Industry Week in Review – December 23, 2016
Aerospace & Defense Update
On Wednesday, President-Elect Donald Trump met with Boeing CEO, Dennis Muilenburg, and Lockheed Martin CEO, Marillyn Hewson, to discuss cost reductions to Air Force One and F-35 fighter jets. Both aircraft manufacturers came under fire earlier this month after Trump tweeted that the costs for those aircraft are ”out of control”. Trump stated that discussions at the meetings were very productive and Hewson echoed this same sentiment. Muilenburg assured Trump that the Air Force One replacement aircraft would not exceed $4 billion. Hewson similarly promised she would initiate actions that would reduce costs for F-35 aircraft.
Airbus recently announced plans to delay the delivery of its new A330neo long-range aircraft, adding to the string of production setbacks the company has experienced this year. The world’s second largest aircraft maker originally promised to deliver the new A330neo aircraft by the end of 2017, but has since announced that the first aircraft will not be delivered until March of 2018. The new A330neo aircraft will be produced entirely with Rolls-Royce engines which will create greater fuel efficiency and range. However, Airbus deliveries have fallen behind this year mainly due to its engine suppliers being unable to keep up with Airbus’ aircraft quantity production. Airbus will have to deliver 94 aircraft this month if it wants to meet its announced target of 670 aircraft this year.
Government Technology Solutions Update
The recently released National Defense Authorization Act (“NDAA”) of 2017 emphasizes more limited use of Lowest Price Technically Acceptable (“LPTA”) procurements. Over the last few years, the prevalence of LPTA contracting has been steadily rising, partially driven by tightening Federal budgets and a focus on streamlining procurements, as LPTA has been cited as a means to reduce costs and potential protest awards. As prevalence of LPTA usage has grown, it has drawn staunch criticism from public policymakers and industry professionals who have cautioned against the simplified evaluation methodology. Research from the Department of Defense (“DoD”) showed that LPTA may result in short-term savings but often costs agencies more money in the long-term. The NDAA legislates a Defense Federal Acquisition Regulation (“FAR”) Supplement revision, which would limit LPTA usage to only the most straightforward commodity procurements and specifically recommends avoiding LPTA for IT and cybersecurity services, Systems Engineering and Technical Assistance (“SETA”) services, and other knowledge-based professional services.
The Air Force recently announced the list of awardees on its Air Force Network Centric Solutions 2 (“NetCents 2”) application services contract, an $800 million extension that is expected to run through 2022. The extension provides an additional three years of work, as the original award was expected to expire in 2019. The list is composed of 12 small businesses who will be providing services aimed at making it quicker and easier for warfighters to obtain innovative IT services and capabilities across the full spectrum of missions and operations. Specifically, the NetCents 2 contract offers Air Force contracting offices with a primary source for sustainment, migration, integration, training, help-desk support, and testing and operation support.
Big Movers
Meggitt (down 4.0%) – Shares were down this week after Meggitt sold its defense division to QinetiQ Group.
Kratos Defense & Security Solutions (up 5.3%) – Shares were up this week after Kratos was awarded a $23.4 million contract with the U.S. Army Aviation and Missile Command.
Transactions
Advanced Integration Technology, Inc. acquired KUKA Systems Aerospace North America, a provider of new robotic technologies and flexible automation solutions for the aerospace industry. Terms of the deal were not disclosed.
Advanced Integration Technology, Inc. acquired Nova-Tech Engineering, a provider of critical assembly automation, materials handling and friction stir welding equipment, and tooling for the aerospace and space launch industries. Terms of the deal were not disclosed.
Airmar Technology Corp. acquired Materials Systems, Inc., a provider of advanced materials and custom components for defense and commercial systems customers. Terms of the deal were not disclosed.
Arlington Capital Partners acquired Molecular Products Group, Ltd., a provider advanced chemistry-based products for the defense and healthcare markets. Terms of the deal were not disclosed.
Coalfire Systems, Inc. acquired Veris Group, LLC, a provider of cyber risk advisory, compliance assessment, technical testing, and engineering services. Terms of the deal were not disclosed.
Corning, Inc. acquired Ace and Company, Inc., a provider of rugged fiber-optic and hybrid fiber / power connectivity solutions for harsh environments. Terms of the deal were not disclosed.
ManTech International Corporation acquired Edaptive Systems, LLC, a provider of IT services, including software engineering, data abstraction, and business intelligence, primarily to Federal health agencies, with a significant focus on CMS. Terms of the deal were not disclosed. KippsDeSanto & Co. acted as the exclusive financial advisor to Edaptive Systems, LLC.
QinetiQ Group acquired Meggitt Target Systems, a provider of unmanned aerial, naval, and land-based target systems and services for test and evaluation (“T&E”) and operational training. The deal is worth an estimated $71.2 million.
United Flexible, Inc. acquired Scotia Technology, a provider of small-diameter precision fixed tubular components for the aerospace and defense industries. Terms of the deal were not disclosed.
