Industry Week in Review – October 4, 2013
As the U.S. government entered into a shut down this week, the reverberations were felt through the aerospace and defense industry. According to the National Association of Government Contractors, 58% of government contractors said the shutdown would have a negative effect on their business. For example, UTC announced that it would be furloughing 2,000 workers as production of Black Hawk helicopters was halted. UTC unveiled plans to furlough an additional 3,000 workers if the shut-down were to drag on for longer than a couple weeks. Lockheed Martin, BAE, and Boeing also have announced they may begin furloughing employees in the next week.
There were a number of mixed developments this past week with Lockheed Martin’s F-35 Joint Strike Fighter Jet Program. On the positive side, Lockheed finalized two contracts with the Department of Defense (“DoD”) worth $7.1 billion for 71 more F-35 jets. The order includes 47 F-35As for the Air Force, 13 F-35Bs for the Marines Corps, and 11 F-35Cs for the Navy. Additionally, the South Korean government reopened the competition for its $7.2 billion fifth-generation fighter order. Previously, the F-35 had been eliminated from the contest in favor of Boeing’s F-15. However, the South Korean Defense Ministry brought the F-35 back into the competition on September 28th after protests from a number of South Korean generals.
In the midst of these positive developments, the Pentagon Inspector General released a report on September 30th highlighting 363 issues with the F-35 program, 147 of which were considered “major.” A need for improved training and stricter criteria for acceptance of a plane were two of the largest highlighted issues. In response, Lockheed said that they have already addressed most of the issues mentioned in the report and are working to fix the outstanding problems. Despite the issues, the DoD has stated that it has made great strides in its relationship with Lockheed in the past year.
Big Movers
Finmeccanica SpA (Up 15.6%) – Shares were up this week after insiders revealed that the Italian state lender Cassa Depositi & Prestiti has offered to buy 85% of Finmeccanica’s Ansaldo Energia power-plant division for 1.2 billion euros. During the past year, the Company has been trying to raise 1 billion euros via asset sales to pay down nearly 5 billion euros of debt.
Relevant Transactions
Astronics Corporation acquired AeroSat Corporation,a provider of aircraft antenna systems for commercial transport, business jet, and military aircraft customers. Astronics will pay $12.0 million in cash up-front with a potential earnout of $5 million to $20 million.
Curtiss-Wright Corporation acquired Parvus Corporation, a subsidiary of EuroTech SpA.,a designer and manufacturer of rugged small form factor computers and communications subsystems for the aerospace, defense, security, and industrial markets. Curtiss-Wright will pay $38.0 million for Parvus.
LLR Partners completed a $50 million investment in Cigital, Inc., a provider of software security consulting services. Cigital will use the investment to continue its growth in existing markets, penetrate new verticals, and expand geographically.
