Aerospace & Defense Update
On Wednesday, Pratt & Whitney disclosed that it is proposing an upgrade to F-35 engines that could increase overall thrust by ~10% and decrease fuel consumption by ~6%. Pratt believes that this upgrade, which is being called the F135 Growth Option 1.0, provides an attractive option for three primary reasons: (i) ease of integration into any of the three F-35 variants; (ii) compliance with partner and foreign partner requirements; and (iii) equal cost to the existing engine, but heightened performance. Development of the new engine is not currently funded by the F-35 program, however, if adopted, the Pentagon would be responsible for further development and validation costs.
Out of Boeing, Masten Space Systems, and Northrop Grumman, who were awarded contracts to pitch Experimental Spaceplane, or XS-1, concepts, Defense Advanced Research Projects Agency (“DARPA”) has selected Boeing for Phase 2 and 3. Boeing has been awarded an additional $140 million through 2019, on top of the $4 million Boeing received for Phase 1, to “continue the development of the XS-1 demonstration concept.” The collaboration on this hypersonic aircraft will move forward with the goal of creating “a short-notice, low-cost” means to get to space. DARPA announced that Phase 2 will include design, construction, and testing, while Phase 3 will include 12 – 15 test flights. The agency’s ultimate goal is to produce “a fully reusable unmanned vehicle, the size of a business jet” to provide routine access to space.
Government Technology Solutions Update
The Department of Homeland Security (“DHS”) has canceled its $1.5 billion Flexible Agile Support for the Homeland (“FLASH”) small business contract, which was intended to be the department’s main vehicle for the procurement of digital services. A major reason why the contract was canceled was that there were several mistakes made in the procurement process as well as throughout the evaluation process. Most notably, there was no clear methodology used in determining price evaluation, making it difficult to determine if prices submitted by bidders were reasonable. Just as importantly, however, a lack of clearly defined evaluation criteria introduced the possibility that bidders did not receive uniform treatment. Additionally, there were inconsistencies in how documents were recorded throughout the process, which led to unacceptable inconsistencies in record-keeping. Finally, FLASH’s underlying requirements have changed and no longer align with DHS’s needs, as DHS now requires more services than what FLASH would have provided in its current state. DHS therefore cancelled the 11 awards it has previously made, and determined that the best way forward would be to introduce a completely new solicitation. A new request for proposals (“RFP”) is expected sometime in 2018.
During a White House press conference on Wednesday, Secretary David Shulkin shared the Department of Veteran Affairs’ (“VA”) plan to request additional money to modernize the agency’s IT system. Despite the White House’s requested $500 million reduction in IT spending for the agency, the VA is making it a priority in its proposed 2018 budget, citing problems arising from the current outdated system. A large reduction in IT spending could force the department to reduce the number of veterans served per year by its loan-reporting system by more than two-thirds, as the absence of additional funds could force the VA to return to a paper-based manual loan system. According to Secretary Shulkin, this retrogression could lead to an increased risk of foreclosures or homelessness for veterans. Shulkin points out that three-fourths of the VA’s IT budget is used for the maintenance of legacy systems, but the VA is actively taking steps towards modernization. Mr. Shulkin is expected to decide on the future of the VA’s proprietary VistA electronic health record (“EHR”) system, potentially outsourcing it or switching to a commercial-off-the-shelf (“COTS”) solution. If this, and other similar upgrades are not made, the VA’s current infrastructure may continue to face considerable constraints, leading to increased wait times for veterans and their families.
FLIR (up 4.4%) – Share prices were up this week after the Company named James Cannon as CEO, following the retirement of 33-year company head Andy Teich.
ViaSat (up 7.7%) – Share prices were up this week after the Company had a successful launch of its ViaSat-2 satellite.
Applied Research Associates, Inc. has acquired BerrieHill Research Corp., a provider of electromagnetic modeling / simulation, design, analysis, and fabrication for the Air Force and intelligence agencies. Terms of the deal were not disclosed.
EnPro Industries, Inc. has acquired Qualiseal Technology, a provider of custom-engineered mechanical face and circumferential seals for demanding aerospace and industrial applications. Terms of the deal were not disclosed.
Hexcel Corp. has agreed to acquire Structil S.A., a provider of high-performance composites to the aerospace, defense, and industrial markets. Terms of the deal were not disclosed.
OSI Systems, Inc. has agreed to acquire Explosive Trace Detection Business from Smiths Group plc, a provider of trace detection used by airports and the military. The deal is worth an estimated $76 million.
Polish Armaments Group (Polska Grupa Zbrojeniowa – PGZ) has agreed to acquire Naval Shipyard SA – Stocznia Marynarki Wojennej SA, a provider of repairs, conversions, modernizations, and maintenances of naval vessels for the Polish Navy. The deal is worth an estimated $60 million.