Industry Week in Review – April 22, 2016

Aerospace & Defense Update

Airbus’s space unit and partner OneWeb are expected to announce plans for a new Florida factory capable of producing small, advanced communications satellites at an unparalleled rate.  The joint venture will build the highly automated facility designed to assemble and test as many as 15 satellites in a week with production currently slated to begin sometime next year.  The joint venture, financed by Airbus, chip maker Qualcomm, and Virgin Galactic, hopes to assemble and launch more than 640 satellites to provide internet access in developing regions by the end of 2019.  The first prototypes are now undergoing testing by Airbus in France and are scheduled to go into orbit early next year.

The House Armed Services Seapower and Projection Forces Subcommittee urged the Air Force to buy as many as 200 next-generation B-21 bombers in its markup of the 2017 defense policy bill.  Both top military officials and consultants outside the Pentagon have recommended the Air Force acquire more than the 100 planned Northrop bombers in order to ensure enough aircraft are available to meet combatant commander requirements and counter growing threats around the world.  The legislation would direct the secretary of the Air Force to submit a report to the congressional defense committees by February 2017, with an estimate of the number of B-21s necessary to meet security demands.  The report also requires a transition plan to integrate the B-21 into the current bomber fleet until 2040.

Government Technology Solutions Update

The Department of Defense (“DoD”) is currently collaborating with its allies across the globe to integrate common commercial IT platforms, systems, and standards with the aim of improving their warfare capabilities in cyberspace.  According to DoD CIO Terry Halvorsen, the goal is to share IT commonalities across the board with its European allies within the next three to five years.  The integrated systems have the potential to greatly augment information sharing in an increasingly digital age and would also provide significant opportunities to leverage commercially-available solutions.  In response to the recent decision by DoD that requires all agencies and military branches to transition to Windows 10 by January 31, 2017, and a similar mandate by the U.K.’s Ministry of Defense to transition all branches to Microsoft’s Azure cloud, Halvorsen has pressed other allies to follow suit in developing a common Windows 10 baseline.  A common system would not only improve communication and information sharing, but would also facilitate the instantaneous exchange of data at much lower costs.

Nearly a year ago, the Department of Homeland Security (“DHS”) required agencies to fix all critical cybersecurity vulnerabilities within one month.  However, 39 of the more than 360 original issues still remain unresolved.  Part of the problem is that some agencies are running on antiquated, legacy IT systems, which are considered to have significant critical vulnerabilities but can be incredibly expensive to update, especially for smaller agencies with limited resources.  The inability of Federal agencies to address critical security concerns became very apparent following the Juniper software hack incident, which affected 12 agencies, three of which (the Treasury, NASA, and the Department of Commerce) were unable to properly install the security patch to their systems for more than 50 days following the incident.  The concern is that in many cases agencies use complex systems containing multiple outdated, legacy components that may not be compatible with various security fixes, leaving entire systems vulnerable to cyber-attacks.

Big Movers

Zodiac Aerospace (Up 17.3%) – Shares were up this week in response to a potential acquisition offer from Safran SA

Macdonald Dettwiler & Associates (Up 7.0%) – Shares were up this week after analysts boosted the Company’s 1Q16 earnings estimates


Reiser Simulation and Training GmbH acquired Innovative Control Systems, Inc., a provider of avionics, test systems, and custom engineering services for the aerospace industry.  The terms of the deal were not disclosed.

Smiths Group plc to acquire Morpho Detection, Inc., a provider of detection systems for explosives, narcotics, and chemical, biological, radiological, and nuclear material.  The deal is worth an estimated $710 million.

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