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August 13, 2019 | International, Aerospace

Could Textron Become Purer A&D Company, Or Be Sold?

By Michael Bruno

As a multi-industrial manufacturer, Textron sells many transportation vehicles, from military helicopters to UAVs and even snowmobiles and recreational four-wheelers.

But a new corporate review may indicate the conglomerate could be looking to become an aerospace and defense (A&D)-focused company similar to other large rivals, according to analysts.

Earlier this month, Textron announced it is reviewing strategic alternatives such as a sale or spin-off of its German Kautex business unit, which produces fuel systems and other functional components. Kautex operates more than 30 plants in 14 countries and generated more than $2.3 billion in revenue in 2018.

“Kautex strategic review suggests Textron wants to become an A&D ‘pure-play,'” Cowen analysts Cai von Rumohr and his team said Aug. 9. “The thesis is that ‘new Textron' could command a higher [valuation] multiple closer to A&D pure-plays; and it would have optionality for merger and acquisition (M&A) or stock repurchasing to leverage its new product-driven growth.”

The Cowen analysts said they think that if Kautex is disposed of, so could golf cart maker Textron Specialized Vehicles or other units in Textron's Industrial division. In turn, the company could use proceeds and money saved to bolt on smaller A&D businesses, or it could continue active share repurchases to lever benefits of expected growth from new products such as Longitude, Sky Courier, Denali and V-280.

“A third possibility is that free of Industrial, Textron could be of interest to larger primes, who would bring more lobbying clout to V-280,” the analysts said. Buying candidates could be Boeing or General Dynamics, they added.

Separately, a well-known adviser to the A&D industry recently told Aerospace DAILY that Textron would make a good acquisition target for other A&D players. “Over the years I've had my clients take a hard look at that one,” the consultant said. This person listed Boeing and Lockheed for possible top-level consolidation, although getting Pentagon and Trump administration approval could be more of a challenge than for other recent M&A deals.

To be sure, Textron is already an aerospace-focused multi-industrial. According to Cowen, it is the leader in Class 1-5 business jets (which make up 24% of annual total revenue), with positions in helicopters via Bell (26%), defense systems (12%), and then industrial products (25%). Defense as an end-market accounts for 29%.

But conglomerates are increasingly breaking up and those with A&D elements continue to focus on those businesses. United Technologies is working to spin off its elevators and air conditioning businesses while adding Raytheon. General Electric is divesting major units but favoring aviation. Honeywell International in recent years has spun off units to focus more on A&D and related businesses. One reason for the portfolio shaping is because of pressure from major investors who want companies to be more focused, in part so they can balance their own investment portfolios rather than relying on a company to try to play in various industries.

Goldman Sachs is advising Textron on its review. Textron reiterated that no decision has been made and there are no assurances that the process will result in any transaction being announced or completed.

The company has not set a definitive timetable for completion of its review of strategic alternatives and does not intend to make any further announcements related to its review unless and until its board of directors has approved a specific transaction or Textron otherwise determines that further disclosure is appropriate.

https://aviationweek.com/business-aviation/could-textron-become-purer-ad-company-or-be-sold

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  • COVID-19′s fiscal impact might ironically strengthen national defense

    April 23, 2020 | International, Aerospace, Naval, Land, C4ISR, Security

    COVID-19′s fiscal impact might ironically strengthen national defense

    By: Lt. Col. Daniel L. Davis (ret.) As Congress and the White House cope with the economic fallout of the coronavirus pandemic by passing multitrillion-dollar stimulus packages, many are already grappling with the thorny problem of how we'll eventually pay for the spike in spending. While no one ever wants to be a bill-payer, the defense industry is predictably first out of the blocks seeking immunity from any future cuts by trotting out its favorite weapon: fear. Don't be fooled by this tried-and-true tactic: The claim that any cuts to the defense budget will imperil defense is gravely mistaken. Without changes in the foreign policy we enact — and a rational reform of how we spend our defense dollars — our national security will continue to decay. First, the cold, hard economic reality: The damage done to our economy by the necessary measures federal and state governments have enacted to safeguard American lives has been breathtaking in its scope and severity. Some estimates suggest gross domestic product will contract this year by as much as 40 percent, and unemployment could balloon to 30 percent. To help stem the tide, Congress has already passed a $2 trillion stimulus package, with more yet to come. With an already massive national debt of $24 trillion, the combination of government spending and the loss of tax revenue is going to place serious pressure on future budgets for years to come. These bills will eventually have to be paid, and no area of the budget will be free from scrutiny — including defense. Though the Department of Defense should be funded to whatever level is required to ensure the ability of our armed forces to deter and, if necessary defeat any adversary that may seek to deprive our citizens of life or liberty, not all aspects of the status quo are helping keep us safe. Retired Army Lt. Gen. Thomas Spoehr recently co-wrote an article arguing that regardless of the financial strain imposed by the coronavirus stimulus bills, defense spending should be exempted. The reason, he says, is that the military today remains in a yearslong “free-fall” which “can't be fixed in a year or even four.” The last thing America's leaders should do when responding to the financial constraints imposed by the coronavirus, he concludes, is to “weaken the military.” His implications that military readiness has been in free fall because of inadequate spending and that any reduction in defense spending weakens the military are beliefs held by many — and are inaccurate for several key reasons. Clinging to forever wars might be the biggest. The DoD has to spend hundreds of billions annually to fight, maintain and prepare for subsequent deployments fighting the forever wars we've been waging for the better part of two decades. Congress has allocated more than $2 trillion in direct outlays since 9/11 to fight so-called emergency requirements of overseas contingency operations, or OCO, and we have incurred an additional $4 trillion in associated and long-term costs. For fiscal 2020 alone, we will spend upward of an additional $137 billion on these OCO wars. What is critical to understand, however, is that the perpetual continuation of these wars not only fails to improve our security — these fights negatively impact our ability to focus on and prepare for fighting adversaries that could one day pose an existential threat to us. The implications of this reality are considerable — and potential remedies can be of great help to our country. If President Donald Trump were to order an end to some or all of our unnecessary forever wars, we could instantly save more than $100 billion a year without cutting anything else in the defense budget. If we then conducted prudent and necessary reforms in how we manage research and development, procurement, and acquisition, and in shedding unnecessary or outdated expenditures, tens of billions of additional savings could be realized. Perhaps more importantly we could redirect much more focus and resources on training and professional education, which would enable the armed forces to better deter — and if necessary defeat — major opponents. Those two major changes alone would end the weakening of our military and materially contribute to strengthening its key capabilities — while lessening pressure on the federal budget. The financial pressures this coronavirus is already placing on our nation's finances is real, and its effects will be felt for years. We will have to make hard decisions in the days ahead on where we spend our limited resources. If we are wise, we can reduce how much we spend on defense while simultaneously increasing our military power. Retired U.S. Army Lt. Col. Daniel L. Davis is a senior fellow for Defense Priorities. He retired from the Army in 2015 after 21 years in service that included four combat deployments. https://www.defensenews.com/opinion/commentary/2020/04/22/covid-19s-fiscal-impact-might-ironically-strengthen-national-defense/

  • AIAC releases aerospace recommendations and calls on federal government to implement long-term sectoral strategy

    June 3, 2020 | International, Aerospace

    AIAC releases aerospace recommendations and calls on federal government to implement long-term sectoral strategy

    Posted on June 3, 2020; Aerospace Industries Association of Canada Press Release The Aerospace Industries Association of Canada (AIAC) released six key recommendations that build on the Vision 2025 plan; while repeating the call for the federal government to recognize aerospace as a strategic sector in urgent need of a long-term sectoral strategy. “The impact of COVID-19 on Canada's aerospace industry has been unprecedented. The consequences of aircraft being grounded cascade down to our industry — to original equipment manufacturers (OEMs), maintenance, repair and overhaul workers (MRO) and ongoing work relating to Canada's assets in space. With longer lead times in supply chain slowdowns, the devastating economic effects of this crisis are going to reverberate across our industry for years to come,” said Mike Mueller, senior vice-president, AIAC. “Competitor countries are making aerospace a key part of their economic recovery plans. Canada needs to take similar steps — not only to retain our current position but also to be ready for the global market opportunities that will emerge when the industry recovers,” said Mueller. AIAC recommends the following actions the Government of Canada can take immediately to help ensure best possible outcomes and long-term stability for Canada's aerospace sector: 1. Develop a pragmatic and proportional plan to allow people to begin flying again. 2. Adapt Canada's job retention program and liquidity measures to support employees in industries that will take longer to recover. 3. Rapidly expand government support for green technologies to enable the decarbonization of key sectors, particularly transportation and aviation. 4. Establish a new long-term investment bank to support and foster essential manufacturing supply chains through the market transformation ahead. 5. Advance public procurement projects, particularly in defence and space projects, to help stimulate and sustain high-tech supply chains through the difficult months ahead. 6. Establish a Canadian sector strategy for aerospace that includes civil, defence and space. “There is a need now, more than ever, for the Federal Government to work with us on a long-term sectoral strategy for Canada's aerospace industry. Ensuring a strong Canadian aerospace sector will be crucial to rebuilding Canada's economy given aerospace's substantial contributions to our nation's economic health on an annual basis — $31 billion in revenues, over $25 billion to GDP and nearly 215,000 jobs,” said Mueller. Find the letter in its entirety here near the bottom of the page. https://www.skiesmag.com/press-releases/aiac-releases-aerospace-recommendations-and-calls-on-federal-government-to-implement-long-term-sectoral-strategy

  • Russia’s new nuclear policy could be a path to arms control treaties

    June 9, 2020 | International, Aerospace

    Russia’s new nuclear policy could be a path to arms control treaties

    By: Sarah Bidgood Russia recently published a new document, titled “Basic Principles of State Policy of the Russian Federation on Nuclear Deterrence.” Its release marks the first time that Russia's official policy on deterrence has been made publicly available. As others have observed, this document is an example of declaratory policy aimed primarily at a foreign audience — and should be read with this orientation in mind. Still, it contains information that helps readers better understand how Russia thinks about nuclear weapons, and this certainly makes it worth a close examination. Some of the more useful insights this document offers pertain to Russia's threat assessments and what it sees as likely pathways to nuclear use. A number of these threats line up with American declaratory policy as reflected in the 2018 Nuclear Posture Review. These overlaps are noteworthy, since the U.S. and Russia have traditionally been able to work together to mitigate mutual threats even when their bilateral relationship is in crisis. As such, they can point toward ways to get arms control back on track at a time when it is in deep trouble. One such area of overlap appears in section 19C, which covers the conditions that could allow for nuclear use. This list includes an “attack by [an] adversary against critical governmental or military sites of the Russian Federation, disruption of which would undermine nuclear forces response actions." The similarities between this language and that which appears in the 2018 NPR are considerable. That document identifies “attacks on U.S., allied, or partner civilian populations and infrastructure and attacks on U.S. or allied nuclear forces, their command and control, or warning and attack assessment capabilities” as a significant non-nuclear strategic attacks that could warrant the use of nuclear weapons. These parallels suggest that an agreement prohibiting attacks on nuclear command, control and communications systems could be of interest to both Washington and Moscow. A treaty along these lines would help to shore up crisis stability while rebuilding trust and confidence between the U.S. and Russia. It could also become a multilateral approach involving the five nuclear weapon states, which have been meeting regularly to discuss risk reduction and other topics. This would represent one of the few concrete outcomes of these discussions, which have been met with cautious enthusiasm but have so far failed to bear much fruit. Another example of mutual U.S.-Russia threats appears in section 12E of the Russian document. Here, the “uncontrolled proliferation of nuclear weapons, their delivery means, technology and equipment for their manufacture” are described as risks that nuclear deterrence is meant to neutralize. Preventing the spread of nuclear weapons seems to remain a focus of U.S. nuclear policy, too, and the 2018 NPR commits to strengthening institutions that support “verifiable, durable progress on non-proliferation.” This ongoing shared interest is an argument for renewed U.S.-Russian cooperation in this area, especially as it relates to strengthening the Nuclear Non-proliferation Treaty. There is a long history of engagement between the two largest nuclear weapon states on nonproliferation, even at times of major discord in their relationship. Successful outcomes of this cooperation include the Nuclear Non-proliferation Treaty itself, which the United States and the Soviet Union concluded 50 years ago to stop additional countries from acquiring nuclear weapons. Despite decades of joint work toward this shared goal, the rift between Washington and Moscow has now brought most bilateral efforts in this area to a halt. As some in Iran, Turkey and Germany contemplate the pursuit of nuclear weapons, it's time for the U.S. and Russia to shore up the credibility of the regime they built. Other sections of Russia's document offer additional glimpses into Moscow's perceived threats, although not all find ready analogs in U.S. declaratory policy. Many relate instead to the possibility that an adversary will carry out a conventional attack on Russia. Sections 12 and 14, for instance, reference the risks posed by adversary deployments of medium- and shorter-range cruise and ballistic missiles, non-nuclear high-precision and hypersonic weapons, strike unmanned aerial vehicles, and directed-energy weapons. They also mention the deployment of missile defense systems in space; military buildups by would-be adversaries of general-purpose force groupings that possess nuclear weapons delivery means in territories neighboring Russia; and the placement of nuclear weapons on the territories of non-nuclear weapons states, among others. There is little here that would surprise most Russia-watchers, but if the U.S. is serious about pursuing “next generation” arms control, it is useful to have a list of potential topics for discussion that go beyond ballistic missile defense. This list might also prove helpful in negotiating asymmetric treaties or in identifying confidence-building measures that cross domains. Overall, this short document does provide greater clarity with respect to Russia's deterrence strategy, but it is ambiguous on many points as well. Olga Oliker, the International Crisis Group's program director for Europe and Central Asia, noted, for instance, it does not settle the debate over whether Russia has an “escalate-to-deescalate” policy, and it is (unsurprisingly) vague about the precise circumstances under which Russia would consider using nuclear weapons. Still, despite leaving some questions unanswered, the document offers a valuable window into Russia's strengths and vulnerabilities as they appear from Moscow. While likely not the intended signal this document was meant to send, it nevertheless points to possible opportunities for engagement when other good alternatives are hard to see. https://www.defensenews.com/opinion/commentary/2020/06/08/russias-new-nuclear-policy-could-be-a-path-to-arms-control-treaties/

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