Industry Week in Review – November 24, 2017

Aerospace & Defense Update

This past week, Boeing and Avolon finalized an order for 75 737 MAX airplanes, which includes 55 MAX 8s and 20 MAX 10s with an option for an additional 20 MAX 8s.  The MAX 10 was launched at the Paris Air Show this year and is expected to have the lowest seat-mile cost of any single-aisle aircraft.  The deal is valued at nearly $11 billion for the 75 aircraft as well as the 20 additional aircraft.  Per Avolon’s CEO, Domhnal Slattery, the deal will strengthen Avolon’s portfolio to meet growing customer demand within the narrow-body market segment.  Avolon, a Dublin-based aircraft lessor, already has a fleet of 915 aircraft and is expected to reach 990 aircraft with this new purchase.  Additionally, Boeing’s 737 MAX has exceeded 4,000 orders from 92 customers, making it the fastest selling aircraft in Boeing’s history.

Northrop Grumman is developing a next-generation flank array for the U.S. Navy through an internal development project named Advanced Flank Array.  The flank array is a sonar system mounted on both sides of a submarine’s hull and will be evaluated by the Naval Underwater Warfare Center.  Northrop has been the sole manufacturer of flank arrays for Virginia Class submarines and has over fifty years of experience developing underwater acoustic systems.  Production of the next-generation flank array is predominately focused on improving the affordability and reliability of flank array manufacturing while still maintaining the Navy’s strict performance requirements for array technology.  The project is designed to minimize lifecycle system performance risk and position Northrop to be a low-risk prime contractor in support of next-generation flank arrays.

Government Technology Solutions

The Government Services Administration (“GSA”) announced that 61 companies were awarded F&O positions on the 10-year, $50 billion Alliant 2 contract for IT and professional services.  Major customers include the Department of State, the Department of the Army, and the Department of Homeland Security.  As the successor to Alliant 1, which expires April 30, 2019, the Alliant 2 unrestricted contract contains a five-year base period and a five-year option.  The GSA said awards for the small business portion of the contract will be announced separately in the near future.  The agency is anticipating 80 awards on the small business portion with a ceiling value of $15 billion.  The announcement comes more than a year after the GSA released the Alliant 2 request for proposals (“RFPs”) in June 2016.  Of the 61 awardees, 25 did not hold positions on Alliant 1 or Alliant Small Business.  A total of 18 companies on Alliant 1 were not listed as winners of Alliant 2, although it is unclear whether those companies bid and lost or did not bid at all.

The military’s IT budget is poised to benefit from anticipated increases in defense spending in government fiscal year 2018 as the service branches push to incorporate more emerging technologies.  Over the past five years, civilian IT spending has far outpaced defense IT, which has averaged approximately 1% growth, annually, over that time.  The National Defense Authorization Act (“NDAA”), which the Senate passed on Monday, will allocate $33.2 billion to the Department of Defense (“DoD”) to unclassified IT funds.  If signed into law, the NDAA would increase the department-wide IT budget from $10 billion in government fiscal year 2017 to $11 billion in fiscal 2018.  The Navy-Marine Corps would also see their defense IT budget increase by approximately $1 billion, from $7 billion to $8 billion.  Spending will be focused on similar IT areas as government fiscal year 2017, including automation, cloud computing, cybersecurity, and the convergence of all three to build self-healing network capabilities that require less manpower to operate.

Big Movers

Embraer (up 3.2%) – Share prices were up this week after the company conducted flight trials of its KC-390 multi-mission military transport and tanker jet in the U.S.

L3 Technologies (up 3.1%) – Share prices were up this week after the company announced the award of multiple contracts relating to the development of Free Space Optics capabilities for the DoD and space customers.


Broadcom Limited has completed its acquisition of Brocade Communications Systems, Inc., a provider of networking hardware, software, and services, including Storage Area Networking (“SAN”) solutions and Internet Protocol (“IP”) Networking solutions.  The close of the transaction concurred with the close of Hitachi Vantara Federal Corp.’s acquisition of the cleared assets and support services of Brocade Communications Systems, Inc., which was announced on June 27, 2017.  The deal is worth an estimated $5.5 billion.

Deltek, Inc. has closed its acquisition of Onvia, Inc., a provider of market intelligence platforms that offer clients contracting leads in the federal, state, and local government arenas.  The deal is worth an estimated $70 million.

Hitachi Vantara Federal Corp., a subsidiary of Hitachi, Ltd., has completed its acquisition of the cleared assets and support services of Brocade Communications Systems, Inc., a provider of networking hardware, software, and services, including Storage Area Networking (“SAN”) solutions and Internet Protocol (“IP”) Networking solutions.  Terms of the deal were not disclosed.

Novume Solutions Inc. has acquired NeoSystems Corp., a provider of strategic back office services for government contractors, small companies or nonprofit organizations, and medium-sized organizations.  The deal was worth an estimated $21 million.

Washington Equity Partners announced its majority recapitalization of Arc Drilling, a provider of electrical discharge machining for aerospace engines and industrial gas turbines.  Terms of the recapitalization were not disclosed.

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