News & Events

Industry Week in Review – July 29, 2016


Aerospace & Defense Update

Boeing announced it may end production of its 747 aircraft if it continues to experience a decline in orders and an increase in pricing pressure.  For the time being, Boeing has decided to continue with the plan of halving the production rate to 6 aircraft per year starting in September. That being said, Boeing’s CEO, Dennis Muilenburg, still believes there is tremendous value for the 747 over the long run despite challenges in the current air cargo market.  Boeing had strong performances in its passenger jet and defense businesses this past quarter, which helped offset troubles with the 747 program.

Many of the industry’s largest players reported earnings this week.  Both Raytheon and Textron reported positive 2Q16 earnings, while Airbus experienced financial charges on its A400M program.  Raytheon raised its full-year profit guidance as military budgets have increased in the U.S. and overseas. Additionally, military conflicts in the Middle East have increased the demand for more bombs, missiles, and intelligence services.  Textron profits and revenues also surpassed expectations in 2Q16.  The company’s aviation segment increased revenues 6.4% to $1.2 billion, driven by strong Citation jets deliveries.  However, Airbus reported $1.1 billion of additional financial charges for the A400M, adding on to the ~$5 billion of charges already incurred.   In the announcement, Airbus warned of potential future charges as it works on fixing technical problems on the fuselage and engine.

Government Technology Solutions Update

The Information Technology and Innovation Foundation (“ITIF”) released a report on Monday regarding adoption of the Internet of Things (“IoT”) by Federal agencies.  The ITIF identified several key obstacles preventing widespread usage of the technology.  Among these are issues with a lack of technical skills, leadership, funding, as well as procurement challenges and a low tolerance for risk.  In order to address these issues, the ITIF recommends that the Federal Chief Information Officer (“CIO”) set up an IoT taskforce, that agencies themselves prepare plans and goals for IoT implementation, and that the Federal government reach out to both the public and private sectors to “encourage improvements in privacy, security and interoperability.”  The Federal government spent $8.8 billion on IoT in 2015, a 20% year-over-year increase compared to 2014.  The technology is also one of the primary areas of focus in the $50 billion Alliant 2 Government-Wide Acquisition Contract (“GWAC”), for which proposals are due in August.

Industry leaders met at the ATARC Federal Cloud Computing Summit on Tuesday to discuss the Federal Data Center Optimization Initiative (“DCOI”).  Those in attendance were urged to think of the DCOI as an opportunity to replace or eliminate certain legacy data centers through the use of cloud computing technology.  The objectives of the DCOI are to streamline how the government addresses the data center marketplace, with the end goal of “cost reduction through efficiency gains, cost reduction through elimination of facilities, and sustainability.”  Currently, 75% of the Federal IT budget is earmarked for Operations and Maintenance (“O&M”) of legacy systems, representing over $63.1 billion in the 2017 budget.  Widespread adoption of the cloud – if achieved – by Federal agencies could facilitate the transfer of information and make steps towards a modernized, less maintenance-intensive Federal IT infrastructure.

Big Movers

Triumph Group (Down 21.8%) – Shares were down this week after the company reported a 20% decline in profits during its 1Q16 earnings announcement            .

Crane Co. (Up 6.3%) – Shares were up this week after the company announced it expects to reach ~$2.7 billion in revenue for 2016

Transactions

Belcan, LLC has acquired Intercom Consulting and Federal Systems Corp., a provider of secure, enterprise-level IT and cybersecurity solutions for commercial and government clients.  Terms of the deal were not disclosed.

Dynamis, Inc. has acquired Defense Group Inc.’s (DGI) Emergency and Security Management Solutions business, a provider of enterprise emergency and security management software solutions.  Terms of the deal were not disclosed.

Infinite RF Holdings has acquired L-com Inc., a provider of wireless components, cable assemblies, antennas, specialized military and aeronautics connectivity solutions, and wireless sensorsTerms of the deal were not disclosed.

Odyssey Investment Partners has agreed to acquire Aero Precision Industries, LLC, DAC International, Inc., and NASAM, Inc. Aero Precision is a provider of aftermarket original equipment manufacturer (“OEM”) parts.  DAC International is a provider of avionics upgrade solutions for military and airlines.  NASAM is a provider of military / defense high tech electronics.  Terms of the deal were not disclosed.

Platte River Equity has acquired CTS Engines, a provider of full spectrum maintenance, repair, and overhaul (“MRO”) services for established engine platformsTerms of the deal were not disclosed.

Smith & Wesson Holding Corp. has agreed to acquire Crimson Trace Corp., a provider of laser sighting products and tactical lights for military, law enforcement, and civilian applications.  The deal is worth an estimated $95 million.

Click here to review comparable company analysis.