Aerospace & Defense Update
After President Elect Donald Trump’s unexpected win on Tuesday, U.S. defense firms such as Raytheon, Northrop Grumman, and General Dynamics saw significant stock gains on Wednesday. The gains are likely attributed to expectations that President Elect Trump will seek to increase U.S. defense spending over current levels. Byron Callan of Capital Alpha Partners, a strategic policy research firm, believes spending will be “at least $18 billion more for GFY17 than the [Obama] Administration’s request.” Additionally, foreign defense stocks like BAE, Thales, Tokyo Keiki, and Korea Aerospace Industries all had significant gains Wednesday. These foreign gains can be sourced to Mr. Trump’s past criticisms of the U.S. providing excessive foreign military aid and industry expectation that foreign governments will have to increase military spending with its own respective domestic contractors to compensate.
On Monday, November 7, Arconic announced a $1 billion multi-year contract to provide proprietary aluminum alloys to Airbus jetliners. The contract begins in January 2017, and Arconic will be the sole supplier of some wing, fuselage and structural components for Airbus. After formally separating from Alcoa on November 1, 2016, this win marks the first major contract for Arconic and the first use of Arconic’s industry leading metal stretching technology, which allows Arconic to produce some of the strongest and largest aircraft wing ribs. With roughly $1.6 trillion in order backlogs between Airbus and Boeing, Arconic is hopeful for more aerospace contracts in the future.
Government Technology Solutions Update
According to industry experts, now that the 2016 Presidential and Congressional elections have taken place, we have some enhanced visibility into likely near-term policy changes that could impact government IT priorities and initiatives. Republican Will Hurd of Texas and Senator Ron Johnson were both re-elected on Tuesday night. Hurd, who introduced the Modernizing Outdated and Vulnerable Equipment and Information Technology (“MOVE-IT”) Act and its successor, the Modernizing Government Technology Act (“MGT”), and Johnson are expected to provide crucial support to IT modernization initiatives moving forward. There is less certainty surrounding President-elect Donald Trump. Trump did not make IT initiatives a key part of his campaign and there is disagreement regarding the level of importance the Trump administration will put into upgrading or otherwise overhauling IT systems across the Federal government. However, we will have more insight into his likely pursuits after his first 100 days in office once he has made key cabinet selections. Industry experts are also carefully watching to see if the Trump administration will increase outsourcing of certain government functions under Circular A-76, the use of which had been mostly prohibited in President Obama’s administration. Many believe that with the new Republican-majority government in place, there could be an increased desire to seek private-sector solutions to government issues.
CSRA held its Emerging Technology Day last week, during which the Company heard from, and held meetings with, eight different technology companies in order to discuss potential partnership efforts. The companies showcased a variety of capabilities, from cloud infrastructure and search engine technology, to machine learning and cybersecurity. CSRA used the time to better understand the potential uses of these capabilities and how they could potentially use their own experience and resources to leverage the skills and technology of smaller, commercial companies across the Federal marketplace. According to CSRA’s Chief Technology Officer (“CTO”), Yogesh Khanna, innovation is becoming an increasingly crucial component of government contracting. CSRA hopes that, by meeting with and speaking to companies closer to the forefront of innovation, it can better understand how to create unique and innovative solutions for the Federal marketplace.
Astronics (down 4.3%) – Shares were down this week after Astronics reported 3Q16 revenue of $155 million, down from 3Q15 revenue of $200 million.
General Dynamics (up 12.5%) – Shares were up this week after industry expectations suggest President Elect Trump will increase U.S. defense spending over current levels.
ESCO Technologies, Inc. has acquired Mayday Manufacturing Co., Inc. and its affiliate, Hi-Tech Metal Finishing, Inc. Mayday Manufacturing provides mission-critical bushings, pins, sleeves, and precise-tolerance machined components while Hi-Tech provides full service metal processing to aerospace OEM’s and Tier 1 suppliers. Terms of the deal were not disclosed.
Med-Eng Holdings ULC has agreed to acquire Pacific Safety Products, a provider of body armor to protect against ballistic, stab and fragmentation threats, ballistic blankets to reduce blast effects, tactical clothing, and protective products against chemical and biological hazards. The deal is worth an estimated $15.4 million.
National Response Corp. has acquired Boom Technology, Inc., a provider of environmental and emergency response solutions for marine and land oil spills. Terms of the deal were not disclosed.
Ontic Engineering and Manufacturing, Inc. has agreed to acquire a portfolio of legacy avionics products from GE Aviation, which provides legacy avionics parts servicing the military and commercial aviation markets, including electro mechanical, barometric, gyroscopes and electronics products. The deal is worth an estimated $61.5 million.