25 septembre 2019 | Local, Aérospatial, Naval, Terrestre, C4ISR, Sécurité
By Byron Callan
This year has shaped up as a record one in terms of the volume of major defense transactions so far announced. Considering deals of $100 million or more in announced value where defense is the primary factor, the 2019 total exceeds $61 billion. Of course, the largest single example is the Raytheon-United Technologies Corp. (UTC) merger.
There are reasons to expect heightened activity in 2019 and 2020. Some reasons are known and others can be assessed, but one that does not appear to be affecting market expectations is the Raytheon-UTC deal. Since it was announced on June 9, the companies' share prices have declined from the June 7, close: Raytheon's by 4% and UTC's by 5.7%. The S&P 500 has been flat. However, share prices of peers have risen—General Dynamics is up 5.4%, L3Harris Technologies has increased 6.2%, Lockheed Martin and Leidos have climbed 7% and Northrop Grumman is up 14.4%.
These price moves may be attributable to safe-haven seeking by investors who were spooked by global economic concerns and trade wars, but the budget deal reached by Congress also was a factor, as were July earnings reports. The price reactions, however, do not suggest that investors are particularly concerned about the impact of the competitive strength of the Raytheon-UTC union and its ability to take market share away from peers. Nor do they suggest that the deal will trigger a rush by defense-focused companies to merge with commercial ones. Were the latter to be the case, the price reactions may have been similar to Raytheon and United Technologies'.
There have been other known developments that raise the question of what is next. Kaman Corp. sold its industrial distribution business for $700 million and will seek to redeploy that capital into engineering products businesses, some of which could involve defense. L3Harris signaled in June that it is undertaking a portfolio cleanup after the completion of the merger, and so there should be divestitures from that company. Textron announced in August that it was reviewing “strategic alternatives” for Kautex, which makes blow-molded fuel systems and other parts primarily for the automotive industry. Presuming that it leads to a sale of that business, Textron will have cash, some of which might be spent on defense.
There are general factors as well that could spawn sector merger and acquisition activity in 2019-20. One of the biggest is the potential uncertainty surrounding the outcome of the 2020 U.S. elections. Buyers and sellers have to weigh a number of variables.
If the current administration is reelected and control of Congress remains split at least through 2022, then it may be safe to assume that the status quo will continue. One variable within the status quo is how contractor portfolios could be affected by the ongoing efforts of the Pentagon to better align its programs with the National Defense Strategy. Like the Army's “night court” process, this may yet spawn a reassessment of specific programs and their future growth outlook.
But if the status quo does not prevail, defense contractors could face a wall of uncertainties in 2020 and may choose to act before rather than after these uncertainties are clarified.
First, they will have to assess which Democratic candidate could win the primary cycle and then the nomination. If it is a centrist candidate, the Defense Department spending outlook might not change all that much, although exports to some countries might be curtailed and there could be changes in some Pentagon budget priorities, particularly for nuclear forces modernization. A more progressive-leaning candidate might raise the risk of a more subdued defense budget outlook, particularly if fiscal resources are instead directed toward health care, infrastructure, student debt and other nondefense priorities.
Second, there will have to be an assessment of whether a Democratic win of the White House could also flip control of the Senate to the Democrats. If there is a Democrat in the White House but a Republican majority in the Senate, the Senate could still check budgets or policies that may be detrimental to defense. It might also block efforts to roll back changes to tax laws made in 2017.
A third variable to be assessed is the attitude of a new administration toward defense mergers and acquisitions, contractor financing and risk. A more progressive administration could look very differently at the structure and financial status of contractors.
All these variables will lead to different analyses of current and future value in defense. Is it a good time to hunker down and wait to see what happens or to act in the time that remains in 2019-20 before investors and creditors draw their own conclusions? These uncertainties alone suggest that some will act in anticipation of a change rather than just wait and see.
https://aviationweek.com/defense/opinion-after-major-mergers-what-s-next-defense-market
30 mars 2022 | Local, Aérospatial
Negotiations could begin as early as this week between the Canadian government and Lockheed Martin for the acquisition of 88 F-35A Lightning II fighter jets.
7 décembre 2018 | Local, Aérospatial
by Ken Pole As the Royal Canadian Air Force (RCAF) gears up for the late 2019 arrival of the first of 16 new Airbus CC-295 fixed-wing search and rescue (FWSAR) aircraft, a Senate committee said the government should consider the deployment of even more search and rescue (SAR) aircraft. “This would be a multi-year, mega-government dollar capital procurement project,” the Standing Senate Committee on Fisheries and Oceans acknowledged in an exhaustive new report, When Every Minute Counts: Maritime Search and Rescue. “Repositioning current aeronautical SAR assets is not feasible . . . at this time because the fleet is fully utilized.” The November 2018 report is based on more than two years of study and hearings, which wrapped up in October. While most witnesses were heard in Ottawa — including senior RCAF, Canadian Coast Guard (CCG) and Transport Canada officials, as well as representatives of several industries — the committee also travelled to bases across the country as well as visiting officials and SAR facilities in England, Ireland, Norway and Denmark. RCAF fixed- and rotary-wing assets are a key element in covering nearly 18 million square kilometres of land and sea. In 2017, the Joint Rescue Coordination Centres in Victoria, Trenton and Halifax responded to 10,003 SAR calls, 62 per cent of them maritime. The committee predicts that the number of calls in the Arctic will increase as global warming results in a longer ice-free navigation period. Accordingly, the report recommends that the CCG establish additional primary search and rescue stations in the Canadian Arctic, where no SAR aircraft are currently based. It also calls on the Department of National Defence (DND) to authorize a pilot project which would see private civilian helicopters provide coverage in the North as well as in Newfoundland and Labrador, where the committee says “a disproportionately high number” of SAR incidents occur. In addition to the possible privatization of some missions (CHC Helicopter and Cougar Helicopters Inc. appeared before the committee), the committee also said the CCG should be an independent agency. “The Canadian Coast Guard . . . is hampered by its position within Fisheries and Oceans Canada, which leaves it at the mercy of the department for funding and prevents it from receiving long-term sustainable capital funding.” SAR reaction times were also an issue for the committee. It was told that the CCG's official time is 30 minutes from when a helicopter or ship is tasked until it departs, but that it usually takes less than 15 minutes in the case of a surface vessel, because they are probably on the water already. In comparison, the RCAF has a reaction time of 30 minutes during a typical eight-hour working day five days a week, and two hours at all other times. “Like the CCG vessels, the Canadian Armed Forces (CAF) crews are often airborne sooner than the targeted reaction time, around 20 minutes during working hours and one hour outside of working hours,” the committee notes. “However, there was considerable discussion regarding what witnesses called the CAF's ‘two-tier reaction time.' It was stressed that the two-hour reaction time guaranteed outside of working hours had . . . resulted in missions becoming recovery-oriented instead of rescue-oriented. In their view, the CAF should have a reaction time of 30 minutes, 24/7/365, like the CCG.” DND witnesses told the committee the concern had been addressed “to the extent possible” and it was the responsibility of SAR commanders in the three regions to align the 30-minute reaction time to coincide with the observed periods of greatest maritime SAR activity. “Overall, the committee was told that shifting the regular weekly schedules without increasing the total number of hours worked has improved readiness.” It also was told it was impossible for the RCAF to maintain 30-minute readiness at all times because “pilots and SAR aircrew members have a limit on how long they can engage in flying operations.” Sustaining a 30-minute target would require crews to remain poised on flight lines. “The two-hour reaction time allows the pilots and aircrews to be ‘fresh' and able to deliver a SAR response for up to 14, 16, 18 hours, which allows them to then go longer, further distances. Moreover, the increased level of readiness would require more aircraft, add more maintenance and necessitate infrastructure upgrades.” The committee says that despite improvements, Canada's SAR reaction time is “not at par” with other countries. “Aeronautical SAR assets operated in the United Kingdom, Ireland, and Denmark respond within 15 minutes during the day and between 30 and 45 minutes at night.” The committee says that given current shortfalls in the RCAF's pilot, flight engineer and SAR Technician cadres, it isn't possible to impose similar reaction times on RCAF crews. But it says it hopes the RCAF will reconsider its reaction time targets once personnel shortages are addressed. https://www.skiesmag.com/news/senate-committee-outlines-recommendations-for-canadian-sar
31 juillet 2020 | Local, Aérospatial
OTTAWA — Fighter-jet makers are leading with promises of jobs and other economic spinoffs as they make their final pitches for why Canada should buy their planes to replace the military's aging CF-18 fleet. Friday marks the deadline for U.S. aerospace companies Lockheed Martin and Boeing, as well as Swedish firm Saab, to submit their bids in the current fighter-jet competition, which will see Canada spend up to $19 billion on 88 new planes. The closing of the competition marks a major milestone in Canada's decade-long effort to buy new fighter jets for the Royal Canadian Air Force, which has been plagued by government mismanagement and political controversy. While the combat capability of each of the three competing planes — Lockheed Martin's F-35, Boeing's Super Hornet and Saab's Gripen — will be the main focus as the government evaluates each bid, there will also be a lot of focus on the economic benefits of buying each plane. To that end, Lockheed Martin commissioned a report in February that found up to 4,200 jobs will be created or sustained each year if Canada buys its F-35 stealth fighter, which the company equated to more than 150,000 new jobs over the life of the plane. The analysis provided to The Canadian Press, which was compiled by Toronto-based OMX, also predicted the Canadian economy will see roughly $15 billion in additional activity between now and 2058 if the F-35 is selected to succeed the CF-18 as Canada's primary fighter jet. That is in addition to the $2 billion in economic benefits that Canada has already received since 2007 as one of nine partner countries in the development of the F-35, which lets Canadian companies compete for work associated with the stealth fighter. Canada has contributed US$541 million since 1997 to be a partner in the F-35 program. "Lockheed Martin has prepared a comprehensive proposal," the company said in a statement on Thursday. "The F-35 is the most capable, best-value fighter to strengthen defence, enhance ally partnerships and contribute to economic growth in Canada with significant, long-term industrial opportunities." Lockheed Martin isn't the first to toot its own horn on the potential economic benefits of its fighter. Boeing last month released its own commissioned report showing its existing operations in Canada created $5.3 billion in economic spinoffs last year and supported 20,000 jobs. Boeing says the numbers will go up if the Super Hornet wins, though it has not revealed its exact estimates. The emphasis on jobs and money — rather than combat capability — comes as Canada's economy has been battered by the COVID-19 pandemic, forcing the federal government to spend tens of billions in financial support for Canadians. Defence analyst David Perry of the Canadian Global Affairs Institute said it makes sense for companies to highlight the potential economic benefits of their bids. He said it helps to make the cost more palatable to the public and is also important in determining the winner. "In any competition like this, you're always looking for any potential partial point that you can get," Perry said. "Companies, if they're going to invest this significant time and significant amount of money preparing a bid like this, then they don't leave anything to chance. You make sure you try to wring every single last partial point you can get out of your proposal." This report by The Canadian Press was first published July 30, 2020. Lee Berthiaume, The Canadian Press