Aerospace & Defense Update
Airbus Group is aiming to become a key player and capture significant market share in the rapidly growing global drone industry. According to the Teal Group, the drone market was roughly $4 billion last year, and is expected to increase to roughly $14 billion a decade from now. While the military drone market is led by Northrop Grumman, Israel Aerospace Industries, and General Atomics, market share in the commercial drone market is scattered across many players. Airbus has produced several drone demonstrations in the past, but has never highlighted these efforts because they did not have the capacity to perform large-scale projects. The company is still debating internally how much it will directly invest in this initiative and whether it will focus these efforts on either commercial or military applications; however, a new strategy is expected to be developed by year end.
Defense Undersecretary Frank Kendall has stopped pursuing legislation to provide his office more oversight on defense mergers. He believes his office now has sufficient control to object mergers following the Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) joint statement in April, which reaffirmed the importance of preserving competition in the defense industry. Since Lockheed Martin’s $9 billion takeover of Sikorsky last year, Kendall has publicly voiced his concerns around consolidation decreasing the competitive dynamics in the industry. Kendall’s aim has been to prevent the industry from being subjected to two or three large suppliers. However, the joint statement by the FTC and DOJ shifted Kendall’s stance on pursuing legislative action, as he now has sufficient power to object a potential merger.
Government Technology Solutions Update
Recent reports out of the Defense Health Agency (“DHA”) show a rate of information technology (“IT”) related spending lower than officials previously indicated. However, the DHA’s IT budget is still expected to top $3.2 billion in GFY2016E, and is projected to reach $3.4 billion in GFY2017P. Notably, the DHA’s procurement budget, the portion of the IT budget going to new systems, programs, or equipment, is set to reach $365 million in GFY2016E and $413 million in GFY2017P. The majority of this spending, $330 million in GFY2016E and $361 million in GFY2017P, is expected to be spent on replacing old medical equipment with new equipment of the same type. This new equipment will allow the DHA to adopt modern systems and practices in IT, improving its overall operations, functionality, and service delivery.
As further evidence of a broader move towards cloud based systems in the Federal government, the Air Force is using the Defense Information Systems Agency’s (“DISA”) cloud-based integration solution as the basis for its new IT procurement system. DISA’s system, Integrated Defense Enterprise Acquisition System (“IDEAS”), migrated 12 legacy systems into a single, web-based platform. The Air Force plans to build on this platform to create its CON-IT solution, a pair of dual “Virtual Operating Environments” that will offer the integration and efficiency benefits that accompany cloud-based platforms. The Air Force will build its systems within DISA’s cloud, with officials hoping that the cross-agency cooperation will be a launching pad to future innovation.
TransDigm (Up 11.1%) – Shares were up this week after the company beat analysts’ estimates for both earnings and revenue during the quarter
Vectrus (Up 11.8%) – Shares were up this week after the company reported strong year-over-year revenue and increased full year guidance during its earnings report
ALATEC, Inc. acquired USI, a provider of IT solutions, systems and software engineering, and business solutions for educational and government clients. Terms of the deal were not disclosed.
SolAero Technologies Corporation acquired Vanguard Space Technologies, Inc., a provider of engineering, manufacturing, assembly, and test services for aerospace structures. Terms of the deal were not disclosed.