Industry Week in Review – October 3, 2014

Aerospace & Defense Update

Bombardier Inc. announced a firm order for 40 of its new CSeries passenger jets.  The Ireland based company, Macquarie AirFinance Ltd., subsidiary of the Australian Company, Macquarie Group, Ltd., is the third lessor to order the 135-seat CS300 model and has options to purchase another 10 aircraft.  The purchase preceded a boost of Bombardier’s stock price by 4.3% to $3.28USD as Bombardier aims to challenge the narrowbody-jet duopoly of Boeing Co. and Airbus Group.

As fiscal 2014 winds down, the Department of Defense (“DoD”) and the armed forces have released a multitude of new contracts totaling $2.85 billion.  Of the 93 contracts released, some of the big winners included Lockheed Martin with a $246.6 million modification to the F-35 drag chute system and Atlanta’s Science Research Corp. with a $75.6 million contract for procurement of support services.  The majority of spending came from the Defense Logistics Agency with $800 million on an array of contracts.

Government Technology Solutions Update

On October 1st, NASA awarded 56 infinite delivery / infinite quantity (“IDIQ”) contracts under the Solutions for Enterprise-Wide Procurement Five (“SEWP V”) vehicle to 43 technology firms.  Combined, the awards totaled $20 billion over the contract’s five year base period – the total period of performance is ten years (five-year base plus one five-year option).  Agencies are expected to use this SEWP V for purchasing advanced IT and computer technologies, processing capabilities, and network equipment.  The current awardees are divided into two groups: “Group A,” which provides computer based systems, and “Group D,” which provides networking, security, video, and conferencing solutions.  Two additional groups, “Group B” and “Group C” are expected to be awarded in the next week to Service-Disabled Veteran-Owned small businesses and other small businesses respectively.

The Office of Management and Budget (“OMB”) has set standardized metrics for agencies to collect, measure, and track financial awards.  The publicized data will be used to increase transparency of agency awards in order to reduce administrative burden, waste, and fraud.  The OMB states that agencies may save up to $50 million per year by using these standardized metrics to reduce improper payments.

Big Movers

American Science and Engineering (Down 14.0%) – Shares were down this week after the Company reported earnings data that missed analysts’ expectations.  The company’s revenues decreased to $35.5 million from $43.1 million in the second quarter comparted to the first quarter of fiscal 2014.

Relevant Transactions

MacDonald, Dettwiler, and Associates Ltd. acquired Advanced Systems, a line of business from General Dynamics Advanced Information Systems, Inc., that has in-depth experience in development and application of radar and other information sensors for the U.S. Government.  Terms of the deal were not disclosed.

Air Industries Group acquired AMK Technical Services, a provider of welding and machining services for diversified aerospace and industrial customers.  The deal is worth an estimated $6.8 million.

Fastenal Company acquired certain assets from Av-Tech Industries, a wholesale distributor of aerospace fasteners, electronic components, and miscellaneous aircraft parts.  Terms of the deal were not disclosed.

Esterline Technologies Corporation acquired Barco N.V.’s Aerospace and Defense Display business, a manufacturer of harsh-environment displays and visualization systems.  The deal is worth an estimated $190 million.

Exelis, Inc. completed its spinoff of Vectrus, Inc.; the new company operates as a provider of infrastructure asset management, information technology, and network communication services, and logistics and supply chain management.  The market cap for the new company is ~$227 million.

Click here to review comparable company analysis.