Industry Week in Review – December 04, 2015

Aerospace & Defense Update

I / ITSEC, the largest modeling, simulation, and training conference, was held this past week from November 30 – December 4th in Orlando, FL.  At the conference, Maj. General James Lukeman, the commander for Marine Corps Training and Education Command, stressed the importance for affordable high-fidelity training devices that can be deployed with Marines where they fight.  In an increasingly budget-conscious era, Lukeman was optimistic about the potential for affordable mobile simulation training available to Marines and sailors.  As the Marines turn their operations toward the sea after more than a decade of war focused on land, Lukeman also highlighted training for ship mechanics, crew members, and staff as a growth opportunity.  The burgeoning selection of mobile solutions would enable Marines across all of their operations to train more frequently, without being removed from their daily operations.

The U.S. Air Force Secretary Deborah James Lee announced the service’s interest to buy 100 Long Range Strike-Bombers (“LRS-B”), a figure at the high-end of the 80 to 100 aircraft purchase the service predicted earlier.  The Air Force faced increased pressure in recent months to procure more LRS-Bs than the projected 80 to 100 in order to mitigate rising security concerns.  Critics, who include lawmakers and security analysts, called for as many as 200 next-generation bombers in order to project power in an increasingly uncertain security situation.  A study released November 18th by retired Lt. General Michael Moeller stated that, “limiting production of the new bomber, LRS-B, to 100 airframes would severely decrease the options available to national decision-makers during times of crisis or periods of instability.”  The recent development provides a rare glimpse into the Air Force’s plans for the contract recently awarded to Northrop Grumman.

Government Technology Solutions Update

A review of government security standards following this year’s high-profile Internal Revenue Service (“IRS”) and Office of Personnel Management (“OPM”) breaches has identified several potential areas for security improvement.  Significant investment will be required in select priority areas, including the overhaul of aging legacy systems, thorough employee training programs and security awareness, revamped recruiting and hiring efforts, and increased information-sharing technology, all with the purpose of bolstering security capabilities and functionality.  Legacy systems like Common Business Oriented Language (“COBOL”) are still used by many agencies, despite the fact that its largely outdated capabilities have failed to meet the robust demands of today’s sophisticated cyberattacks.  With this increased focus on modernizing legacy systems, improving existing processes, and launching new programs, the expected increase in spending will potentially translate into significant opportunities for security-focused contractors.

On November 30th, CSRA Inc. debuted as a newly formed public company, signaling the closing of the merger between SRA International and the North American Public Sector division of Computer Sciences Corporation.  CSRA represents the largest pure-play government services firm in the market, with an estimated $5.5 billion in annual revenue and 19,000 employees.  Under the terms of the deal, CSC common stock holders received one CSRA common share for every CSC common share held, representing an 85% stake in the combined company, with SRA shareholders receiving the remaining 15%.  CSRA opened trading on the New York Stock Exchange (“NYSE”) Monday morning at $29.39 per share and closed the week at $29.00.

 Big Movers

VSE Corporation (Up 7.6%) – Shares were up this week after the Company announced $59 million in new contract awards received since October 1, 2015.

 Computer Sciences Corporation (Down 55.4%) – Shares were down this week after the Company completed its separation with CSRA


FLIR Systems acquired DVTEL, a provider of thermal imaging, visible-light imaging, locator, measurement and diagnostic, and threat-detection systems.  The deal is worth an estimated $92 million.

Stellar Capital partners Limited to acquire Tellumat, a provider of electronic and related technology products for aviation, communications, defense, and electronic contract manufacturing markets.  The deal is worth an estimated $11.6 million.

UTC Aerospace Systems acquired N2 Imaging Systems, a provider of infrared imaging systems used for soldier vision enhancement, surveillance, and threat detection-and-targeting under low visibility.  The terms of the deal were not disclosed.

Moog acquired a majority stake in Linear Mold and Engineering, a provider of metal additive manufacturing for aerospace, defense, energy, and industrial markets.  The terms of the deal were not disclosed.

Click here to review comparable company analysis.