Aerospace & Defense Update
President Trump has announced a plan to impose tariffs on steel and aluminum imports of 25% and 10%, respectively. The tariffs are designed to address a supposed trade imbalance with other countries and referenced national security concerns as a driver behind the tariffs as well. Although defense manufacturers rely on imports for some of their steel and aluminum needs, the DoD expressed that the new tariffs shouldn’t have a substantive impact on the industrial base for military equipment. However, aerospace industry executives have argued that new tariffs will result in higher costs and possible reciprocal measures that could disrupt the global supply chain and weaken the $86 billion U.S. aerospace and defense trade surplus.
Per the 2017 Defense Authorization Act, the F-35 joint strike fighter is mandated to undergo comparison tests in the form of a much-anticipated flyoff versus the A-10 Warthog. Before the F-35 jet enters the operational testing phase, it will be evaluated to determine if it is capable of replacing the close-air support and reconnaissance capabilities currently performed by the A-10. The head of the F-35 program announced on Wednesday that the testing is set to begin in April. After the assessment has concluded, the results will be formally reviewed by the Director of Operational Test and Evaluation before moving to the operational test phase in the fall.
Government Technology Solutions
On Tuesday, the White House’s Office of Management and Budget (“OMB”) released Memorandum M-18-12, which outlines the first steps for implementing the Modernizing Government Technology (“MGT”) Act. The memo stated that a seven-person Technology Modernization Fund (“TMF”) board will be established on March 12th with the purpose of deciding which agency projects will ultimately receive funding from the TMF. However, agencies can begin to submit initial project proposals for consideration now. When established, the TMF will look to give funding to projects with both strong ties to an agency mission and common solutions that have the potential to serve in various capacities across multiple agencies. Agencies have until March 27 to alert the OMB if they intend to set up an IT Working Capital Fund (“WCF”) for fiscal year 2018. Such IT WCFs will fund the majority of large-scale modernization efforts as the MGT Act only sets aside $500 million in appropriations for the TMF from 2018 – 2019.
The Office of the National Coordinator for Health IT (“ONC”) chief Don Rucker criticized regulatory accumulation in the health care sector on Tuesday for impacting how his office embraces technology moving forward. Rucker stated that ONC’s mission in promoting the adoption of interoperable electronic health records also calls for a restructuring of regulations governing the amount of documentation physicians must provide. Rucker’s comments coincided with a report by the Bipartisan Policy Center (“BPC”) calling for a scale back of ONC certifications that were originally designed to promote electronic health record (“EHR”) adoption. However, with EHR use increasing from 48% in 2009 to 87% in 2015, BPC argued that the regulations promoting incentives for EHR adoption are no longer necessary and hindering health IT advancement. The report also offers recommendations on how to reshape the role government plays in health IT, with a focus on encouraging core consumer protections and promoting private sector consensus standards.
Vectrus (up 30.1%) – Share prices were up this week after the company released fourth quarter and full-year 2017 operating results, including fourth quarter revenue growth of 2.6% year-over-year (“YoY”), and projected 11% revenue growth for 2018.
Safran (down 5.9%) – Share prices were down this week after Dassault said it was in in talks with Safran over claims for compensation over a three-year engine delay that caused Dassault to cancel its Falcon 5X jet in December.
AE Industrial Partners portfolio company Applied Composites Holdings, LLC has acquired San Diego Composites, a provider of composite hardware and systems for the aerospace, space, and defense industries. Terms of the deal were not disclosed.
Aeromet International Ltd. has agreed to acquire Langham Industries, Ltd.’s subsidiary Stone Foundries Ltd., a provider of parts for helicopters, commercial and military aircraft, jet engines, and general engineering applications. Terms of the deal were not disclosed.
By Light Professional IT Services, LLC, a portfolio company of Sagewind Capital, LLC, has agreed to acquire Axom Technologies, Inc., a provider of IT services to defense, intelligence, and homeland security agencies. Terms of the deal were not disclosed.
Carpenter Technology Corp. has acquired MB CalRAM, LLC, a provider of powder-bed fusion additive manufacturing metal printing services for aerospace, defense, and power generation industries. Terms of the deal were not disclosed.
Heroux-Devtek, Inc. to has agreed to acquire Beaver Aerospace & Defense Inc., a provider of custom aerospace components that includes ball screws as well as electromechanical actuators. The deal is worth an estimated $24 million.
Securitas AB subsidiary Securitas Electronic Security, Inc. has agreed to acquire Kratos Defense & Security Solutions, Inc.’s Public Safety & Security Division, a provider of independent integrated solutions for advanced homeland security, public safety, critical infrastructure, and security and surveillance systems for government and commercial applications. The deal is worth an estimated $69 million.
Shorehill Private Equity portfolio company Tribus Aerospace, LLC has acquired Precision Aerospace Corp. and Precision Micro Mill, LLC, providers of complex parts and assemblies for commercial aerospace and defense applications. Terms of the deal were not disclosed.