Industry Week in Review – November 20, 2015
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.
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.
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.