Industry Week in Review – September 23, 2016
Aerospace & Defense Update
While the United Nations Assembly was meeting in New York, Airbus and Boeing announced that each company has received permission from the U.S. government to sell commercial aircraft to Iran. Boeing plans to sell 80 new aircraft and lease an additional 29 Boeing 737s to Iran for ~$25 billion. Airbus, on the other hand, only received approval from the U.S. Treasury on one of the two licenses it requested, allowing it to sell 17 aircraft to Iran for ~$1.8 billion, rather than the 112 aircraft requested. Airbus is hoping to receive approval for the second license making the total agreement with Airbus and Boeing worth ~$50 billion. Even though Airbus is internationally based, it was required to seek approval from the U.S. Treasury because at least 10% of the plane’s components will be manufactured in America. Many believe that the upcoming U.S. presidential election may affect the execution of the proposed sales agreement, since Republican Presidential candidate Donald Trump has threatened to revoke the recent nuclear deal with Iran which allowed for these sales to be made.
U.S. Defense Secretary Ash Carter believes the lack of cohesiveness and stability among Congressional members when negotiating budget deals are the most prominent threats to the Department of Defense (“DoD”). Last week, Carter encouraged lawmakers to work together on a defense budget deal stating that it is a national security risk not to fund the DoD requests. He stated that the inability to conduct stable planning results is an inefficient use of taxpayers’ dollars and creates inefficiencies for our defense industry partners. Senator McCain emphasized that the military is being forced to confront a myriad of global threats with insufficient budgets, equipment and readiness. Many Republicans expressed frustration over Democrats strategically blocking DoD appropriations in an attempt to force Republicans to pass non-defense spending bills. If a budget is not agreed upon by September 30th, the government is expected to institute a stopgap measure to continue operating. If the stopgap measure extends into 2017, the U.S. will not be able to fund the European Defense Initiative, which helps NATO allies deter Russian aggression. Carter also expressed concern about the inability of Congress to fund military research programs saying that it is not prudent to starve new and future oriented defense investments in a rapidly changing and competitive world.
Government Technology Solutions Update
Last Friday, two joint venture (“JV”) organizations filed motions in court with the intention of shutting down Leidos’ protest of the National Nuclear Security Administration’s (“NNSA”) decision to rescind a 10-year, $5 billion contract for the management and operation of the Nevada National Security Site. The contract was originally taken from Nevada Site Science Support and Technologies Corp. (“NVS3T”) due to NVS3T’s failure to disclose the fact that its ownership would change as a result of Leidos’ acquisition of Lockheed Martin’s Information Systems and Global Solutions business. Leidos lodged a protest on September 9th, with CEO Roger Krone stating that a clause in the NVS3T contract made a potential change of ownership known to NNSA. However, “the protest was filed under seal, shielding Leidos’ grounds for protest from the eyes of the public.” The two JVs which protested, the Northrop Grumman-led Nuclear Security and Technology LLC and the Honeywell-led Mission Support and Technologies Corp., did so in attempt to discover Leidos’ legal rationale for their protest and therefore determine their ability to pursue further legal action.
Representative Martha McSally introduced the IDENT Fingerprint Digitalization Completion Act of 2016 on Tuesday as a result of a September 16th report which revealed that the United States Customs and Immigration Service (“USCIS”) mistakenly granted citizenship to over 800 people who had actually been ordered to be deported. The mistake occurred because fingerprint databases hosted by the Department of Homeland Security (“DHS”) and the Federal Bureau of Investigation (“FBI”) were incomplete. As a result, the two systems could not be correctly matched, which resulted in people with deportation orders and fraudulent identities to successfully apply for naturalization. The report also found that close to 150,000 fingerprints of people who have been ordered to be deported have not yet been added to any digital database. The act proposed by Ms. McSally would require the DHS to create a fully digitized fingerprint record within three months if the bill were to become law.
DigitalGlobe (Up 9.8%) – Shares were up this week after DigitalGlobe announced its delivery program under the EnhancedView contract was renewed.
Oshkosh (Down 9.0%) – Shares were down this week after Oshkosh lowered its earnings expectations for 2017.