News & Events

Industry Week in Review – November 3, 2017


Aerospace & Defense Update

After Pratt & Whitney’s continued production problems with its geared turbofan engines, Bombardier has decreased projected deliveries from 30 – 35 to 20 – 22 aircraft for 2017, causing a strain on the company’s free cash flow due to bloated inventories.  In response, Pratt & Whitney has offered to support excess inventory due to engine issues, stemming from a recent letter of intent (“LOI”) by an unidentified European airline for up to 61 aircraft, by providing Bombardier with supplier advances.  The delay in aircraft deliveries will lower Bombardier’s Commercial Aircraft revenues for 2017, but the company still expects to meet its overall target of 50 regional aircraft deliveries, which includes the C-Series and Q400 aircraft.

The Pentagon is in the process of reviewing the estimated $1.2 trillion cost of modernizing the U.S.’s nuclear arsenal over the next three decades, as the Pentagon begins to build its budgets for government fiscal year (“GFY”) 2019 and beyond.  A Congressional Budget Office review of GFY2017 to GFY2046 estimated the costs of incremental upgrades of nuclear forces at $400 billion and operations and sustainment of the nuclear arsenal at $800 billion.  This $1.2 trillion in estimated costs would also coincide with defense budgets constrained by long-term fiscal pressures.  The proposal for increasing the nuclear arsenal over the next three decades includes expenditures on ballistic missile submarines, intercontinental ballistic missiles, B-21 bombers, and a long-range standoff weapon.

Government Technology Solutions

The Department of Health and Human Services (“HHS”) has announced plans to modernize the agency’s legacy IT systems, which represent roughly 40% of the systems of record at HHS.  Because these systems are becoming increasingly expensive to maintain, the Office of Chief Information Officer aims to transition 30% of them to the cloud over the next few years.  With the largest non-defense IT budget in the government, HHS should have the ability to effectively spend and improve the department’s IT systems through cloud migration and modernization.  Undertaking these efforts will support HHS’s plan to achieve an A-grade on the department’s Federal Information Technology Reform Act (“FITARA”) scorecard by May of next year.  FITARA’s scorecard is influencing decision making at the HHS and creating a great opportunity for IT vendors to earn lucrative modernization contracts.

This past Wednesday, the government outlined 2018 spending for federal contracting when the Professional Services Council (“PSC”) released its 2017 Vision Federal Market Forecast.  In the report, PSC officials commended the progress made on cloud services and IT modernization, but noted the remaining workforce challenges and a lack of appointed officials in key positions.  With 2018 budgets expected to remain at the same level as 2017, agencies will struggle to devote significant resources towards modernization.  However, agencies will look towards shared services to drive savings and allow for more spending.  The PSC claims that initiatives taken this year, such as the Modernizing Government Technology Act, are promising, but are clouded with uncertainty due to the lack of sufficient leadership.  Successful appointments from the Trump administration will provide federal agencies more certainty and direction as they plan to update technology using a stagnant budget.

Big Movers

MANT (up 8.9%) – Share prices were up this week after the company reported positive third quarter earnings and a 28% increase in backlog from 2Q17.

KEYW (down 30.2%) – Share prices were down this week after the company missed third quarter consensus earnings per share estimates and reported a loss of $0.08 per share.

Transactions

AC&A Enterprises, LLC has acquired Applied Composites Engineering, Inc., a provider of advanced composites engineering and manufacturing, providing advanced composites technologies and solutions to many A&D OEMs.  Terms of the deal were not disclosed.

AE Industrial Partners, LLC has acquired FMI, Inc., a provider of a full range of premium forming, machining, engineering, and complex assembly services to global aerospace customers.  Terms of the deal were not disclosed.

L2 Defense, Inc., an SBA 8(a)-certified small business, has acquired Advanced Technical and Educational Consultants, Inc. (ATEC), a woman-owned business.  ATEC is a provider of emergency services training and simulation exercises for the military and federal agencies, as well as state and local emergency services communities.  Terms of the deal were not disclosed.

 Raisbeck Engineering, Inc. has acquired Butterfield Industries, a provider of FAA-approved replacement parts for numerous King Air models.  Terms of the deal were not disclosed.

 TeraThink Corporation and Dominion Consulting announced a definitive merger agreement. Dominion Consulting is a technology and management consulting company.  KippsDeSanto & Co. served as the exclusive advisor to Dominion Consulting on this transaction.  Terms of the deal were not disclosed.

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