Industry Week in Review – February 12, 2016

Aerospace & Defense Update

The Securities and Exchange Commission (“SEC”) has launched an investigation to determine whether Boeing properly accounted for the costs and expected sales of the 787 Dreamliner and the 747 jumbo aircraft.  The probe, prompted by a whistleblower’s complaint, concentrates on projections made by the Company about the long term profitability of two of its best known jetliners.  Both aircraft are renowned for the technological advancements they introduced into the aerospace industry.  The SEC investigation will be concentrated on Boeing’s use of program accounting, which allows the Company to average out upfront costs of manufacturing and the anticipated profits of planes over the full duration of production programs.  Though SEC officials have not determined if a case will need to be filed, Boeing’s share prices fell 6.8% on Thursday, marking the second large drop this month.

On Tuesday, the Obama administration released its $582.7 billion Government Fiscal Year (“GFY”) 2017 budget request to Congress.  The Defense Department’s request includes $71.8 billion for research and development (“R&D”), a 4% increase from the enacted $69 billion of last year.  The increase in R&D is expected to provide a foundation for the Third Offset high-tech investment portfolio, the Pentagon’s plan to restore rapidly declining U.S. military technological supremacy.  Over recent years the Pentagon’s budget requests exceeded past caps established by the Budget Control Act, also known as sequestration, however, this year’s request falls under Bipartisan Budget Act (“BBA”) providing the Pentagon with increased certainty on its funding levels.

Government Technology Solutions Update

President Barack Obama cited the Federal government’s portfolio of aging IT systems as a major focus area in his final budget request to Congress. On a combined basis, IT spending for civilian agencies, the DoD, and the intelligence community makes up approximately $90 billion of the budget request. “And I just want to say as an aside here [that] one of the biggest gaps between the public sector and the private sector is in our IT space, and it makes everybody’s information vulnerable,” Obama said.  A critical component of the budget request is for updated IT systems and infrastructure to replace archaic legacy systems.  In addition, the request highlighted the need for additional cloud adoption, the integration of interagency systems, and increased cybersecurity activities.  Currently, 26 Federal agencies are focusing on the successful migration of their IT to cloud based systems and converged agency infrastructure, as well as improving their cybersecurity practices and protocols, a trend likely to continue over the near term.

On Tuesday, the Obama administration announced a national cybersecurity action plan designed to address fundamental security challenges exacerbated by swift technological changes and the migration of Federal systems to the cloud.  The action plan focuses on three areas: (i.) substantially increasing Federal funds dedicated to cybersecurity; (ii.) the appointment of a Chief Information Security Official (“CISO”) that would report directly to Tony Scott, the Federal Chief Information Officer; and (iii.) the expansion of efforts to increase the nation’s cybersecurity workforce and public cyber-education initiatives.  To accomplish these goals, the plan proposes increasing cybersecurity funding to $19 billion, up 35% from last year’s allocation of $14 billion.  The fund would operate out of the General Services Administration, with set benchmarks the program must reach to receive further funding.   The funding will be complemented by a $62 million increase in the currently $4 billion initiative to increase the size of the nation’s cybersecurity corps reserve, as well as the creation of a Federal Privacy Council designed to monitor the progress Federal agencies are making in securing their networks.

Big Movers

Boeing (Down 11.4%) – Shares were down this week after the SEC launched an investigation on the Company’s accounting practices

American Science & Engineering (Down 30.6%) – Shares were down this week after the Company reported disappointing earnings


Assured Enterprises has acquired Nova Defense & Aerospace International, a provider of IT and cyber security consulting to sensitive national security clients.  Terms of the deal were not disclosed.

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