Aerospace & Defense Update
The SpeedNews 2018 conference was held this week in Beverly Hills, CA. The conference brings together members of the aviation industry, which include commercial, defense, business and general aviation, aerospace manufacturing, raw materials, and M&A stakeholders. Overall, the conference demonstrated strong tailwinds for the commercial aviation industry, highlighted by record backlog levels and rising delivery schedules. The conference also posed questions around Boeing and its New Midmarket Airplane (“NMA”) strategy and its potential launch in 2018. Other key topics included Airbus and Boeing’s strategy of growing into the aftermarket and how this strategy will impact both acquisitions made by original equipment manufacturers (“OEMs”) in the sector as well as supplier relationships with OEMs.
On Wednesday, the Air Force announced its plans to split $641 million in contract awards for satellite launch operations between SpaceX and United Launch Alliance (“ULA”), a joint venture between Boeing and Lockheed Martin. Of the $641 million, SpaceX was awarded $290 million in a fixed price contract to launch three GPS satellites into orbit on its Falcon 9 rocket by the end of 2020. ULA was awarded the remaining $351 million for two launches of Air Force spacecraft on its Atlas V rockets. The Pentagon expressed that the awards were parts of its continuous efforts to reduce costs as well as maintain access to space through multiple launch providers that are able to compete over the long-term for national security payloads.
Government Technology Solutions
On Thursday, the Trump administration announced sanctions against Russian entities for a multitude of actions, including meddling in the 2016 presidential election, the NotPetya attack, and persistent attempts to break into the U.S. energy grid. The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) sanctioned five entities along with 19 individuals with ties to the Kremlin. Treasury Secretary Steven Mnuchin described the targeted sanctions as part of a broader effort to address ongoing “nefarious” acts from Russia. Many of those sanctioned were responsible for attempts to breach industry control systems tied to the U.S. energy grid, where the Kremlin conducted a multi-stage campaign to penetrate power company IT networks through spearphishing and watering-hole domains. Additional sanctions were passed against a list of people linked to the Internet Research Agency for spreading election-related propaganda on social media during the 2016 presidential election.
Although paper ballots may seem like an antiquated voting practice, hacking fears are now pushing an increasing number of states toward a return to the basics. Heeding warnings from Washington regarding potential cyber threats, including the Kremlin, that may target electronic voting systems in the 2018 midterm elections, state legislatures are taking action to strengthen election cybersecurity measures. The primary focus has been doing away with direct-recording electronic voting machines (“DREs”) that do not produce a paper, auditable ballot to systems that do. Voting systems vary state-by-state, as five exclusively use DREs, a select few use only paper-based voting systems, and the majority use a combination of the two. Kentucky moved last month to require that all future voting equipment provide a paper record, while Virginia decertified all of its paperless systems in December 2017. President Trump recently endorsed the notion of transitioning to paper-based ballots and Congress has recently introduced two such bills, although neither have seen much progress.
Kongsberg Gruppen (up 4.8%) – Share prices were up this week after the company announced it has signed a letter of intent to supply equipment for military vehicles to Qatar worth up to $1.9 billion.
Kratos Defense & Security Solutions (down 18.5%) – Share prices were down this week after the release of a highly-critical research report this week by a third-party investment manager.
Elbit Systems, Ltd. has agreed to acquire Israel Military Industries, Ltd., a provider of arms, ammunition, explosives and propellants, military support systems and equipment, and aircraft accessories as well as develops remote-control mobile robots. The deal is worth an estimated $540 million.
Odyssey Investment Partners portfolio company CPI International Inc. has agreed to acquire Viasat’s Large-Diameter GEO Satcom Antenna Product Line, which includes limited motion antennas, all designed for multi-band operation at various frequency bands. Terms of the deal were not disclosed.
StereoVision Imaging, Inc. has acquired Digital Signal Corp., a provider of facial intelligence sensors, software, systems, and services. Terms of the deal were not disclosed.
TransDigm Group, Inc. has agreed to acquire Esterline Corporation’s subsidiary Kirkhill Elastomers, a provider of highly engineered aerospace elastomers commercial transport airframes as well as defense aerospace applications. The deal is worth an estimated $50 million.