Industry Week in Review – November 27, 2015
Aerospace & Defense Update
President Obama signed the annual defense authorization bill on Wednesday, marking it the 54th consecutive year the bill has passed. One of the major highlights of the bill is an overhaul of the military retirement system, which is expected to provide a form of retirement compensation to roughly four out of five service members, a significant improvement from the current system that benefits only one out of five members. The current 20 year “all-or-nothing” retirement plan will no longer be in place for newly enlisted troops starting in 2018. The new system will be a hybrid between an investment and pension system that presents an opportunity for personal contributions to be matched by the Government. However, the signing of the authorization bill is only half of the annual budget process, as the defense appropriations bill, which will start new defense programs and acquisitions plans, has yet to be signed. Congressional leaders are hopeful the defense appropriations bill will be signed by December 11th, the deadline set forth by the current continuing resolution.
As demand for air travel in China continues to grow, three of the region’s top aircraft leasing companies are expected to file for an Initial Public Offering (“IPO”) in the medium term. Two of the companies, BOC Aviation and China Development Bank’s leasing business (“CDB Leasing”), are expecting to raise between $1.0 – $1.5 billion in IPO’s next year. BOC Aviation and CDB Leasing fleet size of 253 and 180 aircraft respectively, are significantly smaller than AerCap Holdings fleet size of 1,300 aircraft, the world’s largest aircraft leasing company. However, BOC Aviation has already committed to purchase 203 more aircraft, while CDB Leasing plans to double its fleet size. With rising incomes for the middle class and strong growth in air travel, the top Chinese aircraft leasing companies are poised for strong growth prospects in the near future.
Government Technology Solutions Update
The Air Force has added 10 companies to its Cyber Security and Information Technical Area Tasks project. The 10 companies were added under the large business portion of the contract, and joined the six small-business companies already on the program. The 5-year contract is a multiple-award indefinite-delivery / indefinite-quantity (“IDIQ”) and is worth $5 billion. The program will focus on research and development (“R&D”), and test and evaluation services for data management and sharing, software analysis, and simulations. Companies will be awarded work through task orders under the program, which will determine the location and specific type of work.
In order to address what some consider a capabilities gap within the cyber domain, the Army recently began its Cyber Innovation Challenge to focus on developing, acquiring, and deploying cyber situational awareness capabilities. The program will utilize the Department of Defense’s (“DoD”) “Other Transaction Authority,” which allows the DoD to purchase prototype products through fast-moving, streamlined transactions outside of traditional contract procedures. The challenge will bring in a host of industry, government, and academic experts, including companies that do not traditionally work with the DoD, to develop important cyber products. The DoD will purchase completed products in small amounts to test in the field before entering into larger procurements, allowing for a faster and more responsive acquisition process better able to meet the cyber needs of soldiers in the field.
Big Movers
BBA Aviation (Down 10.4%) – Shares were down this week in response to concerns for future air travel, as tensions between Russia and Turkey rise due to the downed Russian fighter jet.
Wesco Aircraft (Up 4.8) – Shares were up this week after the Company announced it has extended an agreement with Triumph Group to provide integrated supply chain services for aerospace C-class hardware.
Transactions
Chemring Group plc to acquire Wallop Defence Systems Ltd., Certain Assets, a provider of infrared decoy flare countermeasure products used by military forces in the protection of aircraft from air-to-air and ground-to-air missiles. Chemring Group acquired these assets from Esterline Corporation as part of Esterline’s long-announced portfolio review. The terms of the deal were not disclosed.
VIC International Holding Corporation to acquire AIM Aviation Ltd., a designer, manufacturer, and marketer of cabin interiors for airlines, airframe OEMs, and regional aircraft manufacturers. The terms of the deal were not disclosed.
Comtech Telecommunications Corp. to acquire TeleCommunications Corp., a provider of wireless communication technology across the world, serving both commercial and government customers. The deal is worth an estimated $431 million.
