Industry Week in Review – August 29, 2014
Aerospace & Defense Update
On August 25th, Boeing Co. won an $8.8 billion order from BOC Aviation Pte (“BOC”), the Singapore-based aircraft leasing arm of Bank of China Ltd. The order, consisting of 82 planes including 50 upgraded 737 Max 8s, 30 737-800s, and two wide-body 777-300ERs, is indicative of the company’s efforts to meet surging travel demand throughout Asia. This order immediately follows BOC’s purchase of 43 jets from Airbus last month. Many of BOC’s new aircraft were previously reserved for other buyers who subsequently cancelled their orders, including eight aircraft that the company has already received. This purchase will help the company continue its transition to the 737 family and will ensure that BOC remains in the younger, more competitive end of the market with a fleet of the most fuel-efficient planes. BOC expects to receive 27 planes per year starting in 2015, while simultaneously discarding 20 – 30 outdated planes annually. BOC’s expansion strategy is supported by an expected 5.7% growth rate in air travel demand in Asia over the next four years.
The U.S. Special Operations Command (“SOCOM”) has signed a potential five-year $187 million contract for new Carl Gustav recoilless rifles and ammunition from the Swedish defense firm, Saab. The agreement, which is for an initial order of $14.3 million, may reach upwards of $187 million over the next five years if SOCOM exercises its option to place additional orders for the 84mm recoilless system. The U.S. adopted the weapon in 2011 when commanders in Afghanistan issued a special request for the system due to its proficiency in tight, close-quarters.
Government Technology Solutions Update
On August 20th, the Office of Management and Budget (“OMB”) released its Sequestration Update Report for Government Fiscal Year (“GFY”) 2015. In it, the OMB detailed its estimates on the status of current appropriations levels compared to the capped levels implemented under the Budget Control Act of 2011. Under the Senate’s currently proposed appropriations bills, defense agencies would face a $44.7 billion cut in discretionary spending while non-defense agencies would see a $27.6 billion cut compared to levels set by the 2013 Bipartisan Budget Act. The currently proposed appropriations bills call for an additional $11.0 million cut to defense agencies. Furthermore, the report determined that sequestration would not be a factor in GFY2015 as discretionary budget allocations remained in line with levels set by the Consolidated Appropriations Act of 2014.
The Department of Defense (“DoD”) is entertaining bids on its Defense Health Management System Modernization program, an $11.0 billion Indefinite-Delivery / Indefinite-Quantity Defense Health (“IDIQ”). The contract will be used to modernize the DoD’s health records management system by acquiring and deploying an integrated suite of clinical and coding systems. Responses to the Request for Proposal (“RFP”) are due on October 9th, and awards will be made in the third quarter of GFY2015.
Big Movers
Comtech Telecommunications Corp. (Up 8.3%) – Shares were up this week after the Company confirmed that it is exploring strategic alternatives, including a possible merger or sale, to enhance shareholder value.
Smith & Wesson Holding Corp. (Down 14.7%) – Shares were down this week after the Company released its first quarter earnings report, showing an 18% decline in sales and a 45% decline in net income compared to the first quarter of last year.
Relevant Transactions
J.F. Lehman & Company acquired Aeronautical & GI Holdings Ltd., a leading producer of proprietary situational awareness and LED lighting systems for naval vessels, military and commercial aircraft, and military ground vehicles. Terms of the deal were not disclosed.
AAR Corp. acquired Cool Containers LLC, a manufacturer and supplier of temperature controlled cargo solutions. Terms of the deal were not disclosed.
Datapipe, Inc. acquired Layered Technologies, Inc., a provider of enterprise secure cloud, dedicated, and hybrid hosting services to federal, state, and local government agencies. Terms of the deal were not disclosed.
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