Aerospace & Defense Update
Bombardier Aerospace will likely experience delays on another program in the coming months as it has announced a “full review” of its new Global 7000 and 8000 business jet programs. The announcement of the review follows continuing revenue pressure, cost overruns, and other demands from the CSeries airliner as well as its halt in production of its Learjet 85 program. The Global 7000 was planned to be released in 2016 but still has yet to partake in its first flight as the first flight-test aircraft is still in final assembly. Current CEO, Allain Bellemare plans to keep their current commitments and proceed on once the review is complete.
The Brazilian jet manufacturer, Embraer, had one of its best quarters in history, as the company delivered more planes and reported record high backlog. The company announced that deliveries amounted to 60 jets in the period, two more than in the same period, a year prior. Meanwhile, total backlog rose $2.5 billion to $22.9 billion, an increase of 26.5% year-over-year and 12.3% over 1Q15. This growth stemmed from a reported 104 new firm orders, of which roughly 50 came from a successful showing at the Paris Air Show in June.
Government Technology Solutions Update
The Federal Government spending season is underway. According to Bloomberg Government, 32.0% to 34.0% of large Federal Agency contract obligations are made in the fourth quarter of the government fiscal year (“GFY”) (July 1st to September 30th). This behavior among Federal Agencies is spurred by a mandate to spend their entire budget, or potentially see a reduction in future funding. Of particular note, the General Service Administration’s (“GSA”) Schedule contracts historically receive almost half of their orders during the fourth quarter. To help deal with the increase in orders during the period, the GSA implemented an electronic purchasing system in June. Federal Agencies can use the system, eBuy, to electronically search for goods and services and prepare Request for Quotes (“RFQ”) and Request for Proposals (“RFP”). According to the GSA, there are 80,000 RFQs issued under eBuy to date.
Federal Agencies are increasingly using Simplified Acquisition Procedures (“SAP”) to speed up the purchase of goods and services that fall below the price limit set by regulation ($150,000 for non-commercial, $6.5 million for commercial). SAP spending is approximately 54.0% products and is dedicated solely to small businesses, unless none can perform the contract. Despite Government-wide sequestration, the spending under SAP regulations increased 4.3% from GFY2013 to GFY2014, growing faster than the overall market. Federal Agencies are turning to SAP procurement as an efficiency measure to save time and reduce administrative costs for simple purchases. Looking forward, the pending GFY16 National Defense Authorization Act would more than double the current price limit for noncommercial items, potentially directing further funding to small businesses.
Airbus (Up 4.3%) – Shares were up this week in response to the U.S. – Iranian agreement. Iran’s aviation industry is expected to replace as many as 400 jets over the next ten years, representing at least $20 billion in aircraft sales.
VSE Corp. (Down 3.4%) – Shares were down this week in response to an announcement that the company will begin trading ex-dividend on July 20th.
Precision Castparts Corp. to acquire Composite Horizons, LLC, a supplier of high temperature carbon and ceramic composite components, including ceramic matrix composites for use in next generation aerospace engines. Terms of the deal were not disclosed.
DCX-CHOL Enterprises Inc. acquired Southern California Braiding Co., Inc. from IEC Electronics Corp., a manufacturer of custom cables and wire harness assemblies. Terms of the deal were not disclosed.
CounterTack acquired the commercial software division of ManTech, ManTech Cyber Solutions International, a provider of real-time endpoint threat detection and response solution. ManTech is expected to become an equity investor in CounterTack.
The Radiant Group acquired HumanGeo, a provider of data analytics software and development services to defense, intelligence, and commercial markets. Terms of the deal were not disclosed.
NatHealth acquired Harris Corporation’s commercial Healthcare Solutions business, the provider of FusionFX, an information-exchange solution for healthcare providers. Terms of the deal were not disclosed.