Guest article by Ian Cookson & Grant Thornton Corporate Finance LLC
Aerospace component M&A activity remained strong in 2008, and was one of the best performing sectors, with the same number of transactions as the record set in 2007. Activity was again weighted toward the first half of the year (in a 60/40 split), with a similar number of transactions in the second half of 2008 as 2007. Although 40% of transactions were led by private equity groups, this masks a shift in the second half where strategic buyers proved more successful in winning bids (by a factor of 3:1). Private equity buyers found it harder to raise the levels of debt that supported prices of previous acquisitions.
The strong level of aerospace component activity is in stark contrast to U.S. M&A activity as a whole, which declined by a third in volume terms from the prior year (and substantially more by value). However, the number of smaller deals across all industries (under $50 million) remained remarkably constant. It is this category of smaller deals that is more reflective of aerospace component transactions.
Thales recently announced a 3-year, $460 million contract from Mexico City to install pervasive surveillance and monitoring systems, coupled to centralized control and rapid response. The system will process information from 8,080 video cameras and sensors located within the city, and transmits alarms to the appropriate command center operators when any unusual events or behavior are detected. It will also have the ability to track vehicles, by reading license plates. Police will be able to deploy specially equipped mobile command centers that maintain contact with the central command center.
Countries like Britain have deployed similar systems over the years, despite the obvious civil liberties and privacy concerns inherent in their construction and use. Mexico’s own needs have escalated, as the country faces what counter-terrorist analyst John Robb has called a growing “open source insurgency” of narco-traffickers and some leftist groups. The violence associated with “The Cartel War” has reportedly claimed between 6,000 – 8,000 lives over the last 2 years…
“…in 2019, cubesats – space satellites smaller than a shoebox – have become very cheap and very popular. For $100, anyone can put a customized personal satellite into low-earth orbit. And space data transfer protocols developed by the Interstellar Internet Project provide a basic relay backbone linking low-powered cubesats with ground stations, and with each other. Space is open… What will you do when space is as cheap and accessible as the Web is today?”
DID’s readers have far more background than most in these areas, and are welcome to participate. The exercise is open until end of day on Match 12/09, and readers can sign up to play “positive imagination” [see example] or “dark imagination” [see example] cards, or supplement existing cards with an “antagonism” card (disagree), a “momentum” card (and then what?), an “adaptation” card (introduce a twist), or an “investigation” card (follow-up questions). Remember, as the IFTF reminds participants, “Your forecasts don’t have to be probable. They just have to be possible.”
The Government of Canada recently announced 2 major contracts to support the Canadian Forces’ Land Command Support System (LCSS), worth C$ 525 million (currently about US$ 409 million).
LCSS is is a full battlefield command system similar to the USA’s FBCB2, which is best known for its “Blue Force Tracker” component that displays the locations of friendly and identified enemy forces. LCSS integrates the Army’s Tactical Command Control and Communications System, Land Force Command System (LFC2IS), and Position Determination and Navigation for Land Forces, which means it can combine communications, friendly and enemy force positioning, satellite data, and other inputs into a cohesive system. A life extension project is planned for the system, and additions like the Intelligence Surveillance Target Acquisition and Reconnaissance Project are underway.
In March 2009, Australia’s Defence Materiel Organisation (DMO) awarded a contract to EADS Eurocopter subsidiary Australian Aerospace to provide Through Life Support services for the RAAF’s fleet of 12 C-130J and stretched C-130J-30 Hercules aircraft. Australian Aerospace already supports the RAAF’s AP-3C maritime patrol aircraft, so this is not a huge departure for the firm. Lockheed Martin will be the sub-contractor for aircraft maintenance, engineering and supply chain management, and engine support will continue to be provided by Dubai Aerospace Enterprise subsidiary StandardAero under an existing contract arrangement.
The initial contract is worth up to A$ 292 million (about $189 million). It’s is structured as a 5-year rolling contract whose continuation will reportedly be linked to demonstrated performance and cost containment, with an eye to: improved delivery of services; performance-based, long-term, support arrangements; relationship with the Commonwealth; price disclosure; and meaningful transfer of risk. Contract extensions can continue under these arrangements, through to the C-130J fleet’s expected end of life in 2030.
Air Vice-Marshal Thorne says that the contract will create over 80 additional industry jobs in the Sydney/Richmond area over the next year. Australian DoD | Australian Aerospace.
The program commenced at RAAF Base Richmond in November 2009.
Bell Helicopter subsidiary Bell Aerospace Services Inc. (BellAero), just announced a multi-year sub-contract worth up to $173 million from PKL Services Inc of Poway, CA. The PKL, BellAero, and JK Hill team will provide selected organizational-level RESET maintenance for the USMC’s Lot 3 (AH-1W Cobra attack, UH-1N utility, and CH-53D/E heavy transport) and Lot 4 (very aged CH-46E transport) helicopters at multiple locations around the world.
As is customary for these sorts of RESET programs, The USMC’s helicopter project involves a combination of inspection, cleaning, corrosion treatment, servicing, full disassembly and reassembly, repair and select mandatory replacement of parts.
CH-46E, Somalia, 1991
In 2005, Bell acquired US helicopter, one of the world’s top centers for maintenance and modification of H-1 Huey helicopters. BellAero currently runs a number of turnkey support projects for various branches of the US military, but this is their first contracted opportunity to support Boeing (CH-46) and Sikorsky (CH-53) platforms, in addition to Bell Helicopters’ own machines. Bell Textron release.
This animated Flash presentation has been making the rounds lately. It shows the structural changes to the American defense procurement process since 1971, as 14 waves of iterative reforms have changed the defense procurement process. It is also available from the Center for Public Integrity, in PPS Power Point format.
Despite these successive changes, the American defense procurement spiral of weapons whose generational replacement cost rises faster than inflation has continued apace. So, too, has the time required to design and field weapons systems, a fact that makes the tendency toward gold-plated or poorly-conceived requirements even worse. The result has been a spiral of shrinking force sizes despite equal or higher costs, a phenomenon that has become widespread around the world.
Verizon Business Network Services Inc. in Ashburn, VA won a $2.5 billion under the firm-fixed-price, indefinite-delivery/ indefinite-quantity Defense Information Systems Network (DISN) transmission services – Pacific II (DTS-P II) contract. In return, they will provide end-to-end transmission services and capabilities essential to the USA’s Defense Information System Network – Pacific, the military’s consolidated enterprise level telecommunications infrastructure for the expanded Pacific region.
DTS-P II has a 5-year base period, followed by a pair of 2-year option periods and a 1-year option period; $2.5 billion is the maximum amount under all option periods. This RFP was announced via the Federal Business Opportunities website, and 2 offers were received by the Defense Information Technology Contracting Organization, Pacific (HC1019-09-D-2000).
General Electric Aircraft Engines of Cincinnati, OH recently received an estimated $214.9 million modification to a firm-fixed price contract. The contract will take care of GE sole source spares for its F101, F110, and F118 engines from FY 2009 through FY 2017. At this time, no money has been committed; orders will be placed as needs arise. The 448 SCMG/PKBC at Tinker Air Force Base, OK manages this contract (FA8122-09-D-0001).
GE’s F101 engines are installed in the B-1B Lancer bomber. These 30,000 pound thrust turbofans are mounted 4 to a plane, and they were the firm’s first turbofan with an augmentor. The F118 and F110 engine derivatives were created by adding new low pressure systems that tailor engine performance to the desired aircraft application. Its F118 derivative dials back into the 17,000 – 19,000 pound thrust range, and equips both the B-2A Spirit stealth bomber, and the U-2S Dragon Lady high-altitude reconnaissance plane. Both engines are participating in US DoD R-TOC (Reduction of total Ownership Costs) programs.
The number of those engines in service pales in comparison to the F110 engine, however, an F101 derivative that generates 28,000 – 29,000 pounds of thrust on afterburner, and flies in 86% of the USA’s F-16C/D fighter fleet. A number of Service Life Extension Program components have been developed for this engine, with the goal of extending the engine’s usable lifetime once they’re inserted.