Aerospace & Defense Update
At the Dubai Air Show this week, Airbus secured the largest commercial plane transaction in its history, a nearly $50 billion order for single-aisle aircraft, which overshadowed Boeing’s own large-scale $20 billion deal for 175 737 Max planes, the A320’s primary competitor. Airbus’ mega-deal will provide Indigo Partners with 273 A320neo narrow-body aircraft and 157 of its larger variant, the A321neo, both of which will be distributed amongst four low-cost carriers in Indigo’s investment portfolio, including Frontier Airlines, Volaris, Wizz Air Holdings, and JetSmart. The deal with Indigo is expected to double Airbus’ previous order book for the year and increases the company’s backlog to more than 7,000 jets, reversing previous expectations that orders in 2017 will trail deliveries.
Last Sunday, Orbital ATK successfully launched a civilian cargo capsule into orbit, propelling a Cygnus spacecraft to supply the International Space Station with food, experiments, and supplies. This is the second successful launch for the redesigned Antares rocket and increases Orbital ATK’s chances of being selected to develop a more powerful booster for Department of Defense (“DoD”) missions. In 2018, the Air Force is anticipated to pick three contractors to provide prototype rockets designed to fulfill the military’s requirements for the next three decades. Orbital ATK will be competing with SpaceX, Blue Origin, and United Launch Alliance (“ULA”), a joint venture between Boeing and Lockheed Martin, for the opportunity to transport the Pentagon’s future national security satellites into high-altitude orbits. Currently, ULA is the primary heavy-lift launch provider for the U.S. military, however a strong-performing Antares rocket could help secure future DoD business for Orbital ATK and Northrop Grumman, which recently agreed to acquire the company. While commercial use of the Antares rocket has thus far been prohibited by expense and launch frequency, Orbital ATK emphasized the next-generation rocket will be less expensive and more flexible, positioning it to compete with SpaceX’s Falcon 9 rocket.
Government Technology Solutions
The House Oversight and Government Reform Committee released its fifth Federal IT Acquisition Reform Act (“FITARA”) scorecard this week. The scorecard shows moderate adherence to the 2014 law and some associated data center optimization and governmentwide software license usage initiatives, however, agencies across the board are receiving lower scores than what the government deems acceptable. While three out of twenty-four agencies improved compliance with FITARA, six agencies received lower scores. Specifically, seventeen agencies received an “F” for compliance with the MEGABYTE Act for software licensing. Overall, most agencies, including the Departments of Homeland Security, Housing and Urban Development, Justice, and the Environmental Protection Agency received “C” grades. In response to the subpar results, the House Subcommittee on Government Operations and Subcommittee on IT called a joint hearing this week to discuss the lack of progress on the scorecards and ways to improve agency compliance.
On Thursday, November 16th the Senate passed the 2018 National Defense Authorization Act (“NDAA”), which authorizes the level of defense spending and sets policies controlling how the money is spent. In an effort to reduce costs associated with new contract protests, the NDAA implemented a provision whereby protesters are required to reimburse the Department of Defense (“DoD”) for all government costs associated with the protest if the decision is not subsequently overturned. To protect small businesses from high reimbursement costs, only companies with more than $100 million in revenue would be subject to this provision. In order for the DoD to qualify for protest reimbursement, the Government Accountability Office (“GAO”) would also have to deny all elements of the protest, however, this ambiguous language around the requirement may lead to an increase in litigation as protestors challenge the basis for expense reimbursement. Although the new provision aims to minimize the number of protests, the GAO will have increased responsibility related to tracking expenses by individual protests and may face additional litigation costs following request for reimbursement.
Ultra Electronics (down 22.7%) – Share prices were down this week after the company issued a profit warning and announced its CEO was stepping down.
ViaSat (up 7.9%) – Share prices were up this week after the company announced it has extended its relationship with JetBlue as the airline’s direct in-flight internet service provider.
An affiliate of global private equity investment firm H.I.G. Capital, LLC has acquired Whitney, Bradley & Brown, Inc. (WBB), a portfolio company of Lake Capital. WBB is a management consulting firm focused on business transformation, organizational realignment, and process improvement. KippsDeSanto & Co. served as the exclusive advisor to WBB on this transaction. Terms of the deal were not disclosed.
Arlington Capital Partners has acquired Cadence Aerospace, a provider of highly complex aerospace components and assemblies. Terms of the deal were not disclosed.
General Atomics has acquired Surrey Satellite Technology, a provider of small satellite technologies, systems, and services. Terms of the deal were not disclosed.
Intelligent Waves, LLC has acquired virtual mobile security technology and associated intellectual property of privately held Hypori, Inc., a provider of certified mobile virtualization technology. Terms of the deal were not disclosed.
OMERS Private Equity division has agreed to acquire Ardian Holding’s portfolio company Trescal S.A., a provider of calibration services for defense, aerospace, telecommunications, transportation, and other sectors. The deal is worth an estimated $789 million.