Industry Week in Review – March 6, 2015

Aerospace & Defense Update

Boeing Chief Financial Officer, Greg Smith offered a strong rebuttal to investor concern over aircraft demand this past week at the J.P. Morgan Aviation, Transportation, & Industrials Conference.  He refuted the concern that lower oil prices would reduce demand for new, more fuel-efficient aircraft and asserted that, “there is really no correlation between oil and demand for airplanes.”  To highlight this statement, Smith noted that in 2004 when the 787 program was launched, oil prices were $40 per barrel, $10 per barrel lower than they are today.  Investment in an aircraft is long-term and must consider overall operating expenses instead of simply near-term oil prices.

The world’s largest exposition of rotorcraft, the Heli-Expo 2015 conference, took place this week in Orlando, Florida.  With attendance at an all-time high, Heli-Expo attracted 700 exhibiting companies from across the world and thousands of attendees.  Among the highlights from the conference were Airbus’s unveiling of its long-awaited H160 medium twin aircraft, designed to take on AgustaWestland’s AW139 in a critical segment of the market.  Sikorsky also grabbed some headlines, with four major contracts, including a $1.3 billion long-term Blackhawk deal with Turkey.

Government Technology Solutions Update

The Office of Management and Budget (“OMB”) recently released its annual Federal Information Security Management Act (“FISMA”) report to Congress.  The report showed 70,000 cybersecurity incidents in GFY2014, a 15% increase over GFY2013.  However, the OMB noted increased visibility by agencies into their cyber networks may account for the increase in reported incidents and does not necessarily mean agencies are at more risk than in prior years.  Additionally, the largest threat in GFY2014 was not cyber related.  Instead, a fourth of security threats reported involved the loss of information from improper handling of printed materials.

The General Services Administration (“GSA”) published a draft Request for Proposal (“RFP”) for its $50 billion, 15-year communications Enterprise Infrastructure Solutions (“EIS”) contract in the last week.  The GSA aims for this contract to be utilized on at least 30% of the addressable Federal communications market while the existing GSA Networx communications contract serves about 25%, or $1.5 billion, of the market annually.  The new EIS contract is expected to capture additional Federal business from markets such as the Intelligence Community (“IC”) and Defense Information Services Agency (“DISA”) that do not currently use GSA Networx.  The final RFP is expected to be released in July 2015 with awards at the end of GFY2016.

Big Movers

Ultra Electronics Holdings plc (Down 6.2%) – Shares were down this week after the Company reported its annual profit before tax fell over 50% from 2013 due to the cancellation of an IT service contract for with Oman Airport, currency movements, and lower defense spending.

Esterline Technologies Corporation (Down 9.4%) – Shares were down this week after the Company announced first fiscal quarter 2015 revenue of $446.3 million, down from $485.9 million during the same quarter last year.


Blue Wolf Capital Partners, LLC acquired North American Rescue, LLC a provider of mission-critical, tactical medical / rescue solutions.  Terms of the deal were not disclosed.

Sierra Nevada Corporation acquired 328 Support Services GmbH a provider of assembly line, parts production, and maintenance facilities for jet and turboprop aircrafts.  Terms of the deal were not disclosed.

Lookingglass Cyber Solutions acquired CloudShield Technologies Inc., a provider of deep packet processing to see and manipulate network traffic and fight cyber assaults.  Terms of the deal were not disclosed.

SAIC agreed to acquire Scitor Corporation, a provider of systems engineering, management consulting, and information services to Intelligence Community customers in the U.S.  The deal is valued at an estimated $790 million, implying multiples of 12.7x adjusted LTM EBITDA or 10.6x adjusted net LTM EBITDA (excludes $132 million in tax benefits).

Arrow Electronics agreed to acquire immixGroup Inc., a value-added distributor of IT solutions to the Federal market.  Terms of the deal were not disclosed.

Click here to review comparable company analysis.