House Passes $778 Billion Defense Bill
This December, the House voted and approved the National Defense Authorization Acct (NDAA), a $778 billion defense budget bill that authorizes $25 billion more than requested by President Biden. The bill passed 363 to 70 with backing from Republicans and Democrats and included a provision to create a commission on the war in Afghanistan and increase pay to troops. This bill will benefit military construction companies, naval and aerospace service companies, and defense contractors since governmental military spending is boosted by about 5% over 2021's NDAA budget.1
Biden's New Order Creates Climate Disclosure Challenges
The President's new order, aimed at reducing the federal government's negative effect on the environment, has created new standards for climate disclosure reporting that could impact government contractors. Major contractors must be prepared to disclose their greenhouse gas emissions, carbon reduction goals, and financial risk from climate change. The SEC is also planning to release its own climate disclosure rules soon and is considering requiring companies to report their greenhouse gas emissions in their annual financial reports. Publicly traded government contractors will likely face more scrutiny related to new reporting standards.2
Russian-Ukrainian Tensions Rise as U.S. Supports Ukraine
Ukraine stands no chance against an invasion by Russia without significantly increasing its resources, for which it will look toward its allies for help. The U.S. has provided the Ukraine with $2.5 billion in military assistance, including high-tech surveillance and communications equipment and drones, and in November it delivered about 88 tons of ammunition to the Ukraine as part of a $60 million military aid package. Biden has warned that he will provide more assistance should Russia choose to order military action, which could benefit several U.S. defense producers and government contractors since their services would be required. However, the Biden administration has remained relatively vague about how it will respond if Ukraine is invaded.3
Wireless Telecommunications Companies Delay 5G Rollout
Concerns about 5G's potential interference with critical airplane cockpit safety systems have delayed Verizon Communication’s and AT&T's planned December 5 rollout of a new 5G frequency band. Deployments are delayed until January 5 as the companies respond to the regulator’s warnings while also disputing claims that the cellular signals negatively impact aerospace safety. Aviation industry groups have warned government officials about the potential safety risks of implementing 5G towers, but the wireless carriers have not been deterred from bringing 5G services to millions of Americans in early 2022. The FAA has sought specific data on locations of towers and whether they could interfere with the paths of planes but has yet to draw a conclusion. At publication, the January 5 rollout was again postponed for an additional 2 weeks.4
Aerospace Giants Struggle to Meet Production Demands
Boeing and Airbus, two of the largest aerospace producers in the U.S., have struggled to meet demand due to supply chain issues, rising costs, and labor shortages. Experts estimate that the supply chain will remain constrained through 2023, while large producers attempt to boost production to meet the demand. Boeing has faced a series of production defects with its 787 Dreamliner, a jet often used in long-haul flights, and currently has over $25 billion in inventory while it addresses defects and seeks regulatory approval for inspection. Boeing’s 787 output has slowed to about two aircraft per month compared to the five aircraft per month produced pre-pandemic, with costs of the delay estimated to be as much as $1 billion.5
United Airlines and Virgin Australia Announce Codesharing Partnership
United Airlines and Virgin Australia have announced a codesharing partnership, scheduled to roll out in April 2022. The partnership will triple Virgin's reach into the Americas and vastly improve United's presence to and within Australia. United and Virgin's venture faces a stronger rival partnership between American Airlines and Qantas, which provide a network between New Zealand, Australia, and North America. Despite its powerful rivals, United was the only carrier to maintain passenger service between the U.S. and Australia throughout the pandemic, and it offers more flights to Australia than any other U.S. carrier. Additionally, United recorded the world’s first commercial passenger flight to operate using 100% sustainable aviation fuel, creating a turning point in aerospace companies’ efforts to reduce their carbon footprint.6
Minimum Wage Increase for Federal Contractors
Beginning January 30, 2022, federal contract workers’ minimum wage will increase from $11.25 to $15.00 per hour. Biden's executive order will also define the term "new contract" differently, expanding it to apply to renewed and expanded contracts and a broader geographic area than Obama’s executive order in 2014. The geographic area will be expanded to U.S. territories; it used to apply only to the U.S. and the District of Columbia. The minimum wage will apply only to hours spent on federal contracts. Additionally, the order does not permit employers or unions to negotiate through collective bargaining.7
Biden Administration to Recommend Military Space Activity Norms
The Biden administration has announced plans to offer up new proposals for international norms of behavior for military space activities aimed at reducing the risk for conflict. According to Vice President Kamala Harris, the creation of space rules and norms for military, civil, and commercial activities will be one of the top three agenda items for the U.S. National Space Council in the next few months. Weapons tests have created dangerous debris, such as the recent ASAT test conducted by Russia, which resulted in over 1,500 trackable pieces of debris and more debris that is impossible to track. The council is also planning on taking a prominent role in future space coordination and is working on creating a system that will provide commercial and foreign operators with unclassified information to avoid on-orbit collisions- a process that will likely take several years. New regulations to reduce debris will include measures to limit any nonfunctional items allowed into space, a measure that could impact several aerospace companies.8
Largest Transactions Closed
- Gryphon Technologies LC
- ManTech International Corporation
- Avalex Technologies Corporation
- Mercury Systems, Inc.
- Crew Training International, Inc.
- Exchange Income Corporation
Other Financial Buyer Transactions Closed
- Mcfarlane Aviation, LLC
- Vance Street Management LLC
- Onboard Systems International Inc.
- Arcline Investment Management LP
Other Strategic Buyer Transactions Closed
- ASC International, Inc.
- Wencor Group, LLC
- Federal Resources Supply Company
- Noble Sales Co., Inc.
- Metalcraft Technologies, Inc.
- ARCH Precision Components Corp.
- SEAKR Engineering, Inc.
- Raytheon Intelligence & Space
- Techshot, Inc.
- Redwire Corporation
- Valley Tech Systems, Inc.
- Voyager Space Holdings, Inc.
- WorldWide Aviation Group, LLC
- Million Air Interlink, Inc.
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.
EBIT - Earnings Before Interest and Taxes