Industry Week in Review – December 15, 2017
Aerospace & Defense Update
On Tuesday, President Trump signed a $700 billion defense bill into law, surpassing President Trump’s previous request by $32 billion. The defense bill authorizes $634 billion for the base budget and $66 billion for overseas contingency operations. However, the bill is also subject to Congress rolling back the 2011 Budget Control Act, which sets strict limits on federal spending and would only allow for $549 billion of defense spending. Congress is expected to eliminate the cap on defense spending, and lawmakers have until December 22nd to send the White House a broader government funding bill. The 2018 defense bill includes $12.3 billion for the Pentagon’s Missile Defense Agency to counter growing threats from the Korean peninsula and includes additional jet fighters and ships, which are designed to boost military readiness.
Lockheed Martin is in discussions to create a joint venture with Aerion Corp. to develop a new supersonic business jet, the Aerion AS2, which would begin operations in 2025. The proposed project marks a return for Lockheed to the supersonic jet business after a two-decade gap. Lockheed is not alone as competitors Boom Technology, Inc. and Spike Aerospace, Inc. have been touting proposals for supersonic passenger jets as well. If Lockheed proceeds with the proposal, the company is equipped to build the jets at its existing facility in Greenville, S.C. where it produces F-16 combat jets and military cargo aircraft. Aerion executives are estimating the total development cost of the jet at $4.0 billion. The AS2 jet would be able to travel at up to 1.5 times the speed of sound and would have a range of 4,750 nautical miles. Aerion is forecasting demand of 300 jets over the next decade and has already secured an order for 20 jets from FlexJet, LLC.
Government Technology Solutions
The day after President Trump signed the National Defense Authorization Act into law, the White House revealed its plan for modernizing the Federal Government’s IT infrastructure. The IT Modernization Report outlines fifty action plans to help modernize and consolidate the current IT infrastructure with an emphasis on increased cybersecurity and shared services. The report encourages shifting the government’s IT infrastructure to a service model and leveraging cloud technologies that are available through government technology contractors. In order to effectively implement cloud technologies across government agencies, the report emphasizes the importance of migrating towards cloud email solutions. White House officials have indicated that agencies will begin to adopt these suggested improvements as early as January of next year.
This past week, House and Senate Republicans have been working to reconcile their tax reform bills to arrive at a joint proposal. With only a 52-48 majority and several Republican Senators not voicing public approval for the bill, Republicans do not have room for any error. The Republican’s loss in Alabama has put even more pressure on the G.O.P. to finalize tax reform before Doug Jones officially takes his position in January. While details are still being discussed, final votes are expected to take place next week with the hope of the President signing a proposal into law before Christmas. The current tax reform plan, which would take effect in 2018, features a 21% corporate tax rate and a top individual tax rate of 37%. Additionally, the bill will allow homeowners to deduct mortgage interest on loans up to $750,000 and will likely allow for a state and local or property tax deduction of up to $10,000. While lowering tax rates for businesses and individuals, the deductions and tax breaks are expected to add $1 trillion or more to federal budget deficits over the next decade.
Big Movers
Boeing (up 2.8%) – Share prices were up this week after the company announced that it will raise its quarterly dividend by 20%.
Bombardier (down 3.4%) – Share prices were down this week as the company is entering a critical phase of its trade dispute with Boeing and the U.S. International Trade Commission.
Transactions
Advanced Core Concepts announced the acquisition of ACTA, a provider of engineering and technical services firm. Terms of the deal were not disclosed.
Belcan, LLC has acquired CDI Corp.’s Aerospace and Industrial Equipment Business Unit, a provider of engineering and recruitment solutions for a broad range of aerospace platforms. Terms of the deal were not disclosed.
Chenega Corp. has signed a definitive agreement to acquire privately held ADG Creative, a provider of strategic communications and digital transformation solutions. KippsDeSanto & Co. served as the exclusive advisor to ADG on this transaction. Terms of the deal were not disclosed.
Xator Corp. has acquired the professional services business of privately held Merlin International, Inc., a provider of cyber security, infrastructure/network operations, and enterprise applications business supporting the Federal sector. Terms of the deal were not disclosed.
