Aerospace & Defense Update
On Thursday, April 6th, President Trump ordered a retaliation Tomahawk cruise missile strike against a Syrian Government controlled airfield that is suspected to be responsible for a chemical weapons attack against innocent civilians in Syria earlier this week. The U.S. retaliation marks the first instance of direct military action against the Assad regime in Syria, adding further strain to already tense relationships in the region, both with Syria and its allies, including Russia. Following the U.S. strike, Russia called on the United Nations Security Council to convene an emergency meeting and announced its intent to suspend communication channels designed to avoid air accidents in crowded Syrian airspace. In the wake of U.S. military intervention, defense primes are trading up around 1% in contrast to an overall flat market for the day.
Last week, Boeing received a contract for at least 17 new P-8 Poseidon aircraft with a contract value of $2.2 billion and first delivery expected sometime in 2019. The P-8 Poseidon is a militarized version of Boeing’s highly successful 737-800 platform and is used primarily for anti-submarine and anti-surface warfare as well as Intelligence, Surveillance, and Reconnaissance (“ISR”) capabilities. Of the 17 aircraft already under contract, the U.S. Navy will purchase 11 units, with the Australian Royal Airforce and U.K. Royal Airforce purchasing an additional four and two aircraft, respectively. This multinational agreement also contains options for 32 additional aircraft, which could bring the total contract value to $6.8 billion.
Government Technology Solutions Update
At the McAfee Security Through Innovation Summit held on Thursday, officials reiterated the Federal government’s focus on modernizing Federal IT. The acting Federal Chief Information Security Officer, Grant Schneider, noted that the Trump administration would continue to place an emphasis on upgrading aging legacy IT systems throughout the government. Representative Will Hurd, who has recently spearheaded such initiatives, has noted that he planned on attempting to reintroduce his Modernizing Government Technology Act sometime in the near future. That particular piece of legislation, which would have created a multi-billion-dollar centralized fund dedicated on IT modernization, was not able to pass in the most recent lame duck session of Congress. While there still have not been any specifics mentioned about new legislation or IT modernization, many people in the industry, as well as in the Federal government, believe that the Trump administration will continue to be amenable towards pushing for upgrading legacy government technology.
On Monday, the acting Chief Information Officer (“CIO”) of the Department of Veterans Affairs (“VA”) confirmed that the agency was targeting July 1st to decide whether Vista, the VA’s proprietary electronic health record (“EHR”) system, would continue to be supported. David Shulkin, who was confirmed in February as VA Secretary, first proposed early July as the target date to make that decision. Vista, which was originally created as an open-source platform over 25 years ago, will require another set of upgrades by mid-2018. However, there are many in the industry who believe that the VA should not continue to fund and support the proprietary system, and that commercial procurement might instead be the best option. For example, the Department of Defense (“DoD”) recently rolled out its MHS Genesis EHR system. That platform was commercially-sourced, being procured from Cerner. The VA has hired a team of consultants to help in the decision-making process, and believes that it is currently on track to have a decision about whether to proceed with Vista by their proposed July 1st deadline.
NCI (down 19.6%) – Share prices were down this week after the Company’s 4Q17 earnings missed analyst expectations.
Wesco Aircraft (up 3.5%) – Share prices were up this week after the Company announced an extension of a current contract to provide integrated supply chain services for C-class aerospace hardware in support of the F-35 program.
Astronics Corp. has acquired Custom Control Concepts, Inc., a provider of cabin management and in-flight entertainment (“IFE”) systems for the complete range of privately operated Boeing and Airbus aircraft. Terms of the deal were not disclosed.
Audax Group has acquired Fastener Distribution Holdings, LLC (FDH), a provider of aerospace fasteners and other c-class components to commercial and defense aircraft manufacturers, and subcontractors. Terms of the deal were not disclosed.
Belcan, LLC, a portfolio company of AE Industrial Partners, has agreed to acquire Schafer Corporation, a portfolio company of Metalmark Capital Partners, and a provider of scientific, engineering, and technical services to military and civilian customers within the Federal government. Terms of the deal were not disclosed.
Gowanda Components Group (GCG) has acquired Dyco Electronics, Inc. a provider of standard and custom magnetic components and electronic assemblies. Terms of the deal were not disclosed.
L3 Technologies, Inc. has acquired OceanServer Technology, Inc., a provider of Provides autonomous, lightweight Unmanned Undersea Vehicles (“UUVs”). Terms of the deal were not disclosed.
Mercury Systems, Inc. has acquired Delta Microwave, LLC, a provider of high-value radio frequency, microwave and millimeter wave subassemblies and components for the military, aerospace and space markets. The deal is worth an estimated $40.5 million.
PAE Group, a portfolio company of Platinum Equity, has agreed to acquire FCi Federal, Inc., a provider of managed professional, administrative, and technical services to Federal government customers. Terms of the deal were not disclosed.