Industry Week in Review – March 17, 2017
Aerospace & Defense Update
On Thursday, President Donald Trump announced a $1.1 trillion budget proposal for GFY2018 which includes $639 billion for the Department of Defense (“DoD”). The budget request consists of $574 billion for DoD base budget programs and $65 billion for Overseas Contingency Operations (“OCO”). Congress is unlikely to accept the proposal due to significant reductions proposed for the State Department, Environmental Protection Agency, Department of Housing and Urban Development, and National Institutes of Health. President Trump also proposed a $30 billion supplemental funding request for the remainder of GFY2017 allocating ~$25 billion to DoD base-budget programs and $5 billion to OCO. The supplemental proposal is not expected to pass as it requires Congress to increase current budget spending caps (requiring 60 votes in the Senate) and would cut non-defense spending by $18 billion.
President Trump nominated Patrick Shanahan, a senior Boeing executive, to serve as the Deputy Defense Secretary, the second highest position in the DoD. Shanahan has 30 years of experience within Boeing’s military, space, and commercial aviation businesses. The appointment signals an increasingly close relationship between the Trump Administration and Boeing, despite harsh criticism from Trump on the cost of Air Force One aircraft in December. If confirmed by the Senate, Shanahan will not be allowed to partake in any Boeing-related issues for two years, pursuant to government policies.
Government Technology Solutions Update
According to a recent report released by the Data Foundation and PricewaterhouseCoopers, switching over to a standard business reporting (“SBR”) format could save the U.S. government and the private sector up to a combined $10 billion per year. Currently, companies in the United States spend roughly $2 trillion annually to remain compliant with Federal regulations. Using SBR, which is a standardized open data approach, would allow for the increased implementation of software which could automate costly existing manual processes for both the regulator and regulated companies. According to the recent report, Australia’s government and private sector saved close to $1B by switching to SBR, while the Netherlands was able to significantly reduce the number of unique data elements necessary for regulatory filings. Hudson Hollister, the interim president of the Data Foundation, noted that the Federal regulatory landscape in the United States is overly complex and inefficient. He thinks that the first step in reducing such complexity, and therefore driving down costs for regulated companies and the regulators themselves, would be to create a standardized, shared dictionary of terms which would be used across all regulatory bodies. Doing so would require congressional action and it remains unknown when that could happen, but Mr. Hollister believes that support for such action within the Federal government is growing and that it would be mutually beneficial for both the public and private sectors.
Will Roper, director of the Pentagon’s Strategic Capabilities Office (“SCO”), stated that the Department of Defense (“DoD”) is attempting to pivot its focus to being an increasingly data-driven organization. In a statement made this week at the South by Southwest (“SXSW”) Conference, Mr. Roper said that the DoD needs to increase its focus on software, noting that the collection, analyzation, and protection of data is critical. Part of doing so would be to place an emphasis on commercial technology. While Mr. Roper acknowledged that proprietary software or systems created in-house can be incredibly effective, often they can be vulnerable to attack if they fall into enemy hands or are left behind on the battlefield. That is less of a problem for commercial technology, which is less customized specifically for the DoD. Mr. Roper also believes that following the private sector’s lead by pursuing research in artificial intelligence and machine learning would also be a necessary component in transforming the DoD into a more data-centric organization.
Big Movers
Zodiac Aerospace (down 17.6%) – Share prices were down this week after Safran signaled it could review the terms of its proposed acquisition of Zodiac after it issued a profit warning.
Unisys Corporation (up 4.6%) – Share prices were up this week after the Company launched a new service offering as a part of its analytics platform.
Transactions
American Securities, LLC has agreed to acquire Air Methods Corp., a provider of aeromedical and aerospace technology. The deal is worth an estimated $2.5 billion.
Enlightenment Capital has made an investment in 1901 Group, LLC, a FedRAMP certified provider of infrastructure, applications management and security services through its IT-as-a-service model to Federal customers. Terms of the deal were not disclosed.
Timothy Cooke, CEO of ASI Government, has acquired ASI Government, a provider of consulting and advisory services around acquisition policy and strategy, category management, cost-price analysis, capital planning, IT governance, change management, and process improvement. Terms of the deal were not disclosed.
