Industry Week in Review – January 16, 2015
Aerospace & Defense Update
On Thursday, Bombardier Inc. announced that it intends to temporarily halt work on one of its flagship models, the Learjet 85 aircraft. Delivery of Bombardier’s Learjet 85 was originally scheduled for the end of 2013, but subsequently delayed beyond 2014 given a number of manufacturing problems. The decision to pause development of the aircraft, attributed to persistently weak demand in the private-jet market following the economic downturn, results in a pretax charge of roughly $1.4 billion and eliminates close to 1,000 jobs. Moreover, the Company proceeded to cut its financial forecast for 2014, reducing expected cash flow from operations in the aerospace division to approximately $800 million, down from a previously estimated range of $1.2 billion to $1.6 billion. Following the announcement, shares in Bombardier’s stock plummeted 26% to $2.57. Ultimately, the Learjet decision represents a major blow to Bombardier’s aerospace division. However, Chief Executive Pierre Beaudoin has indicated that the Company will recommence development should market conditions change.
In the wake of former Chief Executive Louis Chenevert’s departure from United Technologies Corp. (“UTC”), Alain Bellemare, President and CEO of the Company’s Propulsion and Aerospace Systems Division, has decided to step down at the end of the month. Following his exit, UTC intends to eliminate the position, with the leaders of UTC Aerospace Systems and Pratt & Whitney instead reporting directly to CEO Greg Hayes. The UTC Aerospace Systems division, which includes Hamilton Sundstrand and Goodrich Corp., will be led by two of Mr. Bellemare’s understudies, while Paul Adams will continue in his role as president of Pratt & Whitney. Together, these businesses generated approximately 44% of the Company’s $63 billion in revenue during 2013. According to UTC, Mr. Bellemare will still offer his services to the Company as a consultant.
Government Technology Solutions Update
On Tuesday, President Obama unveiled new cybersecurity measures to combat the growing number of cyber threats in the U.S. The proposed legislation, if passed, will allow private sector companies to share limited personal information with government agencies, require private sector companies to inform customers of data hacks within 30 days, contain extra powers for law enforcement agencies to target hackers, and include separate protections for consumers and children. The proposed bill was released in the wake of the Sony Pictures hack, and just one day after the Pentagon’s own Twitter account was compromised.
The U.S. House of Representatives approved a spending bill for the Department of Homeland Security (“DHS”) on Wednesday. The $39.7 billion DHS appropriations bill provides the agency with funds for operations, while also addressing controversial immigration issues. However, members of the Senate have expressed doubts that the bill will pass the upper chamber given the inclusion of amendments that defund a number of immigration programs. The language of such amendments states that none of the funding may be allocated to support President Obama’s recently issued executive actions regarding deferred deportation of millions of illegal aliens. Should both chambers of Congress fail to pass the legislation prior to February 27th, DHS funding will run out, effectively shutting down the agency.
Big Movers
Bombardier, Inc. (Down 26.9%) – Shares were down this week after the Company announced that it would halt work on the Learjet 85.
Precision Castparts Corporation (Down 13.0%) – Shares were down this week as sales to oil and gas customers has declined due to falling oil prices.
Transactions
Textron Inc. acquired Douglas Equipment Ltd., a subsidiary of Curtiss-Wright Corp. that manufactures aviation ground-support vehicles and runway friction-measuring devices. Terms of the deal were not disclosed.
Onex Corporation to acquire Survitec Group Ltd., a provider of survival and safety equipment for marine, offshore, defense, and aviation industries. The deal is worth an estimated $680 million.
Axle Holdings PTE Ltd. acquired Carat Security Group, a manufacturer of commercial armored vehicles for heads of state, cash-in-transit, off-road, and defense applications. Terms of the deal were not disclosed.
PAE acquires USIS Global Security and Solutions Business, a provider of litigation support, biometric capture and enrollment, training, and other security related services. Terms of the deal were not disclosed.
RLJ Equity Partners acquired Phase One Consulting Group, a provider of information technology-based consulting services and solutions to various U.S. federal civilian agencies. Terms of the deal were not disclosed.
Symantec Corporation acquired Narus, Inc., a divestiture from Boeing that provides cybersecurity data analytics solutions, such as internet-filtering software for intelligence agencies. Terms of the deal were not disclosed.
Westat acquired Fenestra, a provider of advanced technologies and information technology solutions, specifically electronic questionnaires, data collection, metadata systems, and web-based surveys, for complex research problems. Terms of the deal were not disclosed.
