Aerospace & Defense Update
Earlier this week, the 2015 MRO Americas conference took place in Miami, FL. The conference, which is the aerospace industry’s pre-eminent conference covering all topics related to maintenance, repair, and overhaul (“MRO”), featured Embraer’s Chief Operating Officer, Luis Carlos Affonso, as its opening keynote speaker. A generally positive attitude around the current MRO environment permeated the conference, as robust airline traffic, favorable macroeconomic conditions, and low oil prices have propped up the industry. Various deal announcements during the conference, such as Azalea Capital’s acquisition of InTech Aerospace and AE Industrial Partners’ acquisition of Kellstrom Commercial Aerospace, highlighted continued interest among strategic players and capital providers to consolidate a fragmented industry.
SpaceX indicated that it hopes the next attempted landing of its Falcon 9 reusable launch vehicle will take place on solid ground, rather than over water like all previous tests. The most recent of these landing attempts took place on Tuesday, with the rocket touching down safely on the target shortly before toppling over. The company is optimistic that the added stability from a ground-based landing platform would contribute to a safe, successful landing. Meanwhile, United Launch Alliance (“ULA”) unveiled its next generation launch vehicle, the Vulcan, in an announcement at the National Space Symposium on Monday. Notably, the vehicle will feature a reusable main engine in an attempt to reduce booster propulsion costs. Both of these announcements indicate a growing trend towards reusability among space systems.
Government Technology Solutions Update
The Department of Homeland Security (“DHS”) approached the Senate Appropriations subcommittee this week to request budget increases for its cybersecurity programs in GFY2016. The proposed cyber budget would provide funding in four key areas: (i) $812 million to sustain funding for cybercrime and cyber-criminal investigations; (ii) $480 million to protect government wide networks; (iii) $103 million for continuous diagnostic monitoring programs; and (iv) $5 million to develop and sustain its cybersecurity workforce. This proposal includes increased spending over GFY2016 in all categories except cybercrime and cyber-criminal investigations. DHS’s request makes up $1.4 billion, or 10%, of the total White House cyber program budget request for GFY2016.
The Army’s Computer Hardware Enterprise Software and Solutions (“CHESS”) component seeks to attract more small businesses (“SB”) and increase the scope on its Information Technology Enterprise Solutions-3 Services (“ITES-3S”) contract. ITES-3S’s Request for Proposal (“RFP”) has yet to be released; however, the $11 – $15 billion contract is expected to have a five-year base period with one four-year option. CHESS believes the structure of the contract will encourage SB companies to submit proposals and intends to classify SB as companies with annual revenue of less than $27.5 million. The scope of work will be expanded from the current generation of the contract (“ITES-2S”) to enable the Department of Defense (“DoD”) to fulfill cyber and cloud mission requirements.
Precision Castparts (Down 5.6%) – Shares were down this week after the Company announced that earnings in its fiscal quarter ended in March are expected to fall to a range of $2.90 – $2.95 per share, compared to analysts’ estimates of $3.21 per share.
Smith & Wesson (Up 18.1%) – Shares were up this week after the Company raised its fiscal fourth quarter ending in April sales and earnings guidance given stronger than expected order volume. Sales for the quarter are now expected to be $175 million to $179 million, up from the previous guidance of $162 million to $166 million.
IXI Technology acquired RioTech Corp., a provider of turnkey solutions to the aerospace market for electronic and software engineering, functional automated test, electronic systems, and build-to-print services. Terms of the deal were not disclosed.
AE Industrial Partners LLC acquired Kellstrom Commercial Aerospace Inc., a provider of aftermarket parts, repairs, logistics, and supply chain management solutions for the commercial aerospace market. Terms of the deal were not disclosed.
AGC Aerospace and Defense acquired Aerospheres (UK) Ltd., a provider of chemical and composite repair services to the commercial airline and MRO market. Terms of the deal were not disclosed.
Sparton Corporation acquired Hunter Technologies Corp., a provider of electronic contract manufacturing services specializing in military and aerospace applications. The deal is worth an estimated $50 million.
SolAero Technologies Corp. acquired Alliance Spacesystems, LLC, a provider of composite structures for spacecraft and other high-tech applications. Terms of the deal were not disclosed.
Ranger Aerosystems, an Azalea Capital portfolio company, acquired InTech Aerospace, an MRO company specializing in commercial and military airplace interiors and components. Terms of the deal were not disclosed.
Assured Information Security, Inc. acquired Information Security Solutions, Inc., a provider of cybersecurity consulting services and specializing in the areas of cybersecurity, IT security and cyber intelligence analysis. Terms of the deal were not disclosed.