Industry Week in Review – January 20, 2017

Aerospace & Defense Update

On Friday, the Senate confirmed General James Mattis to be the new Secretary of Defense hours after President Donald Trump’s inauguration.  Earlier that day, Trump signed legislation granting Mattis a one-time exemption from the law requiring the Secretary of Defense to not be employed by the armed services for at least seven years.  This legislation was approved by Congress last week and is meant to retain civilian oversight of the military.  Additionally, the Senate Armed Services Committee overwhelmingly approved Mattis by a 26 to 1 vote earlier this week.  Mattis retired from the Marine Corps in 2013 after spending 41 years in uniform.

French aircraft manufacturer Safran S.A. announced it has entered into exclusive negotiations to acquire Zodiac Aerospace, a seating and cabin interior manufacturer, for ~$9.0 billion.  Adding to the recent aerospace sector consolidation, this transaction will make Safran one of the world’s largest aerospace suppliers, with leading positions in landing gear, seats, cabin interiors, wheels and brakes, nacelles, power systems, actuation and avionics, and oxygen and fluid systems.  The combined company is expected to strengthen Safran’s presence across all major aircraft programs while limiting its exposure to aircraft delivery cycles.  Safran attempted to acquire Zodiac in 2010, but was thwarted by Zodiac’s family-controlled shareholders before it could place a bid.  Safran expects the acquisition to yield over $210 million in savings during the first two years by reducing manufacturing costs.

Government Technology Solutions Update

Last week, the Technology CEO Council (“TCC”) released a report claiming that the Federal government could potentially save as much as $1 trillion over the next ten years through the procurement and use of optimized, modernized, and efficient practices and solutions in regards to the nation’s IT infrastructure.  The report lists several key areas of focus where the TCC envisions there to be significant opportunities for cost reductions, the largest of which is related to the reform of the Federal government’s supply chain and acquisition practices.  The TCC believes that improvements in this area alone may lead to up to $500 billion in cost savings over the next decade.  The TCC also suggested that the government continue to adopt its implementation of modernized technology solutions and hardware.  Increasing the adoption of big data, analytics, and cognitive computing could potentially save over $200 billion, while IT modernization initiatives could lead to aggregate savings of over $100 billion.  The TCC initially prepared and shared their report, titled “The Government We Need,” for the use of President-elect Trump’s transition team, though it is still unknown how his administration will approach issues surrounding government IT.

Microsoft Corporation’s Azure Government and Office 365 cloud services was recently given Level 5 provisional authority by the Department of Defense, making it the first commercial cloud solution to achieve that rating.  Level 5 authority allows commercial cloud platforms to handle controlled unclassified information (“CUI”) and is the second-highest authority rating, just below Level 6 authority, which involves handling information classed as Secret. Level 5 authority also gives government users of Azure and Office 365 increased flexibility in terms of the type of information that can be handled in applications they build and design.  Part of Microsoft’s ability to handle sensitive information comes from the use of its dedicated DoD data centers, which are designed to the strict standards of DoD’s Level 5 classification requirements.

Big Movers

Zodiac Aerospace (up 22.3%) Shares were up this week after Safran announced its plans to acquire Zodiac for ~$9.0 billion.

TransDigm (down 10.0%) – Shares were down this week after the Company announced its plans to extend its leveraged loan deadline.


Polaris Alpha, a portfolio company of Arlington Capital Partners, has acquired Intelesys Corporation, a provider of computer network operations, software engineering, embedded development, network engineering, and cyber solutions primarily for the Intelligence community. Terms of the deal were not disclosed.

Safran S.A. has agreed to acquire Zodiac Aerospace S.A., a provider of on-board systems, safety systems, and cabin interiors for the aerospace industry.  The deal is worth an estimated $9.0 billion.

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