Industry Week in Review – September 26, 2014

Aerospace & Defense Update

Boeing enhanced its footprint in Africa this week, as the company announced it received an Ethiopian Airlines order worth $2.1 billion.  The deal, which is for 20 737 Max 8 aircraft and includes an option to buy an additional 15 737 Max 8s, is the largest order the aircraft manufacturer has received from an African based airline to date.  The order comes in response to increased demand throughout Africa, as demonstrated by a 4.9% growth in the region’s passenger air traffic for July, according to the International Air Transport Association.  Currently, Ethiopian Airlines has 68 planes in operation, 16 of which are various Boeing 737 models.  The addition of 20 planes to Ethiopian Airlines’ fleet positions the company to capitalize on the growth trend in the African aviation industry and establish itself as a major player in the region.  Boeing’s ability to conduct deals with foreign customers is largely contingent on availability of funding provided through loans granted by the U.S. Export – Import Bank (“Ex – Im Bank”).  As such, Boeing’s business with foreign customers relies heavily on the continuation of the Ex – Im Bank’s charter, which is scheduled to expire at the end of the month.

Government Technology Solutions Update

The Department of Defense (“DoD”) is expected to release a memo in late October allowing military branches to directly procure cloud services.  The expected policies will require military branches to provide detailed business case analyses for cloud procurement decisions and to comply with acquisition requirements and cybersecurity mandates.  This initiative is a direct result of the rescindment of Defense Information Systems Agency’s (“DISA”) position as the Pentagon’s exclusive cloud broker.  Though DISA will no longer be the only procurer for cloud solutions, it will still be involved in securing the DoD’s IT systems.

Protests against the $7.2B Army Intelligence & Security Command’s (“INSCOM”) Global Intelligence Support Services (“GI”) indefinite delivery / indefinite quantity (“IDIQ”) have already started for both the small business and full and open categories.  Both a small business and a large business filed protests less than two weeks after the contract was announced – September 22nd and 19th respectively.  The Government Accountability Office’s decisions on these protests are due between December 29th and 31st.  The GI contract was awarded to 11 large businesses and ten small businesses to support intelligence and security operations, information operations, facilities mission support, and sustainment services.

Big Movers

Ducommun Incorporated (Up 5.1%) – Shares were up this week after the Company was awarded a contract with Boeing to produce ground and flight spoilers for the 737 Max.

AAR Corp. (Down 11.0%) – Shares were down this week after the company reported first quarter earnings and revenue that missed analysts’ expectations.  The company reduced its earnings estimate from $1.80 – $1.90 per share to $1.65 – $1.75 per share.

Relevant Transactions

AIM Aviation Ltd. acquired Altitude Aerospace Interiors Ltd., a provider of aerostructure components and custom cabin interiors.  Terms of the deal were not disclosed.

TriMas Corporation acquired Allfast Fastening Systems, Inc., a manufacturer of solid and blind rivets, blind bolts, and installation tooling for the aerospace industry.  The deal is worth an estimated $360 million.

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