Industry Week in Review – March 16, 2012
Arab Emirates President Tim Clark announced this week that after finding Type 2 cracks in many of its Airbus A380’s wing rib feet, the airline is seeking compensation from Airbus. Mr. Clark stated that the Company is losing roughly $90 million in revenue due to the expected down time required to repair much of its 21 aircraft A380 fleet. The company estimated the cost to repair all of its A380s to be around €105 million ($137 million) in total.
These costs do not include the efforts for permanent redesign of the affected wing parts or take into account any potential compensation claims from customers. Mr. Clark has publicly announced “we are not happy… we are losing customers.” Of the other airlines that have encountered this problem, Arab Emirates is the largest operator of A380s and is currently the only airline to publicly demand compensation from Airbus.
Also this week, the U.S. Navy announced that it expects cost growth on its new nuclear aircraft carrier, Gerald R. Ford, to continue. In 2008 Congress capped the acquisition cost of the ship at $11.76 billion, however, the government accountability office has warned that if additional costs remain uncontrolled, they could reach as much as $1 billion above Congress’ current cap. As the lead ship of its class, the Gerald R. Ford will have a new hull, aircraft launch system, recovery system, electrical system, and propulsion system.
Originally the Navy had planned to build three ships, but in 2002 former defense secretary Donald Rumsfeld made the decision that only one would be built. Much of the additional cost likely stems from combining all new technology development costs into one ship, as well as only 30% of the ship design completed when the contract was originally signed in 2008. The Navy is now forced to ask Congress for permission to pay the higher-than-planned-for bills.
Big Movers
Federal Signal Corp. (Up 33.0%) – Shares rose this week after the Company reported a narrower net loss of $16.6 million in its fourth quarter, compared to a year earlier loss of $169.2 million. Additionally, revenue rose 20% to $223.3 million from $186.7 million a year earlier.
GeoEye, Inc. (Up 20.4%) – Despite fourth quarter net income sliding to $14.1 million from $15.2 million the same quarter last year, shares rose this week after the Company reported this quarter’s revenue up 17% to $96.8 million from $82.5 million. These results beat analysts’ estimates of $89.9 million. Going forward, the Company estimates earnings from $1.95 to $2.35 per share on revenue of $355 million to $375 million. These estimates beat analysts’ revenue earnings per share target of $2.25 on revenue of $364.0 million.
Relevant Transactions
Levine Leichtman Capital (“LLCP”) acquires Tronair, Inc., a manufacturer of aircraft ground support equipment, special items for building aircraft, replacement parts, and technical support services, for an undisclosed amount. The acquisition is expected to further strengthen Tronair’s market position and fuel its next stage of growth through LLCP’s long history of offering a value-added partner to its portfolio companies and ability to leverage its strategic, financial, and M&A expertise.
Flextronics International Ltd. to acquire Stellar Microelectronics, Inc., a provider of electronics manufacturing services including, product development, turnkey manufacturing, and service and repair for the medical, military, space, and wireless markets. This transaction will provide Stellar’s customers increased global scale and expanded supply chain leverage, along with the benefits of an increased, low cost global footprint. Terms of the deal were not disclosed.
