Industry Week in Review – October 25, 2013

Two aerospace companies received positive news this week as Boeing announced plans to increase the overall production rate of its 787 aircraft and Pratt & Whitney announced it reached a $1.1 billion agreement with the Pentagon on the sixth lot of F-35 Joint Strike Fighter jet engines.

Despite early problems, specifically related to battery issues and service reliability, Boeing’s 787 program continues to show improvements in operations and efficiency with 23 deliveries of the 787 in the third quarter.  With the increased efficiency, Boeing announced on its third quarter earnings call it will increase the overall production rate for the 787 to 12 per month in 2016 and 14 per month by the end of the decade, doubling the current year’s production rate of 7 per month.

Pratt & Whitney’s $1.1 billion deal with the Pentagon covers 38 total engines, which includes eighteen conventional take-off and landing engines for the Air Force F-35A model, seven for the Navy’s F-35C model, and six for the Marine’s F-35B jump-jet model.  Deliveries are scheduled for the fourth quarter of this year.

In the government contracting space, numerous contract awards have been announced since the government reopened late last week.  One announcement to note is IBM’s capture of a $1 billion five year General Services Administration (“GSA”) cloud computing contract to implement IBM’s SmartCloud for Government.  Besides hosting, the GSA plans to use several additional IBM cloud-based services beginning in 2014, such as its Sterling Order Management and B2B integrators.

Big Movers

The Boeing Company (Up 7.1%) – Shares were up this week following a series of positive news from the Company, including strong third quarter earnings above consensus estimates and increasing the production rate of its 787 aircraft.

Tyler Technologies, Inc. (Up 6.0%) – Shares were up this week after the Company announced a strong third quarter.  The Company reported earnings and revenues above consensus analyst estimates.

The Timken Company (Down 14.9%) – Shares were down this week after the Company released disappointing 3Q13 earnings.  The Company reported a 7% decrease in sales versus last year.

Relevant Transactions

Hong Kong Aircraft Engineering Company agreed to acquire Owl Creek Asset Management’s TIMCO Aviation Services, Inc., a provider of aircraft maintenance, repair, overhaul, and line maintenance services to commercial airlines, aircraft leasing companies, and government and military sectors.  The deal is valued at approximately $388.8 million.

Resilience Capital Partners’ Aerospace Products International acquired Avionics International Supply Inc., a wholesale distributor of avionics parts and supplies to private and commercial repair facilities worldwide.  Terms of the deal were not disclosed.

Microsemi Corporation agreed to acquire Symmetricom, Inc., a provider of timekeeping technologies, instruments, and solutions in GPS satellites and critical military and civilian networks.  The deal is valued at approximately $230 million.

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