News & Events

Industry Week in Review – February 9, 2018


Aerospace & Defense Update

On Friday, President Trump signed a budget deal passed by both Houses of Congress, placing a quick end to an overnight government shutdown.  The new budget deal sets defense spending levels at $700 billion for GFY2018 and $716 billion for GFY2019, representing a roughly 17% and 20% increase over 2017 levels, respectively.  However, the budget is still unclear on how the new defense spending will be allocated between the base defense budget and overseas contingency operations (“OCO”).  With budget caps still in place, restrictions could be applied to the base budget, but OCO funding is exempt from budget caps.  This ramp-up in defense spending is seen as a key step to increasing operational readiness, maintenance backlog, and manpower for the military.

Government Technology Solutions

In a letter to the chairman of the House Foreign Affairs Committee, Secretary of State Rex Tillerson detailed his plan to create a new “cyber bureau” within the State Department.  The bureau would focus on creating coordinated international cybersecurity priorities.  When Tillerson took office, he removed the Obama administration’s Office of the Cyber Security Coordinator, which had an independent staff and structure, and instead wrapped the State Department’s cyber diplomacy mission into the Bureau of Economic Affairs’ Office of International Communications and Information Policy.  Tillerson’s proposal would combine elements of both the old and new systems to introduce a new “Bureau for Cyberspace and the Digital Economy” and would require the selection and congressional confirmation of a new position titled “Assistant Secretary for Cyberspace and the Digital Economy”.  The plan would ultimately result in a dedicated and singular effort to engage with foreign governments on topics including international norms for cyberspace and the export and import of cyberweapons.

A series of two separate analyses revealed that the Department of Veterans Affairs (“VA”) wasted nearly $2 billion on three attempts to modernize its electronic health records system.  A recent audit by the Government Accountability Office (“GAO”) identified $1.1 billion in wasted spending on two separate projects from 2011 – 2016.  Nextgov also identified an additional $600 million in wasted spending that the VA spent on a third project, the HealtheVet initiative, that began in 2001 and was later deemed a “failed” project and canceled in 2010.  The spending trail on failed IT projects is important as the VA embarks on its fourth attempt to modernize its health IT and records system, this time through a $10 billion sole-source contract to Cerner Corp.  Cerner is also partnering with Leidos to build the Department of Defense’s next-gen health records system, which will be interoperable with the VA’s system upon completion.

Big Movers

United Technologies (down 7.1%) – Share prices were down this week after Airbus warned of new problems with the Pratt & Whitney engines on its A320neo planes, leading European officials to issue emergency restrictions that will ground certain Airbus planes.

Viasat (down 10.9%) – Share prices were down this week after increased expenses with the company’s new high-speed satellite caused a fiscal third-quarter loss of 4 cents per share after reporting earnings of 29 cents in the same period last year.

Transactions

CopaSAT, LLC has acquired Eclipse Composite Engineering, LLC, a provider of lightweight military-grade SATCOM antenna technology.  Terms of the deal were not disclosed.

Domaille Engineering, LLC and Thompson Street Capital Partners’ portfolio company Onward Capital has acquired Tech Manufacturing, LLC, a provider of complex five-axis structural aerospace parts and specializes in CNC precision machining.  Terms of the deal were not disclosed.

First Israel Mezzanine Investors (FIMI) has agreed to acquire Aitech Rugged Group, Inc., a provider of embedded computing subsystems and modules for defense, aerospace, and space electronic markets.  KippsDeSanto acted as the exclusive financial advisor to Aitech on this transaction.  The deal is worth an estimated $30 million.

Fulcrum IT Services, LLC, a portfolio company of Boyne Capital and Grindstone Partners, has acquired The PTR Group, Inc., a provider of engineering services specializing in embedded, real-time, and distributed system technologies.  Terms of the deal were not disclosed.

Holder Family Investments, LLC has acquired Air Transport Components, LLC, a provider of repair and overhaul services for components and accessories for commercial and military air transport aircraft.  Terms of the deal were not disclosed.

Click here to review our comparable company analysis.