Industry Week in Review – October 10, 2014

Aerospace & Defense Update

This past Tuesday, Boeing released its biennial World Air Cargo Forecast at the International Air Cargo Forum and Exhibition in Seoul, South Korea.  The forecast projects an annual growth rate of 4.7% over the next decade, with global airfreight traffic more than doubling by 2013.  According to Boeing, an improvement in global industrial production over the last 18 months, as well as anticipated long-term trade growth trends, are key drivers of the expected increase in global airfreight traffic.  Specifically, the Asia – North America and Europe – Asia markets are forecasted to lead air cargo traffic volume, while Asian markets are expected to demonstrate the highest growth rates over the next 20 years.  Deliveries of freighter aircraft are also expected to grow in response to the expected increase in air cargo.  In its forecast, Boeing projects deliveries of 840 new airplanes and 1,330 passenger-to-freighter conversions during the next decade.

Airbus Group is considering selling a 10 percent stake in Dassault Aviation as part of its plan to unwind its 46 percent holding in the company.  Additionally, Airbus would further reduce its ownership of Dassault through a shareholder buyback that was approved last month.  Ultimately if Airbus decides to pursue this route, the combined value of the deals could be worth close to $1.6 billion.

Government Technology Solutions Update

The Congressional Budget Office’s (“CBO”) latest estimates show that the Federal Government budget deficit has fallen to $486 billion, the lowest level in six years.  Boosted government revenues, as a result of the recovering economy, as well as the imposed cuts on Federal agency operating budgets have significantly improved the $1.4 trillion record deficit in 2009.  However, the CBO cautions that the deficit will balloon in future years as the Baby Boomer generation starts to claim Social Security and Medicare benefits if these programs are not changed.  In the next week, the Treasury Department and the White House Budget Office will issue an official report on the budget.  The findings are expected to mirror CBO’s estimates.

Deltek has released a report outlining the 20 largest contracts expected to be released in GFY2015.  The combined value of the listed vehicles is approximately $206 billion, up $45 million from GFY2014, with a mix of contracts split fairly evenly between defense and civilian agencies.  In past years, top contracts had largely been dominated by defense contracts; however, GFY2015 saw a shift towards IT procurement which represent 11 of the top 20 contracts.  The General Services Administration vehicle for IT services, Alliant II Unrestricted, holds the top spot on the list with an estimated ceiling value of $50 billion.

Big Movers

Oshkosh Corporation (Down 9.8%) – Shares were down this week after the Company announced plans to lay off more than 300 workers as a result of decreased military truck orders.

Relevant Transactions

Novetta Solutions, LLC acquired Digital Results Group, Inc, a leading provider of innovative web-enabled software and technology solutions that fuse, in real-time, sensor and intelligence data to support operations from the tactical edge to the global enterprise primarily for defense customers.  Terms of the deal were not disclosed.  KippsDeSanto & Co. served as financial advisor to Digital Results Group, Inc.

Channel Technologies Group, LLC acquired Materials Systems Inc., a manufacturer of piezoelectric ceramics, transducers, and complex sonar and navigation systems for defense and commercial customers. Terms of the deal were not disclosed.

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