Aerospace & Defense Update
The U.S. House of Representatives approved a $582 billion Pentagon budget that shifts major funds to a list of major weapons programs including the F/A-18, F-35, and Army rotorcraft. The new bill plans to reallocate $18 billion in wartime overseas contingency operations (“OCO”) funding toward base budget requirements, and adds more troops, jet aircraft, shipbuilding, and rotorcraft. The White House has expressed its opposition to numerous provisions in the bill and the President said he will likely veto the legislation in its current form, as it would drive OCO funding to run out by next April, forcing the next president to seek supplemental funding from Congress.
Congressional restrictions on the use of Russian rocket engines may threaten the financial viability of U.S. civil space programs. Industry officials project these potential restrictions could increase NASA’s launch costs by hundreds of millions of dollars in future years. If the supply of Russian-built technology is cut off for Pentagon missions, the annual number of Atlas V launches would drop sharply, likely raising the price of remaining National Aeronautics and Space Administration (“NASA”) missions due to the massive overhead costs that would be spread across fewer launches. Currently, the anticipated increases in costs pose major challenges for top priority NASA programs, such as unmanned missions for deep-space exploration and cargo transportation to the international space station. Despite these concerns, senior NASA officials expressed support for Congressional efforts to phase out Russian engines and remain confident in finding a viable U.S. replacement.
Government Technology Solutions Update
The House Committee on Oversight and Government reform released its Federal Information Technology Acquisition Reform Act (“FITARA”) May scorecard for Federal agencies this week. The Committee scored 24 agencies on a set of metrics to determine an overall grade between “A” and “F.” As compared to the November scorecard, seven agencies improved, one (The General Services Administration’s score) declined, and 16 remained consistent. The Department of Commerce received the best overall score of a “B,” with high marks on risk assessment transparency and data center consolidation. 11 agencies received a “D” grade, which is the lowest possible score.
The U.S. Navy is beginning preparations to replace the IT systems and infrastructure that support shipyard and ship maintenance. The joint project between the Space and Naval Warfare Systems Command and the Naval Sea Systems Command will replace more than 100 systems and applications, some of which are more than 50 years old. Bruce Urbon, the program manager for the Navy Maritime Maintenance Enterprise Solution – Technical Refresh (“NMMES-TR”), stated “We have systems that are that old that we’re still using to maintain our fleet…It’s a growing concern within the Navy that these systems are going to fail, and that’s going to have an impact on fleet readiness and getting ships ready to deploy.” The Navy has already held one industry day, and is looking to hold more in preparation for the systems updates.
Booz Allen Hamilton (Up 6.7%) – Shares were up this week after the company reported a backlog that reached a record high for the end of its fiscal year and increased revenue and profit in its latest quarter
Babcock International (Up 4.1%) – Shares were up this week after the company was awarded a contract, estimated at $580 million, by the U.K’s Ministry of Defense to deliver the rotary wing element of the U.K military flight training system
Advanced Logistics for Aerospace (“ALA”) to acquire STAG Group, a provider of distribution and supply chain services for the aerospace industry. Terms of the deal were not disclosed.
AE Industrial Partners acquired AC&A, a provider of composites, metallic parts, and tooling. Terms of the deal were not disclosed.
Kalex Corp. acquired Herndon Aerospace & Defense Company, a distributer of commercial and defense supply chain management solutions. The deal is worth an estimated $21.0 million.
KEYW announced the sale of its Hexis Cyber Solutions HawkEye AP product line to Ignite Anlytics, and its Hexis Cyber Solutions HawkEye G product line to an undisclosed private-equity backed strategic player. HawkEye AP provides data analytics and HawkEye G provides endpoint detection and responses. Terms of the deals were not disclosed.
Magellan Health Inc. acquired Armed Services Corporation (“AFSC”), a provider of behavioral health and specialty services, such as business strategy, management consulting, and HR solutions, to various agencies of the Federal government. The deal is worth $127.5 million.
National Technical Systems acquired Chesapeake Testing Services, a provider of ballistic experimentation, non-destructive, sports, environmental simulation, and X-ray computed tomography scanning testing services. Terms of the deal were not disclosed.