at $15.80 per share.

AAR Corp. (Down 8.0%) – Shares fell this week following AAR’s downgrade from an “outperform” rating to a “neutral” rating. Analysts at Wedbush wrote, “the most recent quarter showed that weakness in the airlift business is likely to continue into fiscal 2013, further increasing concerns about the longer-term opportunity in the airlift segment and the broader defense segment sales as troop levels in Afghanistan are expected to decline substantially and OCO funding is increasingly pressured.”

Relevant Transactions

Acentia acquired 2020 Company, LLC, a premier professional services firm that delivers business and technology solutions through consulting and outsourcing services to the government, in the areas of health, education, and science. The acquisition, whose terms were not disclosed, extends Acentia’s reach with the services and expertise to pursue and execute more and even larger opportunities on programs of national significance. KippsDeSanto & Co. acted as exclusive financial advisor to 2020 in this transaction.

CPR Aerospace to acquire Wood Group Turbopower, LLC, a provider of overhaul and repair services to military operations, commuter airlines, business aviation, and utility freight markets in the U.S. and internationally, for a total consideration of $18.7 million. Wood Group PLC had discontinued the Turbopower business a few years ago and has reported the company as discontinued in its financial statements.

Cobham acquired additional 23% of Thrane & Thrane, a manufacturer of equipment and systems for mobile communication based on satellite and radio technology worldwide. Cobham made the deal soon after it withdrew on offer to buy Thrane & Thrane for $73.73 per share following Thrane & Thrane’s board announcement that it “felt unable to recommend Cobham’s purchase proposal.” Cobham now owns approximately 25.6% of the Company.

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Industry Week in Review – March 30, 2012

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A new Pentagon report, released on March 29th, projects a nearly $17 billion increase (vs. prior estimates) in the total cost of the F-35 Joint Strike Fighter program.  The report estimates the total program cost to $396 billion, representing 2,443 aircraft for the USAF, USMC, and U.S. Navy. 

However, production of the aircraft is still anticipated to be slowed per the 2013 budget; a total of 179 aircraft were removed from the procurement roadmap between 2013 and 2017, while $6.2 billion was added in near-term for procurement and development costs.  Full production ramp-up is projected to be reached by 2018, at which point the Navy and USMC anticipate to be receiving aircraft at a 50 unit-per year rate; the USAF anticipates being at a 60 jet-per year rate in 2018, growing to 80-per year by 2021.

In other news this week, Army General Keith Alexander, National Security Agency (“NSA”) and U.S. Cyber Command (“CYBERCOM”) chief, briefed the House Armed Services emerging threats and capabilities subcommittee on a revised cybersecurity strategy for the future.  Remarking that “our capabilities represent key components of deterrence,” Alexander plans to distribute offensive weapons typically wielded by centralized agencies to the individual combatant commands, allowing for rapid action and the coupling of traditional kinetic attacks with cyber threats. 

Currently, only the U.S. Central Command and Pacific Commands have a fully operational cyber element.  “Our goal is to ensure that a commander with a mission to execute has a full suite of cyber-assisted options from which to choose, and that he can understand what effects they will produce for him,” Alexander wrote.

Big Movers

QinetiQ Group plc. (Up 11.1%) – Shares rose this week on a report that the company has signed an agreement with the trustees of its UK defined benefit pension scheme for the triennial actuarial funding valuation and other measures designed to reduce the funding deficit and improve the scheme’s security; the actuarial impact of the index change is estimated to be a deficit reduction of ~€109 million.  Moreover, company officials recently reaffirmed their view on meeting their projected financial performance for the fiscal year ended March 31, 2012.

Finmeccanica SpA (Up 15.6%) – Shares rose this week after the company reported FY2012 guidance in line with analysts’ estimates.  The Company expects to report revenues between €16.9 billion and €17.3 billion, as well as adjusted EBITA of approximately €1.1 billion.

Tyco International Ltd. (Up 6.3%) – Shares rose this week after the company announced a definitive agreement to combine its Flow Control business with Pentair, a diversified industrial manufacturing company with a significant Water & Fluid solutions business unit, in a tax-free, all-stock merger.  The transaction values Tyco’s Flow unit at approximately $4.9 billion; Tyco shareholders will own approximately 52.5% of the combined entity.

Relevant Transactions

Air Industries Group, Inc. acquires Nassau Tool Works Inc., a manufacturer of aerospace components, including sub-assemblies and complete landing gear systems, for private and public entities, including the USAF and U.S. Navy.  Air Industries, a manufacturer of precision components, will leverage the acquisition to augment its landing gear manufacturing operations, growing this practice to over 40% of the broader business.  The combined entity is expected to have earned 2011 revenues and EBITDA of over $68 million and approximately $10 million, respectively.  Terms of the deal were undisclosed.

Aveshka, Inc. acquires Civitas Group’s Government Services Practice, a provider of homeland security and private sector preparedness solutions for the DHS, DoD, and IC.  The acquisition adds policy consulting and strategic advisement credentials to Aveshka’s suite of analytic, cybersecurity, and IT capabilities.  The combined business will be able to provide holistic solutions for national security requirements – from policy to strategy to implementation.  Terms of the deal were undisclosed.

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Industry Week in Review – March 23, 2012

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This week, USAF Secretary Michael Donley announced that the latest restructuring of the $382 billion program should allow the program to proceed with the “least risk,” a message repeated by the Pentagon’s F-35 program manager, chief weapons buyer and the Air Force acquisition chief at a separate House of Representatives subcommittee hearing. Lockheed Martin is building three variants of the radar-evading supersonic warplane for the military and eight countries that are helping to fund its development. Navy Admiral David Venlet, program manager for the F-35, told reporters after the House hearing that he was in close touch with the eight partner countries, plus Israel and Japan, and while some might scale back or delay their purchase of planes, none had said anything about withdrawing from the program completely. Nonetheless, Donley maintained that any further cost growth would cut the total number of planes bought. The Pentagon’s fiscal 2013 budget proposed postponing production of 179 F-35 planes to save $15.1 billion over the next five years, as the military begins to implement $487 billion in spending cuts over the next decade.

Big Movers

Smith & Wesson Holding Corp. (Up 15.6%) – Shares rose this week after the gun maker hiked its full-year sales forecast on a higher order backlog, reflecting strong demand for its guns and rifles. The company, which competes with Sturm Ruger & Co, Glock Inc and Taurus, reported a 168.9% surge in firearm backlog in the third quarter. In addition to the rise in demand was a strong third quarter performance, with revenue and up 23.8% YoY and net income at $5.4 million compared to a net loss of $2.7 million in the previous year.

AAR, Corp. (Down 13.4%) – Shares fell upon news that plane shortages and higher costs led to poor performance at two of its businesses. This is expected to persist into the 4th quarter so that improvement is expected only in early next fiscal. The company on Wednesday blamed unscheduled maintenance inspections and delayed receipt of aircraft, as well as higher maintenance costs for the poor performance at its airlift operations business. Also, AAR said it experienced higher-than-expected start-up costs and cost overruns on certain programs at its precision machining business.

Relevant Transactions

HEICO Corporation’s Electronic Technologies acquires Ramona Research, Inc., a designer and manufacturer of RF and microwave amplifiers, transmitters and receivers primarily used to support military communications on unmanned aerial systems (“UAS”), other aircraft, helicopters and ground-based data/communications systems. The acquisition is expected to improve HEICO’s position on growing UAS programs and to accretive to its earnings per share within the year following the purchase. Terms of the deal were not disclosed.

API Technologies to acquires C-MAC Aerospace, a portfolio company of Francisco Partners and Shah Capital Partners, for a total purchase price of 20.95 million pounds sterling (approximately $33 million USD). C-MAC is a leading provider of high-reliability electronic systems, modules, and components to the defense, aerospace, space, industrial, and energy sectors. The company brings to API a large portfolio of proprietary and differentiating products along with an increased European and international presence. The offer value for the transaction was approximately 0.93x C-MAC’s FY 2011 revenue of 22.5 million pounds sterling (approximately $36 million USD).

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Industry Week in Review – March 16, 2012

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Arab Emirates President Tim Clark announced this week that after finding Type 2 cracks in many of its Airbus A380’s wing rib feet, the airline is seeking compensation from Airbus. Mr. Clark stated that the Company is losing roughly $90 million in revenue due to the expected down time required to repair much of its 21 aircraft A380 fleet. The company estimated the cost to repair all of its A380s to be around €105 million ($137 million) in total.

These costs do not include the efforts for permanent redesign of the affected wing parts or take into account any potential compensation claims from customers. Mr. Clark has publicly announced “we are not happy… we are losing customers.” Of the other airlines that have encountered this problem, Arab Emirates is the largest operator of A380s and is currently the only airline to publicly demand compensation from Airbus.

Also this week, the U.S. Navy announced that it expects cost growth on its new nuclear aircraft carrier, Gerald R. Ford, to continue. In 2008 Congress capped the acquisition cost of the ship at $11.76 billion, however, the government accountability office has warned that if additional costs remain uncontrolled, they could reach as much as $1 billion above Congress’ current cap. As the lead ship of its class, the Gerald R. Ford will have a new hull, aircraft launch system, recovery system, electrical system, and propulsion system.

Originally the Navy had planned to build three ships, but in 2002 former defense secretary Donald Rumsfeld made the decision that only one would be built. Much of the additional cost likely stems from combining all new technology development costs into one ship, as well as only 30% of the ship design completed when the contract was originally signed in 2008. The Navy is now forced to ask Congress for permission to pay the higher-than-planned-for bills.

Big Movers

Federal Signal Corp. (Up 33.0%) – Shares rose this week after the Company reported a narrower net loss of $16.6 million in its fourth quarter, compared to a year earlier loss of $169.2 million. Additionally, revenue rose 20% to $223.3 million from $186.7 million a year earlier.

GeoEye, Inc. (Up 20.4%) – Despite fourth quarter net income sliding to $14.1 million from $15.2 million the same quarter last year, shares rose this week after the Company reported this quarter’s revenue up 17% to $96.8 million from $82.5 million. These results beat analysts’ estimates of $89.9 million. Going forward, the Company estimates earnings from $1.95 to $2.35 per share on revenue of $355 million to $375 million. These estimates beat analysts’ revenue earnings per share target of $2.25 on revenue of $364.0 million.

Relevant Transactions

Levine Leichtman Capital (“LLCP”) acquires Tronair, Inc., a manufacturer of aircraft ground support equipment, special items for building aircraft, replacement parts, and technical support services, for an undisclosed amount. The acquisition is expected to further strengthen Tronair’s market position and fuel its next stage of growth through LLCP’s long history of offering a value-added partner to its portfolio companies and ability to leverage its strategic, financial, and M&A expertise.

Flextronics International Ltd. to acquire Stellar Microelectronics, Inc., a provider of electronics manufacturing services including, product development, turnkey manufacturing, and service and repair for the medical, military, space, and wireless markets. This transaction will provide Stellar’s customers increased global scale and expanded supply chain leverage, along with the benefits of an increased, low cost global footprint. Terms of the deal were not disclosed.

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Industry Week in Review – March 9, 2012

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With the backdrop of across-the-board budget pressures and a tightening procurement environment, DoD officials this past week commented that U.S. defense contractors that survived the Pentagon’s 2013 budget proposal should fare well in subsequent years, with the assumption that sequestration does not go into effect.  “We’re going to continue to think through our situation and make adjustments and so forth as we go forward because this is a slow process of making a very major transition,” remarked Defense Secretary Ashton Carter.  Rep. Adam Smith (D-Washington), the ranking Democrat on the House Armed Services Committee, remarked, “I think that the likely scenario is that the tax cuts expire, sequestration doesn’t happen, and we go into January fighting.”  Officials also highlighted the ever-apparent need to increase investment in several strategic areas, including cybersecurity and electronic warfare.

In related news, the Pentagon’s sharpened focus on reducing expenditures continues to manifest itself in one of the DoD’s highest-priority programs, the F-35.  Given the demands within the 2013 budget proposal to slow the jet’s production by removing 179 aircraft over the next five years, procurement officials are currently in negotiation with prime contractor Lockheed Martin for a lower price on the fifth batch of 30 low-rate, initial production (“LRIP”) aircraft. 

Despite the apparent pull-back, the Air Force continues to voice support for the Joint Strike Fighter, with USAF chief of staff Gen. Norton Schwartz commenting that it is “the future of tactical aviation for the Air Force.”  The Pentagon anticipates continued cost revisions for the F-35 program; the Pentagon’s last official estimate pegged development and production costs nearing $380 billion for more than 2,800 U.S. and international aircraft.

Big Movers

Smith and Wesson Holding Corporation (Up 35.5%) – Shares rose this week after the company reported net sales from continuing operations for 3Q of $98.1 million, reflecting a 23.8% increase over 3Q of last year.  The company’s gross margins also grew in 3Q year-over-year (“YoY”), rising from 24.5% to 30.6%, driven by increased sales volume and absorption due to higher production levels, as well as completion of the consolidation of its Thompson / Center Arms business.

John Bean Technologies Corporation (Down 11.0%) – Shares fell this week after the Company reported 4Q results and missed analyst estimates at both the revenue and earnings-per-share (“EPS”) levels.  The Company reported 4Q revenues of $271.5 million, missing analyst estimates of $287.0 million and reflecting a 5.3% contraction from 4Q of last year.  Additionally, the Company reported Non-GAAP EPS of $0.25, missing the consensus estimate of $0.53 and reflecting a 56% decline YoY.

Ducommun Inc. (Down 9.1%) – Shares fell this week after the Company reported a slight revenue miss relative to analyst estimates ($188 million versus $195 million) and substantially lower-than-expected operating margins in its Ducommun Aerostructures business (4.9% vs. 8.5%).  However, the Company did post a record backlog of $636 million, and reported that its integration of LaBarge was “effectively complete.”

Relevant Transactions

Plasan Sasa Ltd. acquired Artis LLC, a provider of contract research and development (“R&D”) and analysis services for health, military, and security markets.  The Company’s analysis services focus on defining the military utility of future technologies, especially distributed sensor networks and robotics systems.  Plasan expects the acquisition to enhance its ability to provide superior survivability solutions against current and future threats, leveraging Artis’ leading Iron Curtain Active Protection System (“APS”) products.  Terms of the deal were not disclosed; SC&H Capital served as the exclusive financial advisor to Artis LLC.

A group of private investors, including Weinberg & Bell Group, has acquired AeroRepair and Hemico.  AeroRepair provides services in the repair and overhaul of brake assemblies, wheel assemblies and landing gear for regional airlines, corporate airlines and military aircraft, while Hemico manufactures and distributes aircraft parts.  TD Bank and Huntington Capital provided financing for the transaction.

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