Aerospace & Defense Update
This week, United Technology Corporation’s CEO, Greg Hayes announced that the Company has begun to consider strategic alternatives including an outright spin-off, for its Sikorsky subsidiary. The helicopter manufacturer has experienced years of inconsistent revenues and has dim prospects for future revenue growth. Hayes highlighted that although the CH-53 program positions the unit well for the future, its revenue growth will likely remain flat for the near-term. However, the Company cited Sikorsky’s role as a platform provider as opposed to a service provider as the main reason for its potential spin-off. A divestiture of the $7 billion unit would likely provide the parent company with the financial wherewithal to offer about $2 billion that could be used in share repurchases. The announcement confirms that UTC is actively reassessing its portfolio in order to drive shareholder value.
The International Society of Transport Aircraft Trading (“ISTAT”) hosted its ISTAT Americas 2015 conference in Phoenix, AZ this past week. The conference brings together aircraft Original Equipment Manufacturers (“OEM”), suppliers, lessors, consultants, and other related parties and serves as a forum for the diverse industry participants. A highlight of the conference was the keynote address which stressed that slower GDP growth and consolidation of capacity will inevitably stress the seemingly resilient backlog of the OEMs, Boeing and Airbus. The two OEMs countered by asserting that their current backlogs are large enough to withstand market pressure while maintaining increased production rates. Furthermore, lessors confirmed that the aircraft leasing industry continues to be robust driven by airline profitability, strength in the debt markets, and deep order books, reinforcing the overall strength of the industry.
Government Technology Solutions Update
The Central Intelligence Agency (“CIA”) has announced an internal reorganization to adapt to changing threat priorities and combat cyber-crime and terrorism. Several offices will be reorganized and a new Directorate of Digital Innovation office will be created to lead CIA cyber initiatives. The new office will act as the central authority on training and best standards. The CIA will also provide the executive director with more power to make strategic decisions. Overall, the reorganization seeks to invest in leadership, leverage digital solutions, modernize agency structure, and integrate capabilities across mission areas.
The Government Accountability Office (“GAO”) received more than 60 comments from ten different agencies and industry representatives on the Federal Risk and Authorization Management (“FedRAMP”) draft high baseline. The FedRAMP high baseline draft set standards to allow the use of third-party cloud service providers in storing sensitive data. Comments received on the document generally asked for more definition of parameter selection, additional guidance on controlling virtual boundaries and services, and the establishment of a responsible party for implementing controls under different service models. The baseline does not cover highly sensitive (level five and six) data. However, after FedRAMP high baseline standards are implemented, agencies will be looking to create FedRAMP high-plus standards in order to do so.
Comtech Telecommunications Corp. (Down 19.1%) – Shares were down this week after the Company reported its second quarter of fiscal year 2015 results. All three of the Company’s operating segments experienced a decrease in net sales over the same period in 2014
Embraer SA (Down 7.1%) – Shares were down for a second week in a row after the Company announced it had declined in profitability and delivered fewer aircraft compared to the year prior.
Field Aviation Company Inc. acquired Rockwell Collins’ subsidiary, ARINC Aerospace Systems Engineering and Support, a provider of communications, engineering, and systems integration services to aviation, rail, and critical infrastructure sectors. Terms of the deal were not disclosed.
Selmet, Inc. acquired Blue Point Capital Partners’ portfolio company, Western Metrology, Inc., a manufacturer of precision components for the aerospace industry. Terms of the deal were not disclosed.
Alcoa, Inc. to acquire RTI International Metals, a producer and supplier of fabricated titanium mill products and specialty metal components. The deal is worth an estimated $1.5 billion.
MAXIMUS agreed to acquire Acentia, a provider of cloud based technology and management solutions to Federal Government and commercial markets. Acentia is a portfolio company of Snow Phipps Group. The deal is valued at an estimated $300 million and Acentia generated approximately $210 million in pro forma revenue in 2014.