Aerospace & Defense Update
Since October 1st, the United States has already eclipsed the GFY2016’s total foreign weapon sales by almost $12 billion, bringing the total to $45.2 billion. The sharp increase can be attributed to 72 F-15s sold to Qatar and 32 F-18s sold to Kuwait. These two transactions, which were originally expected to close in GFY2016, represent $31.2 billion of GFY2017’s current $45.2 billion. When including all transactions, Gulf region sales account for 90% of GFY2017 sales.
As evidenced by GE’s acquisitions of Concept Laser GmbH and Arcam AB for a total purchase price of over $1 billion, additive manufacturing (also known as 3-D printing) continues to expand its market presence. Additive manufacturing involves growing an object in layers using metal powders, which allows for light, complex, and multidimensional products that cannot be produced using traditional machining methods. According to research firm IDTechEx, the 3-D printing powder market will grow from its current $250 million size to over $5 billion in 2025. GE currently employs 3-D printing technology in making fuel nozzles for its LEAP engines, components in its advanced military engines, and a large portion of its general aviation turbo prop engines. Other aerospace companies such as Boeing, Airbus, and Roll Royce have also utilized this technology with creating parts and prototyping on a small scale.
Government Technology Solutions Update
Thomas Bossert was recently appointed as the assistant to the president for homeland security and counterterrorism. Having previously served as deputy national security adviser, Mr. Bossert has worked to develop infrastructure protection and counterterrorism policy in previous administrations. It is believed that his appointment could lead to an increased level of cooperation between public and private organizations in the field of cybersecurity. Mr. Bossert is expected to help shape a cybersecurity policy focused on open market innovation. Combined with the President-elect’s emphasis on bolstering both offensive and defensive cybersecurity capabilities, there is an expectation that cybersecurity government contractors could see a significant uptick in workload under the new administration.
According to a recently released Govini report on Department of Defense (“DoD”) contract risks, 2017 could bring increased volatility to DoD IT vendors. It is expected that over $210 billion worth of contracts are set to expire in 2017 and the associated recompetes are expected to experience a historic level of competition, given an expanded quantity of government contractors. In particular, IT and services firms are at the greatest risk of increased competition and have the largest number of vendors and recompete risk, which is measured based on the size of expiring contracts held, total share of expiring contracts as a percentage of a company’s business, and the number of firms that submit bids on a given contract. For example, Govini estimates that while there was an average of six competing bids for every contract expiring in 2016, that number is expected to rise to seven in the upcoming year.
Bombardier (up 3.1%) – Shares were up this week after Bombardier and the Austrian Federal Railways signed a ~$1.9 billion deal for the delivery of up to 300 Bombardier Talent 3 trains.
Smith & Wesson (down 4.7%) – Shares were down this week after an industry report forecasted low 2017 sales for gun makers; Sturm Ruger was also down 2.5%.
Leonardo – Finmeccanica S.p.A. has purchased the remaining 60% of shares in Sistemi Dinamici S.p.A, a provider of remotely piloted aircraft systems. Terms of the deal were not disclosed.