Industry Week in Review – April 8, 2016

Aerospace & Defense Update

The aviation maintenance, repair, and overhaul (“MRO”) industry converged in Dallas, TX this week for Aviation Week’s MRO Americas, the industry’s largest trade show dedicated to MRO.  Roughly 13,000 people attended the conference including corporate executives, industry analysts, and media personnel.  During the conference, ICF VP, Kevin Michaels, noted consolidation is likely to continue affecting the aftermarket primarily among mid-tier companies building scale around technology.  Beyond consolidation, industry professionals expressed varied views on the future of the MRO market, with some suggesting a potential downturn based on oversold airframe order backlog, unnaturally low interest rates, and a shortage of financing for used aircraft and exchange rates.  Others, however, voiced that aircraft aftermarket activity is trending upwards due to higher levels of aircraft utilization coupled with low fuel prices.

Though Pentagon officials, industry executives, and international leaders agree the foreign military sales (“FMS”) process needs to be improved, Congressional sources and industry analysts believe reform is unlikely before the end of this presidential term.  Change is not expected within the next ten months based on the complex and sensitive nature of weapon sales and a myriad of other factors including the upcoming election, a compacted congressional calendar, and gridlock on Capitol Hill.  Among the most vocal about changing the process is Secretary of the Air Force Deborah Lee James, who aims to make it easier for those fighting against the Islamic State to receive weapons quickly and efficiently.  While there seems to be little chance for reform this year, reforms for better prioritization and synchronization among agencies within international defense is expected to reignite after a new president enters office.

Government Technology Solutions Update

Earlier this week, the General Service Administration (“GSA”) Office of Integrated Technology Services released the pre-solicitation for the Veterans Technology Services 2 (“VETS 2”) contract, the $5 billion successor to its government-wide VETS contract established in 2007.   Similar to its successor, VETS 2 will have a five-year base period of performance with a five-year optional extension and the same $5 billion ceiling value.   VETS 2 will serve as a general contract for a number of federal agencies to purchase a wide-range of IT services.  Also consistent with its predecessor contract, only service-disabled, veteran-owned small businesses (“SDVOSB”) will be able to compete for a spot on the contract.  The actual solicitation is expected to be released on April 21st, with awards expected in 2017.

The GSA recently unveiled its “Making it Easier” initiative focused on providing the tools necessary for helping vendors and start-ups gain more comfort with the Federal contracting process on IT Schedule 70.  This push to bolster efficiency and accessibility of the agency’s largest contract vehicle reflects similar moves at the Department of Defense (“DoD”) and Department of Homeland Security (“DHS”), which have both launched efforts in Silicon Valley to familiarize start-ups with their procurement processes.  In addition to increasing agencies’ and vendors’ awareness and familiarity with federal contracting nuances, the GSA program is designed to streamline the contracting acquisition process, reducing what once took an average of 110 days for various procurement efforts down to 45.  Approximately 80% of the agency’s Multiple Award Schedules (“MAS”) contractors are small companies, yet, they represent only 36% of the roughly $40 billion that flows through the schedules annually.  According to GSA Administrator Denise Turner Roth, the changes are expected to spread across the agency’s other MAS contracts within a month.

Big Movers

CPI Aerostructures (Down 6.5%) – Shares were down this week after the company’s earnings results fell short of analyst expectations

Smith & Wesson (Down 16.1%) – Shares were down this week after analysts downgraded the stock due to FBI figures detailing increased background checks in the month of March


Aero Precision, Inc. acquired Fall Machining Company, Inc., a provider of precision machined products for aerospace and other markets.  The terms of the deal were not disclosed.

Alaska Air Group, Inc. to acquire Virgin America, Inc., a provider of scheduled air travel services.  The deal is worth an estimated $2.6 billion.

Hartzell Engine Technologies, LLC acquired the Aircraft Starters and Solenoids product line of Sky-Tec Partners, a provider of complete line of starters for Lycoming and Continental engines.  The terms of the deal were not disclosed.

MB Aerospace Holdings to acquire Centrax Turbine Components Ltd., a provider of compressor and turbine aerofoil, discs, shafts, and casings.  The terms of the deal were not disclosed.

Molex, Inc. acquired Interconnect Systems, Inc., a provider of high density silicon packaging with advanced interconnect technologies for OEMs. The terms of the deal were not disclosed.

Novaria Holdings, LLC to acquire Elastic Stop Nut Corporation of America, a provider of nylon inserts and metal fasteners to the commercial aerospace, military ground, and navy nuclear markets. The terms of the deal were not disclosed.

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