Industry Week in Review – June 13, 2014

Aerospace & Defense Update

B/E Aerospace, Inc. announced plans this week to split its operations into two independent, publicly traded companies, currently titled “Manufacturing Company” and “Services Company”.  The Manufacturing Company will focus on producing aircraft interior equipment, while the Services Company plans to focus on providing logistics and technical support primarily to the aerospace, oil, and gas markets.  Both companies will be free to pursue independent deal-making and change of control when the separation is expected to become finalized in the first quarter of 2015.  B/E’s interior-parts business generated nearly two-thirds of the company’s 2013 revenue and has been attempting to consolidate as development costs have risen while aircraft makers move to secure larger contracts.  While the Company’s President and Chairman have both agreed to remain involved in the steering of the new companies, the Board of Directors and management teams will be decided at a later date.  Investors reacted negatively to the announcement, driving share prices down 5% the morning of the proposed split.  This decision was one of numerous potential moves B/E said it was exploring last month in an attempt to aggressively pursue its strategic alternatives.

Earlier this week, Emirates Airlines cancelled an order with Airbus for 70 aircraft, a deal valued at about $16 billion when it was placed in 2007.  Analysts point to regional slowdowns and disappointment in the A350’s range and fuel consumption, compared to Boeing’s jets, as two potential causes for the largest cancellation in Airbus’ history.  The immediate financial impact on Airbus is softened by their current backlog of 740 aircraft and the fact that delivery would not occur until 2019 through 2032.  Airbus is hopeful that Emirates’ cancellation will drastically cut lead times on other orders and increase accessibility for other airlines interested in the A350.

Technology Solutions Update

On June 9th, the House passed a bill to reform the acquisition process at the Department of Homeland Security in an effort to increase accountability and transparency regarding the agency’s procurement process. The DHS Acquisition Accountability and Efficiency Act would authorize the chief acquisition officer at DHS to approve, modify, or cancel major acquisition programs as needed, and would create an acquisition review board within the agency that would validate procurement documents and review cost and performance schedules.

The Transportation Security Administration is asking cloud service providers for disaster recovery support for the agency’s Technology Infrastructure Modernization (“TIM”) division, which resides within the Mission Essential Services Directorate of TSA’s Office of Intelligence & Analysis. In a Request for Information posted on June 10th, TSA stated that it is seeking a cloud service provider with disaster recovery capabilities to support emergency and disaster backup efforts at TIM.

Big Movers

Science Applications International Corporation (Up 10.7%) – Shares were up this week after the Company announced positive earnings estimates for its most recent fiscal quarter with operating income up 13.5% from the same quarter last year, and earnings per share beating analyst estimates by 3.0%.

Relevant Transactions

Park-Ohio Holdings Corp. acquired Apollo Aerospace Components Limited, a provider of components and hardware, as well as supply chain solutions to aerospace customers worldwide.  Terms of the deal were not disclosed.

Zodiac Aerospace acquired Greenpoint Technologies, Inc., a provider of high-end interior completions and modifications for both widebody aircraft and private business jets.  Terms of the deal were not disclosed.

Analog Devices, Inc. acquired Hittite Microwave Corporation, a designer and manufacturer of high performance integrated circuits, modules, subsystems, and instrumentation for radio frequency, microwave, and millimeter wave detection.   The deal is worth an estimated $2.0 billion.

Exelis, Inc. acquired Celestech, Inc., a provider of technical solutions for government and commercial customers, with concentrations in advanced signal processing and communications systems.  Terms of the deal were not disclosed.

Preferred Systems Solutions, Inc. acquired Envision Technical Services, Inc. a provider of technology systems supporting mission-critical systems and applications for intelligence and defense customers.  Terms of the deal were not disclosed.

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