Industry Week in Review – March 29, 2019

KippsDeSanto & Co. Industry Week in Review – March 29, 2019

Aerospace & Defense Update

U.S. air safety regulators announced that the initial findings of the “black box” recordings from the Ethiopian Airlines crash earlier this month suggest the automated system on the Boeing 737 Max Jet, known as MCAS, malfunctioned during the event.  Five months earlier, a Lion Air flight in Indonesia also crashed due to a MCAS system misfire.  While both investigations are ongoing, Boeing has already outlined plans to completely overhaul the MCAS systems to make it less aggressive and more user friendly, to include fail safes for smoother operations.  Despite the overhaul efforts, Boeing’s 737 MAX is expected to remain grounded for several months as regulators continue their investigations.

The U.S. Army announced its updated air and missile defense (“AMD”) strategy that prioritizes drone and hypersonic missile counter measures.  A key element of the AMD strategy is to link together various defense systems, which would create a centralized Integrated AMD Battle Command that will ensure all systems are operating in sync on the battlefield.  The Army outlined four major areas that are critical to implementing the strategy – developing the correct material solutions, creating a military AMD structure that is operational over various domains, providing trained and ready AMD forces, and building the scale to maintain and improve the AMD capabilities over time.  The AMD strategy is a piece of the Army’s overarching initiative to have a modernized military force capable of executing multi-domain operations by 2028.

Government Technology Solutions Update

Within President Trump’s GFY2020 budget proposal released earlier this month, which includes $750 billion for defense spending, cybersecurity remains a key priority for defense and civilian agencies alike.  The Administration’s intentions in the request include protecting Department of Defense (“DoD”) networks, supporting military objectives, and “defending the Nation.”  In a recent meeting with the House Armed Services Committee, Patrick Shanahan, Secretary for the DoD, stressed that “modernization is the most important thing we can do to maintain deterrence [and] create military capability, but that’s also what enables us economically.”  Cyber opportunities account for approximately $10 billion in the budget request and given Shanahan’s recognition of the far-ranging impact of cyber investment, it is likely that that figure will grow.

Big Mover(s)

Boeing (Up 5.3%) – Share prices show signs of recovery following the drastic plunge caused by Boeing’s 737 MAX 8 aircraft crash in Ethiopia earlier this month. Shares remain ~13% down from their 52-week high in March.

Transactions

By Light Professional IT Services, LLC, a portfolio company of Sagewind Capital, has acquired Phacil, Inc., a provider of software development, cybersecurity, systems engineering, and managed services to federal clients.  Terms of the deal were not disclosed.

MAG Aerospace Corporation has agreed to acquire Encore Aviation, a provider of home base and deployed engineering and maintenance services to a wide variety of fixed and rotary wing aviation organizations. Terms of the deal were not disclosed.

Orolia S.A. has acquired Skydel Solutions, Inc., a provider of global navigation satellite systems, including secure communications signals that provide reliable positioning, navigation and timing vulnerability testing for infrastructure applications. Terms of the deal were not disclosed.

Rheinmetall AG has agreed to acquire IBD Deisenroth Engineering, a provider of passive protection systems, with a focus on the use of next-generation materials in association with a modular and synergistic structural approach. Terms of the deal were not disclosed.

ST Engineering has agreed to acquire Newtec Group NV, a provider of satellite communications equipment and technologies for broadcast, government and defense, cellular backhaul, and consumer and enterprise VSAT markets and applications. The deal is worth an estimated $281 million.

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