Industry Week in Review – May 19, 2017
Aerospace & Defense Update
Boeing faced years of delays before successfully introducing its 787-series aircraft, but made an on-time delivery of its first 737 MAX aircraft to Lion Mentari Airlines this week. Boeing encountered some problems with 737 MAX engines last week; however, they moved forward with the delivery schedule as not all aircraft were impacted by the issue. Boeing currently has over 3,700 orders for its MAX variant, which features new LEAP engines built by CFM International (a joint venture between GE Aviation and Safran Aircraft Engines) that allow for a 14% increase in fuel efficiency over its predecessor. The 737 MAX also has increased range of ~19%, to over 3,500 nautical miles, which will help satisfy the bourgeoning small capacity “point to point” airline market.
The U.S. Air Force is in the middle of a shift in perceiving space as a “benign environment” to a “war-fighting domain.” To address this issue, House Representative Mike Rogers from Alaska called for the creation of a Space Corps last month, which would focus on training, organizing, and equipping in space. However, U.S. Air Force Chief of Staff General David Goldfein disagreed during a recent panel and instead believes that the Air Force should merge space missions with current military agencies. Goldfein argues that the creation of a Space Corps would inhibit introduction times for technological advancement due to the natural preliminary inefficiencies embedded in new organizations.
Government Technology Solutions Update
On Wednesday, the most recent iteration of the Modernizing Government Technology Act (“MGT”) was passed by the House of Representatives. This come roughly one week after the Congressional Budget Office (“CBO”) assigned a $500 million price tag to the bill, a figure that is substantially lower than the $9 billion cost associated with the previous version of MGT passed by the House in late 2016. The original version of the bill stalled in the Senate during the lame duck session of Congress, due in part to the large cost associated with its implementation. The newest draft of the bill would establish a $500 million centralized Federal fund which would be used to support IT modernization initiatives across the government, and would also set up various working capital funds across 24 Federal agencies. By setting up these funds, the government will be able to be more agile, flexible, and responsive in terms of its ability to upgrade systems in a rapidly evolving technology environment. Due in part to its lower CBO score, the new MGT had widespread bipartisan support. While it is unknown how the bill will fare in the Senate, many insiders are eager to have access to better tools with which to ensure that the Federal IT infrastructure is flexible, and able to contend with a rapidly evolving technological landscape.
The U.S. Army recently unveiled awardees on its $34.5 billion Responsive Strategic Sourcing for Services (“RS3”) contract. Initially, the Army announced that a total of 55 large and small business contractors had won positions on RS3. The Army’s goal was to award a total of 15 small businesses and 25 large businesses awards. While the small business criterion was met, with a total of 29 small business awards, only 16 large business awards were originally made. As a result, the Army will be moving into Phase 2 of its awards process. In this phase, the Army will accept revisions to original proposals made by unsuccessful bidders, focusing primarily on experience and expertise, past performance, and cost. RS3 was designed as a 10-year professional services contract aimed at procuring command and control, intelligence, and surveillance solutions. It is currently unknown how many additional awards will be made following this process, but Phase 2 offers a significant opportunity for large businesses who were not originally given awards to participate in this contract.
Big Movers
AvonRubber (up 4.9%) – Share prices were up this week after the company beat earnings estimates.
Triumph Group (up 15.9%) – Share prices were up this week after an equity report raised the price target of shares; the report argued share prices have bottomed after news of a possible bankruptcy for Triumph’s aero structures division.
Transactions
Apax Partners has agreed to acquire The Keystone Peer Review Organization, a provider of customizable healthcare management solutions for Federal and commercial customers. Terms of the deal were not disclosed.
CTS Corp has acquired Noliac A / S, a provider of tape cast and bulk piezoelectric components, sensors, and transducers. Terms of the deal were not disclosed.
Boyd Corp. has acquired Aavid Thermalloy, LLC, a provider of a broad range of technologically advanced thermal management solutions for aerospace and defense, telecommunication, LED lighting, server, data center, consumer electronics, transportation, and industrial applications to customers all over the world. Terms of the deal were not disclosed.
