Industry Week in Review – April 11, 2014
Aviation maintenance, repair, and overhaul (“MRO”) providers convened at MRO Americas, the industry’s marquee conference, in Phoenix this past week. Analysts speaking at the conference stated their predictions that the overall North American MRO market will face a constrained growth environment over the next decade. Expectations for revenue growth are in the 1% to 2% range, as North American commercial aircraft tracks to generally the same curve. On a global scale, MRO revenue is expected to increase at a more robust clip, with growth rates pegged at approximately 3.6% to 4.2%. One sub-sector expected to outpace overall MRO industry growth is component level MRO, while airframe and engine MRO is predicted to lag.
The Army released additional details this week around its $10.6 billion “wish list” of unfunded priorities request to the 2015 budget proposal. Of the requests, previously removed aircraft, training and readiness, and technology persist as the top priorities. The Army requested a $1.3 billion pot that calls for 23 remanufactured Apache helicopters, 28 Black Hawks, two CH-47s, and upgrades for 18 Gray Eagle UAVs. Additionally, the request asks for an additional $1.2 billion in training and readiness funds and approximately $1.1 billion for Army cyber and network functions, including upgrades to the WIN-T battlefield network. However, as officials previously stated, most, if not all, of the requests will not be fulfilled as the 2015 budget proposal has reached the spending cap set in place.
The Department of Homeland Security (“DHS”) is seeking guidance on a Next Generation Enterprise Security Operations Center (“NextGen ESOC”) with more advanced technologies for protecting against cyber-attacks. DHS has asked for industry feedback on integrating intrusion detection analytics into security operations procedures, as well as for information on the necessary capabilities and staffing requirements for such a center. With responses due by April 19th, DHS’ most recent information request points towards continued demand for advanced integration, modernization, and cybersecurity capabilities.
In its FY2014 earnings release on April 8th, SAIC announced it won several sizable contract opportunities in the first weeks of its FY2015. Notable awards included a three-year, $836 million task order providing professional and engineering support services to the U.S. Army Aviation and Missile Research Development and Engineering Center Software Engineering Directorate (“AMRDEC SED”) and a three-year, $221 million task order providing lifecycle IT support to the U.S. Army Human Resources Command (“HRC”).
Big Movers
DigitalGlobe Inc. (Down 10.6%) – Shares were down this week after speculation that Google is in early talks to acquire Skybox Imaging, one of DigitalGlobe’s direct competitors, arose. Google’s Maps and Earth products both depend heavily on DigitalGlobe’s high-resolution imagery services.
Relevant Transactions
Wencor Group LLC to acquire XTRA Aerospace, Inc., a provider of specialized repair services for a wide variety of electrical and mechanical systems across in-production commercial aircraft. Terms of the deal were not disclosed.
PAI Partners and The Carlyle Group to acquire Schneider Electric SA’s Custom Sensors & Technologies, Inc., a provider of sensor, control, and actuation products for aerospace and defense, transportation, and industrial markets worldwide. PAI and Carlyle will pay $600 million for the acquisition.
TE Connectivity Ltd. to acquire Seacon Group Limited, a provider of underwater connector technology and systems for military marine and sub-sea sectors, as well as oil and gas, environmental, and oceanographic applications. TE Connectivity will pay $490 million for the acquisition.
