Industry Week in Review – March 30, 2012

A new Pentagon report, released on March 29th, projects a nearly $17 billion increase (vs. prior estimates) in the total cost of the F-35 Joint Strike Fighter program.  The report estimates the total program cost to $396 billion, representing 2,443 aircraft for the USAF, USMC, and U.S. Navy. 

However, production of the aircraft is still anticipated to be slowed per the 2013 budget; a total of 179 aircraft were removed from the procurement roadmap between 2013 and 2017, while $6.2 billion was added in near-term for procurement and development costs.  Full production ramp-up is projected to be reached by 2018, at which point the Navy and USMC anticipate to be receiving aircraft at a 50 unit-per year rate; the USAF anticipates being at a 60 jet-per year rate in 2018, growing to 80-per year by 2021.

In other news this week, Army General Keith Alexander, National Security Agency (“NSA”) and U.S. Cyber Command (“CYBERCOM”) chief, briefed the House Armed Services emerging threats and capabilities subcommittee on a revised cybersecurity strategy for the future.  Remarking that “our capabilities represent key components of deterrence,” Alexander plans to distribute offensive weapons typically wielded by centralized agencies to the individual combatant commands, allowing for rapid action and the coupling of traditional kinetic attacks with cyber threats. 

Currently, only the U.S. Central Command and Pacific Commands have a fully operational cyber element.  “Our goal is to ensure that a commander with a mission to execute has a full suite of cyber-assisted options from which to choose, and that he can understand what effects they will produce for him,” Alexander wrote.

Big Movers

QinetiQ Group plc. (Up 11.1%) – Shares rose this week on a report that the company has signed an agreement with the trustees of its UK defined benefit pension scheme for the triennial actuarial funding valuation and other measures designed to reduce the funding deficit and improve the scheme’s security; the actuarial impact of the index change is estimated to be a deficit reduction of ~€109 million.  Moreover, company officials recently reaffirmed their view on meeting their projected financial performance for the fiscal year ended March 31, 2012.

Finmeccanica SpA (Up 15.6%) – Shares rose this week after the company reported FY2012 guidance in line with analysts’ estimates.  The Company expects to report revenues between €16.9 billion and €17.3 billion, as well as adjusted EBITA of approximately €1.1 billion.

Tyco International Ltd. (Up 6.3%) – Shares rose this week after the company announced a definitive agreement to combine its Flow Control business with Pentair, a diversified industrial manufacturing company with a significant Water & Fluid solutions business unit, in a tax-free, all-stock merger.  The transaction values Tyco’s Flow unit at approximately $4.9 billion; Tyco shareholders will own approximately 52.5% of the combined entity.

Relevant Transactions

Air Industries Group, Inc. acquires Nassau Tool Works Inc., a manufacturer of aerospace components, including sub-assemblies and complete landing gear systems, for private and public entities, including the USAF and U.S. Navy.  Air Industries, a manufacturer of precision components, will leverage the acquisition to augment its landing gear manufacturing operations, growing this practice to over 40% of the broader business.  The combined entity is expected to have earned 2011 revenues and EBITDA of over $68 million and approximately $10 million, respectively.  Terms of the deal were undisclosed.

Aveshka, Inc. acquires Civitas Group’s Government Services Practice, a provider of homeland security and private sector preparedness solutions for the DHS, DoD, and IC.  The acquisition adds policy consulting and strategic advisement credentials to Aveshka’s suite of analytic, cybersecurity, and IT capabilities.  The combined business will be able to provide holistic solutions for national security requirements – from policy to strategy to implementation.  Terms of the deal were undisclosed.

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