Aerospace & Defense Update
The U.S. has brought a World Trade Organization (“WTO”) case against China for their alleged discriminatory taxes on smaller aircraft. U.S. officials are claiming that China has imposed a 17% value-added tax (“VAT”) on imported aircraft, hurting smaller U.S. made planes and part makers and creating a preferential tax policy for its domestic aerospace industry. In 2014, the U.S. exported $13.9 billion in civilian aircraft, engines, equipment, and parts to China, more than double that in 2011. This trade dispute is occurring at a time when the White House is prioritizing the enforcement of existing trade rules in an effort to put forth a comprehensive Pacific trade agreement that does not include China to a congressional vote next year.
Boeing rolled out the first of its 737 MAX jetliner in front of thousands of employees in its Renton, Washington facility. The 737 MAX is the newest update to Boeing’s 737 model, but is considered to be a “next generation” update rather than an incremental one. The new aircraft includes more powerful engines and is 14% less costly to operate than the current 737. The 737 series has become one of the most popular choices for short and medium term flights, but is facing increased competition with rival Airbus’ A320 family of jets. Airbus expects to deliver its A320neos to its first customer, Qatar Airways, in the next few months, which is significantly sooner than the 737 MAX’s 3Q17 delivery schedule. However, Boeing has received nearly 3,000 orders from 60 customers worldwide for its 737 MAX series and believes it is poised to capture market share from the A320 family.
Government Technology Solutions Update
The Air Force activated five new cyber squadrons this month, marking an expansion of the department’s effort to improve its cybersecurity capabilities. The squadrons will be comprised of over 500 cyber professionals that will operate across the Air Force’s air, space, and cyberspace domains to provide information operations support, as well as engineering and infrastructure capabilities. Further, three cyber professional teams within the newly minted squadrons will focus on defending the Department of Defense’s (“DoD”) most valuable and sensitive networks. Overall, the Air Force contributes 1,700 individuals to the DoD’s cyber force, including through a newly announced cyber proving ground for development of new ideas and devices.
CACI announced the acquisition of L-3’s National Security Solutions (“NSS”) group, a provider of big data and intelligence operations support to defense and intelligence customers. The $550 million transaction is expected to add $1 billion in annual revenue, and be at least 10% accretive to CACI’s diluted earnings per share by FY17. The addition of L-3 NSS will enhance CACI’s access within the defense and the Intelligence Community (“IC”). The transaction will also expand CACI’s capabilities in the areas of intelligence support, data analytics, and cybersecurity. The acquisition is CACI’s largest since its acquisition of intelligence contractor Six3 Systems in October 2013 for $820 million.
AeroVironment (Up 14.4%) – Shares were up this week after the Company announced profits increased 23% due to strong sales of its unmanned aircraft systems.
Airboss of America Corp. (Down 6.6%) – Shares were down this week after the market reacted to director Rick Crowe selling 9,500 shares of the Company’s stock.
CACI International acquired L-3’s National Security Solutions (“NSS”) group, a provider of big data and intelligence operations support to defense and intelligence customers. The transaction is worth an estimated $550 million.
Tronair Inc. acquired Eagle Industrial Truck Manufacturing LLC, a provider of tow tractors and tugs for commercial aviation and military customers. The terms of the deal were not disclosed.
Trescal S.A. acquired Laboratory MCI, a provider of calibration services for aeronautics and defense applications. The terms of the deal were not disclosed.
Trescal S.A. acquired Quality Systems Laboratory, a provider of calibration and validation services for aeronautics and life science applications. The terms of the deal were not disclosed.