Aerospace & Defense Update
In the wake of Chuck Hagel’s resignation, President Obama formally nominated Ashton Carter as his candidate for Secretary of Defense early next year, pending Senate confirmation. Carter served as the Undersecretary of Defense for acquisition, technology, and logistics from 2009 to 2011 before being appointed Deputy Defense Secretary, where he served as the Pentagon’s number 2 civilian officer until December 2013. In 2010, Carter helped lead the Pentagon’s Better Buying Power program, one of the largest acquisition reform packages in recent years, and is expected to continue advocating for innovative acquisition practices. Additionally, Carter will presumably push for an increased top line budget above the spending caps imposed by sequestration, a broadened scope of technological priorities, and a pragmatic approach to major defense acquisition initiatives, including resetting the F35 Joint Strike Fighter program.
House and Senate negotiators reached agreement on a compromise 2015 National Defense Authorization Act (“NDAA”) earlier this week. The legislation provides $519 billion to the defense spending base budget and an additional $63.7 billion to the Overseas Contingency Operations (“OCO”) account. Notably, the compromise language prevents the U.S. Air Force from retiring its A-10 Warthog aircraft fleet, instead allocating $350 million to fund operations and maintenance efforts for the aircraft. Similarly, the measure forbids any funds from being used to “transfer, divest, or prepare to divest any KC-10 aircraft” in fiscal 2015, another aircraft that the Air Force has previously expressed intentions to retire. Furthermore, the OCO section of the agreement includes funding requested by the White House for operations against the Islamic State of Iraq and the Levant (“ISIL”). Specifically, it provides $3.4 billion to U.S. operations against ISIL and an additional $1.6 billion to train and equip Iraqi forces. Moreover, the compromise fully funded the Obama administration’s request for special operations forces, in addition to authorizing a new $1.3 billion Counter Terrorism Partnership Fund. Congress is expected to begin its deliberations on the measure this week.
Government Technology Solutions Update
Congress is working towards passing a funding bill or continuing resolution by December 12th to avoid the possibility of a government shutdown. Currently under consideration is an appropriations bill that would fund all government agencies, except the Department of Homeland Security (“DHS”), through the end of GFY2015. DHS would likely only be funded through March or April 2015. If the bill were to pass, DHS would continue to operate under the uncertainty of a continuing resolution, while all other government agencies would have more secure funding.
The Office of Federal Procurement Policy (“OFPP”) administrator, Anne Rung, released a memo this week detailing a three-pronged acquisition improvement plan. The plan road maps an increasingly data-driven procurement system based on category management, acquisition workforce talent development, and stronger vendor relationships. Additionally, the OFPP plans to clean up outdated or burdensome regulations, and is committed to receiving input from all stakeholders in order to do so.
Leidos Holdings, Inc. (Up 7.4%) – Shares were up this week after the Company announced third quarter 2014 results. Leidos reported operating income of $72 million, compared to an operating loss of $5 million for the same period last year.
Rolls Royce (Up 6.5%) – Shares were up this week after the Company received Nuclear Regulatory Commission certification to use its Spinline modular digital instrumentation and control platform in U.S. nuclear power plants.
AIP Aerospace acquired AREVA TA’s Aerospace Integration Business, a provider of turnkey solutions for the design, planning, and implementation of assembly lines for major pieces of aerospace equipment. Terms of the deal were not disclosed.
Littlejohn Capital & Co. acquired ArmorWorks, Inc., a provider of armor, survivability, and security products to military and enforcement agencies. Terms of the deal were not disclosed.