Aerospace & Defense Update
Earlier this week, General Dynamics reported strong 4Q14 results, largely attributable to the performance of its Gulfstream business planes. The Company exceeded analysts’ consensus estimates of $2.13 earnings per share (“EPS”) with EPS of $2.19. Cash flow, however, was lower than expected. Gulfstream’s 4Q14 results, which mark the division’s best quarter from a revenue standpoint in three years, come on the tailwinds of a surge in demand for business-jet flights. Specifically, the number of business-jet flights in the U.S. increased 4.5% in the twelve months ended November 2015. Moreover, global orders and deliveries for business-jets have risen in each of the past four years following the sharp decline in demand that accompanied the financial crisis. As a result, General Dynamics has indicated that it plans to boost production output of its midsize Gulfstream jets in 2015. The Company also introduced guidance for FY15, including revenue growth of approximately 1.5% year-over-year (“YoY”) and EPS of $8.05 – $8.10 compared to consensus estimates of $8.38.
Domingo Ureña-Raso, head of Military Aircraft at Airbus Defense and Space, has resigned from his position and will be replaced by Fernando Alonso, the current head of Airbus’ Flight and Integration Tests. The shake-up in management comes in the wake of new delays on the troubled A400M military transport aircraft, a program that has been under Ureña-Raso’s oversight since 2009. The A400M, which provides various military capabilities including aerial delivery, cargo handling systems, self-defense systems, and air-to-air refueling, has encountered a series of delays and cost overruns that nearly led to the cancellation of the program in 2010. A total of 174 A400Ms have been ordered by Belgium, Britain, France, Germany, Luxembourg, Spain, and Turkey, with revised expectations that the first batch of the aircraft will be in service by the end of 2015.
Government Technology Solutions Update
On January 26th, the Department of Veterans Affairs (“VA”) announced the reorganization of the VA’s operating regions based off of a singular map with five standard regions. This VA reorganization is anticipated to be the first of many spurred by VA Secretary Bob McDonald’s initiative to transform and rebuild trust in the agency. When complete, the VA will have undergone its biggest transformation in history. Administrations within the VA, such as the Veterans Health Administration and the Veterans Benefits Administration, currently work from nine separate maps with inconsistent regions. This results in a fragmented VA with regards to both veteran perception and internal processes. The reorganization into consistent departmental regions instead of disparate administration regions aims to create better internal coordination and support the ability to leverage shared services. With this alignment in place, the next step for the VA will be focused around creating shared service back office functions.
As mobility comes into focus, the National Institute of Science and Technology (“NIST”) has developed a standardized testing process for mobile apps. While mobility allows for an unprecedented level of connectivity, the quick development processes of apps can result in security weaknesses. The new set of standards, known as the “app vetting process” is a step in mitigating these cybersecurity threats. It evaluates system vulnerabilities and focuses on how data is secured and deployed.
Triumph Group, Inc. (Down 10.4%) – Shares were down this week after the Company reported a fiscal third quarter loss of $39.8 million.
Boeing Co. (Up 8.0%) – Shares were up this week after the Company announced fiscal fourth quarter profits of $1.47 billion, up from $1.23 billion in the same period last year.
Huntington Ingalls Industries, Inc. acquired The Columbia Group, Inc.’s Engineering Solutions Division, a manufacturer of specialized manned and unmanned undersea vehicles for military customers. Terms of the deal were not disclosed.
Parter Capital Group acquired Cassidian Belgium, an electronics production facility that manufactures primary and secondary radar components, power amplifiers, and transponders. Terms of the deal were not disclosed.
CAE Inc. to acquire Bombardier Inc.’s Military Aviation Training Division, a provider of aviation training services to military pilots. The deal is worth an estimated $15.9 million.
GCR Inc., a portfolio company of Clearview Capital, acquired Quest Information Systems Inc., a provider of software to help state and local governments manage voter information and registration, elections and campaign finance information. Terms of the deal were not disclosed.