After a successful second quarter earnings season for defense primes, many Wall Street analysts reaffirmed their view that the defense market bottomed out at the end of 2012. This week brought more positive news as Secretary of Defense Chuck Hagel announced that the number of furlough days for Department of Defense (“DoD”) civilian employees, which began on July 8th, would be cut from eleven to six days after the DoD found cost savings in other areas.
In the government contracting space, the Department of Homeland Security’s (“DHS”) Eagle II contract vehicle announced 18 additional awards this week. All awarded contracts have a five-year base and one two-year option. Additionally, seven of these awards were within the HUBZone small business track for service delivery, while the remaining eleven awards were within the unrestricted track for IT Services. The DHS Eagle II contract vehicle is worth $22 billion.
Despite the generally positive news, attention is quickly shifting towards another potential fiscal crisis in September. According to Treasury Secretary Jack Lew, the government is likely to hit its $16.7 trillion debt ceiling shortly after Labor Day. In an attempt to avert a government shutdown, President Obama and his aides have been meeting with key Republican senators, including Senators John McCain, Lindsey Graham, and Kelly Ayotte, to reach a “grand bargain” that will not only avert a September shutdown, but also avoid sequestration cuts. To reach such a “grand bargain,” the President and Congress must agree on roughly $1 trillion in budget cuts or increased revenues. However, the two sides remain far apart, with Democrats refusing to exchange spending cuts for a debt ceiling raise, and Republicans refusing higher spending or taxes. As the defense and government services contractors rebound from the budget turmoil earlier this year, additional uncertainty looms on the horizon.
LMI Aerospace, Inc. (Down 24.6%) – Shares were down this week after the Company reported weak revenue in its Engineer Services segment and significantly reduced full-year revenue guidance across its Engineering Services and Aerostructures businesses.
Kaman Corporation acquired Western Fluid Components, Inc.,a manufacturer of hydraulic and industrial hose assemblies and custom kits. Kaman will use the acquisition to strengthen its fluid power position and further its relationship and authorizations with its primary supplier, Parker Hannifin. Terms of the deal were not disclosed.
Micross Components, Inc. acquired Premier Semiconductor Services, LLC, a provider of outsourced final manufacturing services for commercial, military, and aerospace applications. Micross Components, a portfolio company of Insight Equity, will use the acquisition to bring additional capacities and capabilities to Micross’ Products & Services division. Terms of the deal were not disclosed.