Industry Week in Review – July 22, 2016
Aerospace & Defense Update
The KC-46 tanker program has completed its flight tests and is now expected to request approval from the Pentagon to start low-rate initial production. In advance of its Milestone C decision in August and a week after refueling the C-17 Globemaster II and the F-16, the KC-46A successfully transferred 1,500 pounds of fuel to the A-10 Warthog. The KC-46 has had its boom redesigned to include a bypass to control the flow of fuel after having difficulty refueling heavy aircraft earlier this year, delaying the Milestone C decision from June to August and the delivery to the Air Force of the first 18 tankers from August 2017 to January 2018. Approval for low rate production would award Boeing 19 aircraft; however, as a result of the delay, Boeing will take a $604 million pre-tax charge, $219 million of which will go against its Military Aircraft business while the rest will be booked in Boeing Commercial Airplanes.
The European Union (“EU”) cleared Airbus Group SE and Safran’s joint acquisition of Arianespace, ending a probe that had been ongoing since February. The EU held concerns that Airbus Safran Launcher’s purchase of the satellite launch company would result in less innovation and drive prices up in the satellite and launch services markets. However, the European Commission, the EU’s antitrust regulator, cleared the joint acquisition after Airbus and Arianespace agreed to place firewalls between the two companies. These measures will prevent information flows potentially damaging to competitors, sharing of information about outside firms if not related to the daily operations of the business, and employee movement between the companies. With these commitments from Airbus and Safran, the EU said other previous concerns were not substantiated and allowed the joint venture to pursue the design and construction of Europe’s next major rocket, the Ariane 6.
Government Technology Solutions Update
Deltek’s recently released Federal Information Technology Market report forecasts that the Department of Homeland Security’s (“DHS”) spending on contracted information technology (“IT”) goods will grow from $6.5 billion to $7.4 billion over the next five years, reflecting a compounded annual growth rate (“CAGR”) of 2.6%. The forecast includes increased spending on software as well as hardware and IT services, and relatively flat spending on communications and network services. In an effort to meet its enterprise service delivery goals, the DHS has been working to facilitate data-driven decisions through data analytics, workflow processes, and knowledge-based technologies. Furthermore, the department is continuing development of its mobile computing capabilities to improve effectiveness and support component missions.
It has been 25 years since the Social Security Administration (“SSA”) first addressed a need for the modernization of its IT systems, and the Federal agency finally believes it has found an answer. According to the department’s deputy commissioner and Chief Information Officer (“CIO”), Robert Klopp, the modernization plan will cost $300 million and require an agile framework to create five SSA systems. SSA officials speculate that the agency loses an estimated 20 minutes of productivity per employee every day due to the outdated systems, totaling $200 million a year. Congress remains skeptical, citing similar failed projects from the SSA as well as what looks like a stagnant budget for the agency for 2017. Despite this, SSA officials remain optimistic, asserting that the agency would learn from past mistakes and stay on budget this go around.
Big Movers
Bombardier (Down 6.0%) – Shares were down this week after Bombardier failed to book any orders at the Farnborough International Airshow .
Hexcel (Up 4.7%) – Shares were up this week after second quarter earnings and revenue exceeded analysts’ expectations.
Transactions
Centerra Group has acquired The Development Initiative, a professional services provider of remote logistics solutions, risk education, and training to a bevy of Federal and commercial clients. Terms of the deal were not disclosed.
Vector Space Systems has acquired Garvey Space Corporation, a provider of engineering, technical support, project management, and hardware prototyping services to develop space technologies and launch vehicle systems. Terms of the deal were not disclosed.
