Aerospace, Defense & Government Contracting Q1 2020

Industry Trends

Coronavirus Sending Shockwaves Throughout the Airline Industry

Major airlines have grounded the majority of their fleets due to the steep decrease in air travel. U.S. air carriers are asking the Trump administration for an additional $50 billion in aid. The U.S. Travel Association projected a loss of $355 billion in revenue for the year in transportation, lodging, retail, and restaurants; an estimated 4.6 million American travel jobs may be lost.^{1 2}

Airbus Unveils New Plane Design

Airbus had been testing a new plane design for a year before unveiling it at the Singapore Airshow in February 2020. The new design applies the concept of a "blended wing body" with a promise to make flying more efficient. The design allows the aircraft to execute complex maneuvers while producing less aerodynamic drag. Experts estimate the new design can cut carbon emissions by up to 20%.³

The U.S. Navy Looking for Rapid Modernization

The Navy’s acting secretary issued an internal memo in February 2020 to quickly modernize their computer infrastructure because the current cybersecurity system cannot adequately defend itself from cyberattacks from China and other countries. The Navy is pledging to continuously update their systems and engage special contractors to allow better filesharing, user interface, chat, and video communication, document security, and identify weak points in the military supply chain. The Navy’s perspective on cybersecurity has changed from cost center to a strategic asset that needs to be protected.⁴

Woodward and Hexcel to Merge in $6.4 Billion Deal

Aerospace and defense suppliers Woodward and Hexcel are merging to form one of the world’s largest aerospace and defense suppliers. Hexcel Corp supplies Boeing with composite materials used on MAX airframe and engines. Woodward Inc supplies Boeing with aircraft parts for the MAX. The goal is to combine resources and generate efficient aircraft that will reduce emissions. The deal between the two U.S. companies is valued at $6.43 billion. Their combined revenue will be around $5.3 billion, realizing $125 million in cost synergies by the second year, and expected combined free cash flow around $1.0 billion annually.^{5 6}

New Destroyer to Boost Navy’s Ballistic Missile Defense

General Dynamics subsidiary Bath Iron Works is building a new destroyer that will increase the Navy’s ballistic missile defense capabilities. The Navy needs to keep building and upgrading its defense systems to keep up with advanced missile threats. The Navy is looking to build around a dozen new destroyers, with the potential to add even more to its existing fleet. Currently, the Navy has around 40 destroyers and five cruisers with missile defense capabilities.⁷

Poland Signs $4.6B F-35 Deal with the United States

Poland has officially signed a deal to buy 32 F-35As from the United States for $4.6 billion. The purchase will increase Poland’s air force and defense measures. The new F-35As will replace Poland’s Soviet-era aircraft. The U.S. will help Poland with logistics, technology, and support. The delivery of the airplanes will begin in 2024. The Polish president stated that the F-35 would reinforce Polish national security, and it is proof of the strengthening relationship between Warsaw and the United States.^{8 9}

FAA Makes the First Move to Certifying Specific Drones

The U.S. aviation regulators have planned to outline specific safety standards for unmanned-aircraft models. This attempt to regulate drones and potentially approving them for package delivery can have enormous implications for large e-commerce retailers, especially ones with package delivery systems. The FAA has decided to craft a new regulatory scheme that would certify the safety of specific types of drones.¹⁰

South Korea Looking to Strengthen Industrial Partnership with the United States

South Korea is collaborating with the United States to make advancements in AI, robotics, and big data to lower costs and risks. The partnership will strengthen the economic and industrial partnership between the two countries. South Korea sources about 80% of its foreign weapon purchases from the United States. It plans to acquire additional major weapon systems such as F-35 fighters, large attack helicopters, and marine patrol aircraft.¹¹

Largest Transactions Closed

Target
Buyer
Value($mm)

Data Assumptions

This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

Glossary

EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
LTM - Last Twelve Months
TEV - Total Enterprise Value

Sources:

Karmin, Craig, Sayre, Katherine, Paris, Costas. "Coronavirus Sends Travel Business and Millions It Employs Into All-Out Crisis." The Wall Street Journal. March 17, 2020.
Katz, Benjamin, Sider, Alison. "Airlines Slash Costs, Seek Cash as Virus Saps Demand." The Wall Street Journal. March 16, 2020.
Reuters. “Airbus unveils 'blended wing body' plane design after secret flight tests.” Reuters. February 10, 2020.
Volz, Dustin, Gordon Lubold. “Navy, Beset by Aging Tech, Pushes for Rapid Modernization.” The Wall Street Journal. February 19, 2020.
Associated Press, Wire Service Content. “Aerospace and Defense Suppliers Woodward, Hexcel Combining.” U.S. News. January 13, 2020.
Reuters. “Boeing suppliers Hexcel and Woodward to merge in $6.4 billion deal.” Reuters. January 12, 2020.
The Associated Press. “New destroyers, including one built in Maine, will boost Navy's ballistic missile defense.” WGME. March 8, 2020.
Clark, Colin. “Poles, Eyes On Russia, Sign $4.6B F-35 Deal.” Breaking Defense. January 31, 2020.
Siminski, Jacek. “Poland Signs 4.6B USD Deal For The Purchase Of 32 F-35s.” The Aviationist. January 31, 2020.
Pasztor, Andy. “FAA Moves Toward Certifying Specific Drones for Package Deliveries.” The Wall Street Journal. February 3, 2020.
Mayfield, Mandy. “South Korea Seeks Industrial Partnership With U.S.” National Defense. February 10, 2020.

Aerospace, Defense & Government Contracting Q1 2020

M&A Transaction Trends

Industry Trends

Coronavirus Sending Shockwaves Throughout the Airline Industry

Airbus Unveils New Plane Design

The U.S. Navy Looking for Rapid Modernization

Woodward and Hexcel to Merge in $6.4 Billion Deal

New Destroyer to Boost Navy’s Ballistic Missile Defense

Poland Signs $4.6B F-35 Deal with the United States

FAA Makes the First Move to Certifying Specific Drones

South Korea Looking to Strengthen Industrial Partnership with the United States

Largest Transactions Closed

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David Jasmund

Eric Zaleski

Melissa Ritter

Michael Rosendahl

Will Stewart

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Michael Poole

Paul Vogt

Mackenzie Moran

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Philipp Seubert

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Aerospace, Defense & Government Contracting Q1 2020

M&A Transaction Trends

Industry Trends

Coronavirus Sending Shockwaves Throughout the Airline Industry

Airbus Unveils New Plane Design

The U.S. Navy Looking for Rapid Modernization

Woodward and Hexcel to Merge in $6.4 Billion Deal

New Destroyer to Boost Navy’s Ballistic Missile Defense

Poland Signs $4.6B F-35 Deal with the United States

FAA Makes the First Move to Certifying Specific Drones

South Korea Looking to Strengthen Industrial Partnership with the United States

Largest Transactions Closed

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