Industry Week in Review – May 18, 2018
Aerospace & Defense Update
President Trump’s decision to withdraw from the Iranian nuclear deal announced on May 8th has significant implications for the commercial aircraft landscape and sales volume. The U.S. Treasury Department is revoking all formal licenses that Airbus, Boeing, and other original equipment manufacturers (“OEMs”) needed to sell commercial aircraft to Iran. After the original Iranian nuclear accord was reached in 2015, OEMs eagerly lined up sales to Iranian airlines for hundreds of large civil aircraft in deals that totaled tens of billions of dollars. While notable for the potential long-term ramifications, the loss of Iranian orders is not expected to have a material, detrimental impact on Boeing and Airbus’s backlog, representing under 2% of the companies’ combined order backlogs.
Remington Outdoor, a U.S. based weapons manufacturer, announced on Thursday that it had emerged from Chapter 11 bankruptcy. The company now has less debt and more stable financing, which will help it maintain course under a market that has slowed for firearms sales under the current administration, driven in part by major headline risk. Under the Chapter 11 Reorganization Plan, J.P. Morgan Chase and Franklin Advisors will forgive more than $775 million of debt in exchange for equity ownership stakes in the company. Seven banks, including Bank of America, have also provided Remington with a $193 million revolving credit facility, which will refinance its prior asset-based loan facility along with a new $55 million last-in, first-out term loan and a new $100 million term loan.
Government Technology Solutions
President Donald Trump signed an executive order on Tuesday that will require agency Chief Information Officers (“CIOs”) to report directly to their agency head and will also make them voting members of the bureau-level IT governance board. The executive order is designed to empower CIOs by both increasing their enterprise awareness and giving them increased hiring powers. Senior administration officials said they were compelled to make this move after meeting last June with private sector tech CEOs, who described the empowerment of the CIO as a major difference between the private and public sectors. Giving CIOs more influence has long been a popular idea, and the 2014 Federal Information Technology Reform Act (“FITARA”) was designed to give CIOs responsibility for agency spending. However, only half of the agencies subject to FITARA have managed to make this happen, often drawing lawmakers’ frustrations. Administration officials believe the executive order will ultimately prove more effective and allow agencies to build the capacity to conduct change on an ongoing basis.
The House of Representatives introduced a measure this week that would direct the Department of Homeland Security (“DHS”) to give lawmakers more information on potential cybersecurity threats posed by Chinese telecommunications firm ZTE. The resolution would ask DHS to provide the House Homeland Security Committee with any documentation that the agency has on cyber risks introduced by the use of ZTE products on federal, state, and local government networks. U.S. intelligence officials have warned of ZTE’s alleged links to the Chinese government, and the Pentagon earlier this month told vendors on military bases to stop selling devices from ZTE. The House measure comes as President Trump attempts to reach a U.S.-China trade deal with Chinese President Xi Jinping, potentially complicating the House’s move. Still, the resolution has the support of many in the intelligence community, including FBI director Christopher Wray, who affirmed his belief on Tuesday that state-linked firms, like ZTE, pose a cyber-espionage threat.
Big Movers
Aerojet Rocketdyne (up 5.0%) – Share prices were up this week after United Launch Alliance announced it will use an Aerojet Rocketdyne engine for the upper stage of its new Vulcan rocket.
AeroVironment (down 6.3%) – Share prices were down this week after the company was accused of trying to conceal that employees transported a drone rigged with explosives on a commercial flight and firing the manager who told the government.
Transactions
Aerostructures Long Island, Inc. has acquired Triumph Structures – Long Island, LLC, a subsidiary of the Triumph Group, Inc., a provider of aircraft structural components and dynamic parts and assemblies for commercial and military aerospace programs. Terms of the deal were not disclosed.
Spell Capital Partners, LLC has acquired 3P Processing, Inc., a provider of metal finishing, testing, and inspection process services to the aerospace & defense sector, specializing in complex geometric and high-precision parts. Terms of the deal were not disclosed.
Trive Capital’s portfolio company, Valence Surface Technologies, LLC, has acquired Triumph Structures – Los Angeles, Inc. and Triumph Processing, Inc., providers of manufacturing and assembly of large structural components and non-destructive testing, chemical processing, and paint services to the global aerospace industry, respectively. Terms of the deal were not disclosed.
