Aerospace & Defense Update
Boeing announced its plans to cut more than 4,500 jobs from its commercial airplane unit by June, as customer demands for less expensive jetliners force it to focus on reducing costs. The company has already cut 1,200 jobs from the commercial airplane unit this year, and the additional cuts will total roughly 5% of the unit’s workforce. As another way to reduce costs, Boeing also announced it will consolidate its 747 and 767 jet programs. The company has had to offer steep price reductions in order to win deals and is using these various cost-cutting strategies as an attempt to reduce investor fears over the company’s profitability. In addition to reducing costs, Boeing also mentioned its focus on improving productivity and manufacturing quality, lowering inventory, and reducing business travel.
The U.S. Navy announced General Dynamics Electric Boat (“GDEB”) as the prime contractor for the departments estimated $100 billion strategic ballistic submarine replacement program. Along with its teaming partner Huntington Ingalls Industries (“HII”), GDEB will provide 12 Ohio-class replacement nuclear-powered submarines to replace the current 14 boat fleet. As part of the agreement, HII’s Newport News Shipbuilding division will design and construct assemblies and modules for the contract. Currently, GDEB and HII serve as teaming partners for the Virginia-class attack submarine program and will continue to deliver under this program. However, due to the priority of the Ohio-class replacement program, the delivery schedule for the VCS will be adjusted to accommodate the new program. The first delivery under the Ohio-class program is expected to be in 2021.
Government Technology Solutions Update
Federal contractor addressable spending is set to grow in GFY2017 despite a decrease in the overall discretionary budget, according to a new Deltek Federal budget analysis report. While the GFY2017 discretionary budget is set to decrease by 1.2% from $1.16 trillion in GFY2016 to $1.14 trillion in GFY2017 as a result of the Bipartisan Budget Act (“BBA”), an analysis of agency budget allocations suggests an actual increase in contractor addressable spending. The big “winners” of the GFY2017 budget are the U.S. Air Force, the Department of Veterans Affairs (“VA”), and the U.S. Army, receiving an additional $5.1 billion, $3.6 billion, and $1.1 billion, respectively. Conversely, Health and Human Services (“HHS”), the U.S. Navy, and the Department of Transportation, will experience budget decreases of $6.7 billion, $3.9 billion, and $2.3 billion, respectively. Of contracted spending areas, equipment is set to increase the most in GFY2017, growing by 9.1% from $32 billion in GFY2016 to $38 billion in GFY2017, while information technology (“IT”) spending will increase by $1.2 billion to $89.9 billion.
The Defense Information Systems Agency (“DISA”) has updated and released a request for proposal (“RFP”) under Encore III, the Department of Defense’s (“DoD”) $17.5 billion IT products and services vehicle. Originally released in early March, the RFP has gone through several revisions, including the extension of the deadline for proposals from April 4 to April 18, with some additional revisions expected. The vehicle is focused on the creation of a “Joint Information Environment” as DoD transitions “…from a collection of stovepipe systems and architectures to an integrated and interoperable environment,” according to a new DoD performance statement. Encore III has over 19 IT functional areas, including cloud services, and enterprise policy and planning.
SAIC (Up 14.7%) – Shares were up this week after the company’s 4Q earnings results beat analyst expectations
Mercury Systems (Up 11.4%) – Shares were up this week after the company received a $28 million order for ground-based ballistic missile defense radar processing applications
Century Link has acquired netAura LLC, a provider of IT engineering and data analytics solutions focused on cyber security. Terms of the deal were not disclosed.
J.F. Lehman & Co. acquired American Scaffold, a provider of scaffolding systems for the maintenance, repair, and overhaul of U.S. government vessels. Terms of the deal were not disclosed.
NTT Data, Inc. has announced the acquisition of Dell’s IT Services Business, a provider of IT products and services including information management. The transaction was valued at approximately $3.0 billion.
Sirius Computer Solutions, Inc. has announced the acquisition of Force3, Inc., a provider of IT infrastructure services. The terms of the deal were not disclosed.
Vishay Precision Group, Inc. to acquire Pacific Instruments, a provider of high-performance data acquisition systems for the aerospace, commercial aviation, and defense markets. The deal is worth an estimated $11 million.