Industry Week in Review – March 2, 2012
This week, the U.S. Air Force announced that it has begun reducing the number of bases at which it plans to eventually house the new F-35. This is being done in an effort to reduce the estimated life-cycle cost of the single-engine stealthy fighter.
Last year, the Pentagon disclosed an estimated more than $1 trillion to operate the fighter for the next 50 years, raising significant concern from customers, including the U.S. Navy and Air Force. Since then, the services have been working to refine their plans to operate the jet in hopes of curbing operations and sustainment (O&S) cost.
Air Force Chief of Staff Gen. Norton Schwartz says the original cost estimate contained more than 40 operating locations for the F-35A, and “We are pressing down on that. We are in the low 30s now.” Schwartz adds that the initial cost estimate is “of limited value” because it projected so far out into the future – 50 years. Typical cost estimates of this type span fewer years, he notes. Fewer operating locations could dovetail with the service’s request to conduct new rounds of base closures with a hope of reducing as much as 20% of excess infrastructure being operated by the Air Force.
Big Movers
OSI Systems, Inc. (Up 10.2%) – Shares rose this week after the company announced that Mexico’s tax and customs authority has exercised options under its pact that bring the total value of the six-year turnkey screening services agreement to about $900 million. The specialized electronics and services provider had previously announced the minimum obligated value of $400 million for the program.
VSE Corp. (Down 11.4%) – Shares fell this week after the company fourth-quarter revenue of $148.9 million, down 29.9% from $212.4 million in the same quarter a year ago. For the year, revenue was down 28.6% to $618.6 million, while earnings fell 13.2% to $20.6 million. VSE blames lower fourth-quarter and full-year revenue on the expiration of a large U.S. Army contract, delays in other government contract awards and delays caused by protests of contract awards.
DigitalGlobe, Inc. (Down 21.3%) – Shares fell this week after the company reported a fourth quarter net loss of $27 million, or 58 cents per diluted share. The loss compares to a $600,000 profit the company reported in the fourth quarter of 2010. During the past fiscal year, which ended December 31, DigitalGlobe reported a net loss of $28.1 million, or 61 cents per diluted share. In 2010, the company reported a net income of $2.5 million, or 5 cents per diluted share.
Relevant Transactions
RLJ Equity Partners acquired LAI International, a portfolio company of Spell Capital Partners. LAI International is a contract manufacturer, offering precision-engineered finished parts, components, and subassemblies for aerospace, power generation, defense, medical, electronics, and other technology industries. The deal was funded by a $37.1 million unitranche facility and an equity co-investment provided by Monroe Capital.
