Aerospace & Defense Update
Top military officials addressed the increasing threat of hypersonic glider weapons at the Space and Missile Defense Symposium this week. The development of hypersonic gliders strain current missile defense systems due to the gliders’ increased speed, lower travel altitude, and unpredictable trajectory compared to traditional intercontinental ballistic missiles (“ICBMs”). Army Acquisition Chief Katrina McFarland stressed how the Army has engaged in intensive research and development to increase the overall detection capabilities against this new weapon. McFarland stated that it is imperative for the U.S. to remain dominant in its hypersonic capabilities; however, she also noted that Russia, China, and India also heavily investing resources to develop their own glider weapons and defense technologies.
After complaints about increasingly long wait times for Air Force Foreign Military Sales (“FMS”), service secretary Deborah Lee James announced new time saving measures that can cut total time to delivery by up to a month. As part of this measure, the Air Force plans to enhance training programs for Security Cooperation Officers, which will decrease negotiation times of definitive purchase agreements with foreign governments. Additionally, the Air Force plans to hire more personnel to help handle administrative work. James wishes to implement these changes quickly and will meet for a progress report this October. Even though the Air Force plans to implement these enhancements, any major changes to the FMS process will have to be enacted by congress and most likely will occur after the presidential election.
Government Technology Solutions Update
On Tuesday, Leidos announced that it completed its $4.6 billion acquisition of Lockheed Martin’s Information Systems and Global Services business, seven months after it was originally announced in January. The transaction will add roughly $5.0 billion to Leidos’ top line, creating a company with more than $10 billion in annual revenue and a $200 billion addressable market, making it the largest player within the federal information technology marketplace. The acquisition provides Leidos with critical access to new civilian agencies, such as the National Aeronautics and Space Administration (“NASA”), the Department of Energy (“DOE”), the Federal Aviation Administration (“FAA”), and the Social Security Administration (“SSA”), among others, greatly diversifying the Company’s revenue, which has historically been ~75% dependent on defense and intelligence customers. This transaction highlights one of the most recent and prolific examples of government contractors divesting non-core capabilities in an effort to refocus on core operational capabilities and hopefully counterbalance ongoing uncertainties associated with the Federal budgetary environment.
According to a recent Bloomberg Government report, nine of the top 20 Federal contract opportunities in fiscal 2017 will be professional services-related, with those nine contracts representing a combined ceiling value of nearly $142 billion. The largest of these contract vehicles, OASIS and Seaport-NG, together account for more than $110 billion in potential spending. The report noted that there should be at least one more set-aside on-ramp expected for OASIS in 2017, and that the General Services Administration (“GSA”) “will likely face pressure to allow more small businesses into the program.” These contracts will be used to procure a variety of Federal support services, including consulting, logistics, engineering, and financial services.
CACI International (Up 4.0%) – Shares were up this week after the company beat consensus EPS benchmarks
Lockheed Martin (Down 3.8%) – Shares were down this week after the company completed the sale of its IT services group to Leidos
AGI Holdings LLC, has acquired Aircraft Appliances and Equipment Limited, a provider of proprietary naval filtration systems, marine valves and tachometer generators for the U.S and other global defense departments. Terms of the deal were not disclosed.
Apollo Global Management, along with the management of Constellis Group, has acquired Constellis Group, a provider of operational support, risk management, security, logistics, and training services to government and commercial clients. Terms of the deal were not disclosed.
ASRC Federal, a subsidiary of Arctic Slope Regional Corporation, has acquired Vistronix Intelligence & Technology Solutions LLC, a provider of software design and development as well as platforms for signals processing, cloud computing, advanced analytics, and large-scale data management. Terms of the deal were not disclosed.
The Hewlett Packard Enterprise Company has acquired Silicon Graphics International Corporation, a provider of big data analytics, enterprise-class storage hardware, and high-performance computing solutions to Federal and commercial clients. The deal is worth an estimated $275 million.