Industry Week in Review – October 14, 2016

Aerospace & Defense Update

Boeing landed an agreement with Qatar Airways for up to 100 jets, comprised of orders for 10 777s, 30 787s, and a signed letter of intent for up to 60 737s, with a combined total list price of $18.6 billion.  This sale comes after Qatar Airways CEO, Akbar Al Baker, publicly criticized Airbus over its delays with the A320neo and A350 in June.  However, due to Boeing’s widebody sales slump this year, even with this new order, the company still needs to procure ~40 more 777 sales by year end in order to maintain its production target of building 7.0 777 aircraft per month in 2017, which is already down from the current production rate of 8.3 per month.  Additionally, with Qatar Airways’ intent to buy up to 60 737s, the sale marks an important shift from the Middle East carrier’s current strategy of only using Airbus A320s for its narrowbody fleet.

Lockheed Martin disclosed its partners in its bid to design the U. S. Airforce’s next Intercontinental Ballistic Missiles (“ICBMs”), which will be put into operation in the late 2020s.  Lockheed intends to partner with General Dynamics on the weapon system command and control, Draper Laboratories on guidance navigation and control systems, Moog on cross-vector control systems, and Bechtel for launch facilities.  Additionally, Lockheed selected Aerojet and Orbital ATK for missile propulsion in hopes that competition between the two firms will allow Lockheed to procure the technology and parts at a cheaper cost.  Lockheed is not alone in its bid for designing the new ICBM; in stark contrast, both Boeing and Northrop have confirmed they are vying for the contract but have not disclosed their partners.

Government Technology Solutions Update

Vectrus formally filed a bid protest this week roughly two weeks after the company lost its Kuwait Base Operations and Security Support Services (“KBOSSS 2.0”) contract to a KBR-Triple Canopy joint venture (“JV”).  KBOSSS 2.0 currently represents over a third of Vectrus’ 2016 revenue, having contributed roughly $218 million of Vectrus’ $618 million in year-to-date revenue.  Vectrus has held KBOSSS 2.0 for five years, during which time it provided logistics and engineering services at a variety of military bases and facilities in the Middle East.  This is the second major Army contract that Vectrus has lost in the second half of 2016 alone, coming after the company lost its recompete on the Army Prepositioned Stock-5 (“APS-5”) contract in early September.  Combined, the two contracts contributed more than $300 million to Vectrus’ top line in the first six months of 2016.  As a result, shares in Vectrus have fallen sharply, and are currently down over 50% since the end of August when the company was trading near its all-time high.  The Government Accountability Office (“GAO”) will make a decision on Vectrus’ APS-5 and KBOSSS 2.0 protests by the end of December and January, respectively.

According to a recent report, the Department of Homeland Security’s (“DHS”) contracting obligations will continue to expand in fiscal 2017 (“FY2017), with a particular emphasis on acquiring technology solutions such as IT and software upgrades.  The agency’s top spender, the Office of Procurement Management (“OPO”) has earmarked over $1.2 billion to be spent on a variety of cybersecurity programs, including the National Cybersecurity Protection System and National Cybersecurity and Communications Integration Center.  Other agencies within DHS will be focusing on upgrading legacy technology.  In the case of the U.S. Customs & Border Protection (“CBP”), funds will be flowing towards the procurement of updated biometrics systems and IT modernization initiatives, while the Transportation Security Administration (“TSA”) will spend roughly $200 million on upgrading baggage checking systems.  This will be the fifth straight year of growth in DHS’ contract obligations, with the agency seeing total growth of over 21% since FY2013.

Big Movers

Cubic (Down 11.3%) – Shares were down this week after Cubic lowered its profit guidance due to Department of Defense funding delays.

Magellan Aerospace (Up 4.4%) – Shares were up this week after Magellan secured multi-year 777X and 787 contracts.


Delair-Tech has acquired Gatewing UAS, a provider of turnkey unmanned aircraft systems (UAS) for terrain mapping and surveying. Terms of the deal were not disclosed.

DigiGlobe, Inc. has agreed to acquire The Radiant Group, a provider of geospatial information analysis services to the U.S. intelligence sector.  The deal is worth an estimated $140 million.

Nammo A/S has acquired Berger Bullets, LLC, a provider of premium rifle bullets for varmint hunting, target shooting, game hunting and tactical use.  Terms of the deal were not disclosed.

Preferred Systems Solutions, a CM Equity Portfolio Company, has acquired Synaptic Solutions, Inc., a provider of cloud architecture, engineering, and other advanced technology solutions to the Intelligence Community.  Terms of the deal were not disclosed.

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