Industry Week in Review – February 28, 2014
In advance of the March 4th budget proposal, Defense Secretary Chuck Hagel previewed the Pentagon’s five-year plan, which includes $115 billion in spending over sequestration spending caps, in addition to various cuts to personnel and programs. The 2015 fiscal budget of $496 billion falls in line with defense spending caps for the year, but also includes a separate $26 billion addition to the base funding, the “Opportunity, Growth and Security Initiative”, which will go toward readiness. The proposal ignores federally mandated spending caps between 2016 and 2019 with a 2016 budget projection over the sequester cap by $36 billion. Most notable of the cuts, the Pentagon intends to slash personnel across all military services, including reducing the active-duty Army from its current 520,000 to as low as 440,000 soldiers, the smallest since World War II. Hagel noted that while difficult decisions will be made, the proposal is a pragmatic approach for opportunity to reshape the country’s defense enterprise to be better prepared and positioned for the future.
Officials from the Departments of the Army, Air Force, and Navy have stated they are looking into prioritizing service and support function needs after they were told to reduce headquarters staffs by nearly 20 percent. In order to meet this requirement, agencies within the Department of Defense have entertained several ideas for service contractor reductions. Potential ideas include reducing the civilian workforce and / or consolidating and sharing services to stretch funding and strategically use employees, similar to the recent consolidations of the Departments of Homeland Security and Energy and NASA, which are all beginning to see the benefits from their respective shifts to shared parts of support services and core functional areas.
Big Movers
ICF International, Inc. (Up 17.8%) – Shares were up this week after the Company announced positive fiscal fourth quarter results, as well as its acquisition of CITYTECH, Inc.
KBR, Inc. (Down 10.4%) – Shares were down this week after the Company reported disappointing fiscal fourth quarter results as revenue and net income dropped 5.8% and 10.0%, respectively, from the previous year.
Relevant Transactions
Zodiac Aerospace announced the acquisition of Pacific Precision Products, a manufacturer of oxygen systems for business jet aviation and aircraft cabin completion centers. Terms of the deal were not disclosed.
Fulcrum IT Services Company, LLC acquired Forgentum, Inc., a provider of information systems focused on military health IT. Terms of the deal were not disclosed.
Advanced Helicopter Services announced at Heli-Expo 2014 that it had acquired Cascade Airframe Repair, Inc., a provider of maintenance and repair services for Airbus and MD helicopters. Terms of the deal were not disclosed.
AIP Aerospace Tooling Group LLC acquired Brown Aerospace Manufacturing Systems, Inc., a provider of automated drilling and fastening systems for the aerospace industry. Terms of the deal were not disclosed.
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