Industry Week in Review – September 12, 2014

Aerospace & Defense Update

Earlier this week, Ryanair entered into an agreement with Boeing to purchase as many as 200 jets from the company’s 737 Max family.  The Irish-based discount carrier announced an order for 100 of the Max 200 models, with an option to acquire up to 100 more.  At list prices, the deal for the initial 100 aircraft is worth approximately $11 billion.  Deliveries of the Max 200, which promises an 18% gain in fuel savings over other narrow-body models, are scheduled to start in 2019 and run until 2023.  Features of the aircraft include upgraded engines and 197 seats, compared to 189 on the 737-800 model.  The capacity to carry additional passengers is projected to add roughly $1 million a year in revenue for each jet.  The Ryanair order, which comes on top of a contract for 180 737-800s, further supports the airline’s goal to double in size over the next 10 years.

Bombardier finally resumed test flights of its CSeries Jet after one of the aircraft’s Pratt & Whitney engines failed back in May.  Since the failure, Pratt & Whitney has made a number of modifications to the geared turbofan engine’s oil lubrication system, which was determined to be the root cause of the failure.  Keeping the jet airborne and conducting additional test flights is critical to the company’s ability to meet its target for a CSeries debut in the second half of 2015.  Project development costs for the aircraft are now roughly $4.4 billion, nearly $1 billion more than originally expected.

Government Technology Solutions Update

On September 9th, House Appropriations Chairman, Hal Rogers, introduced what he referred to as a “clean” short-term Continuing Resolution (“CR”) to prevent a government shutdown at the end of the Government Fiscal Year on September 30th.  The House Committee on Rules is currently reviewing the introduced legislation, which would continue agency, programs, and services funding at 2014 levels, an annual cap rate of $1.0 trillion, until December 11, 2014.  The bill also includes several provisions to prevent detrimental changes to government programs, such as an extension for expiring Department of Defense activities; however, all such extensions are funded within the annual cap of $1.0 trillion.  In his introductory statement, Rogers stated the bill is free of “controversial riders” and does not seek to change existing federal policies.  Additionally, he emphasized this bill is a temporary measure that “does not reflect the changing needs of the nation or new budget priorities” and urged the Senate leadership to push completion of the GFY2015 Appropriations legislation.

Big Movers

Leidos Holdings, Inc. (Down 7.6%) – Shares were down this week after the Company reported a 10% year over year decline in revenue compared to the second quarter of last year.

Alliant Techsystems Inc. (Up 6.2%) – Shares were up this week as investors anticipate greater procurement of weapons systems in response to rising geopolitical tension in the Middle East.

Relevant Transactions

The CapStreet Group, LLC acquired Red Aviation LLC, a provider of maintenance and repair services, as well as aftermarket sales, for business jet parts and engines.  Terms of the deal were not disclosed.

Click here to review comparable company analysis.