Industry Week in Review – July 8, 2016
Aerospace & Defense Update
The Pentagon has submitted approximately $2.6 billion in funding shifts within its reprogramming request to Congress. The funding shifts include $1.2 billion in fiscal 2016 appropriations, $583 million in the Defense Working Capital Fund, and $499 million in fiscal 2015 overseas contingency operation funding. Furthermore, lower than budgeted personnel costs allows for Army and Navy budgetary increases of $267 million and $476 million, respectively. Meanwhile, the Air Force gained $273 million, which will be distributed primarily to research and development and to ensure its next generation fighter program, “Next Generation Air Dominance,” remains on schedule to support the FY2017 Material Development Decision. The reprogramming requests have been accepted by Mike McCord, the Under Secretary of Defense, and now await approval from Congress.
Despite the Air Force’s second thoughts regarding the F-35A’s ejection seat, the joint program office (“JPO”) has not approached Lockheed Martin to evaluate alternatives. The issue arose last year after the Air Force found that pilots weighing less than 136 pounds were at risk of severe neck injury upon ejection from the F-35. It was announced last month that the JPO was considering United Technologies’ ACES 5 design as a potential replacement in case the currently planned Martin-Baker US16E seat does not meet safety requirements. However, after adding a head support panel and modifying its software, Martin-Baker is confident its redesigned seat will meet safety regulations. Jeff Babione, Lockheed Martin’s executive vice president and general manager of the F-35 program, said the company would be willing to consider the ACES 5 seat, but is now focusing on the integration of the Martin-Baker seat.
Government Technology Solutions Update
According to a recently released Deltek forecast, the Department of Veteran Affairs (“VA”) is expected to increase its spending on contracted IT goods and services over the next five years. Funding for IT services, software, and communications and network services are expected to rise from $4.1 billion in the current fiscal year to $4.5 billion in fiscal year 2021. The department is no stranger to IT innovation, as CIO LaVerne Council has made it a priority for the VA since her appointment in 2015. With the increased spending, the VA plans to develop its cybersecurity, cloud, and big data capabilities in an effort to improve veteran service delivery and efficiency.
While Federal agencies have almost four years to make the transition to the General Services Administration’s (“GSA”) $50 billion, 15-year Enterprise Infrastructure Solutions (“EIS”) contract, GSA officials are urging agencies to begin these efforts sooner rather than later. Agencies are expected to submit transition plans and complete transitions to EIS before the Networx and regional telecom contracts expire in May 2020. The EIS contract, which is expected to be awarded in October of this year, will require agencies to accurately inventory telecom services and include everything from traditional long-distance services to fully redundant, mission-critical virtual private networks. Agencies making the transition have a significant amount of work ahead, as “more than 7 million inventory items” across “eight Networx contracts must move,” explained GSA official Amando Gavino.
Big Movers
Airbus Group SE (Down 5.6%) – Shares were down this week after the company revealed its order book for June, in which the company only booked 27 new commercial jet orders, continuing its lag behind Boeing.
Fluor Corporation (Up 4.7%) – Shares were up this week after the company received full notice from Dominion Virginia Power to proceed with its project to build the Greensville County Power Station.
Transactions
MiDef AB acquired Bedriftssystemer AS, a provider of rugged electronics and TEMPEST equipment to the Norwegian MoD and leading defense subcontractors. Terms of the deal were not disclosed.
