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20 Jul 18. Honeywell eyes supplier shift to avoid tariff hit. U.S. industrial conglomerate Honeywell International Inc (HON.N) said on Friday it had started sourcing some of its components from countries other than China to counter growing costs related to a tariff war between the world’s two largest economies. Honeywell’s shares rose as much as 4.4 percent to $153.99 after the company also reported a better-than-expected quarterly profit and raised its 2018 profit forecast for the third time as it benefits from increased demand for aircraft parts and services. The conglomerate said it had boosted prices on some of its products and had locked in purchases of some raw materials and components before new tariffs on imports from China came into effect.
“The key here is to get ahead of it early, and I think we definitely have,” Chief Executive Darius Adamczyk told a conference call with analysts after the company’s second quarter results. “If you sit and wait, you could see substantial margin contraction.”
The maker of engines for business jets produced by Bombardier (BBDb.TO) and Textron (TXT.N) raised the low end of its full-year margin forecast to 19.4-19.6 percent from 19.3-19.6 percent, and said it was expecting limited impact from known tariffs due to its mitigating actions. Honeywell and other industrial firms are seeing costs rising after President Donald Trump imposed a 25 percent tariff on imports of steel and 10 percent on aluminum from China and other countries.
“I wouldn’t tell you we’re not impacted, but we’re a lot more prepared,” Adamczyk said.
Excluding items, Honeywell earned $2.12 per share in the second quarter ended June 30, beating analysts’ average estimate of $2.01, according to Thomson Reuters I/B/E/S. The company’s revenue rose 8.3 percent to $10.92bn, above a Wall Street estimate of $10.80bn. An ecommerce boom in the United States is also contributing to Honeywell’s profits, helping it sell more supply chain and warehouse automation equipment and software to customers including Amazon.com Inc (AMZN.O). Sales in the aerospace division, which makes auxiliary power units, braking systems and other parts for Boeing and Airbus single-aisle planes, rose about 10 percent to $4.06bn. The company now expects 2018 profit in a range of $8.05-$8.15 per share, up from $7.85-$8.05, and sales of $43.1bn-$43.6bn, up from $42.7bn-$43.5bn.
“(Honeywell results) reinforces our positive view, 2019 is going up,” said J.P. Morgan analyst Stephen Tusa. “HON still has an abundance of balance sheet flexibility to either add to the upside or cushion the blow of a potentially mixed macro.” (Source: Reuters)
20 Jul 18. GE beats on EPS but trims cash flow target; shares fall. General Electric Co reported a smaller-than-expected drop in profit on Friday, but cut a key financial target, raising questions about its full-year outlook and sending shares sharply lower. The 126-year-old industrial conglomerate, whose power and financial-services units are struggling, said it expects to generate perhaps $1bn less free cash flow than expected this year.
The forecast cast doubt on GE’s full-year adjusted profit target of $1.00 to $1.07 a share. Though GE affirmed that target on Friday, many analysts see it as unrealistic and have cut their estimates to less than $1.00.
“We are getting questions as to how the company can maintain EPS guidance while cutting free cash flow guidance,” JPMorgan analyst Stephen Tusa wrote in a note on Friday.
GE’s conference call with analysts also cast doubt on the outlook. “They gave you all the conditions for why the forecast could go down,” said Deane Dray, analyst at RBC Capital Markets.
For example, GE had previously said it expects to ship 50 to 55 large power turbines this year. “On the call, they said ‘We’re targeting 50.’” GE also said power equipment sales may take longer to close. “The only thing you’re going to hear from that is there’s downside risk,” Dray said. The stock was down 5.2 percent at $13.02 in midday trading. The stock decline was “all about cash and (GE’s) acknowledgement of risk to the second half,” said Jeffrey Sprague, analyst at Vertical Research Partners. GE cut the industrial free cash flow target to $6bn from a range of $6bn to $7bn. Its adjusted earnings, which exclude certain pension and restructuring costs, fell 10 percent to 19 cents a share, beating analysts’ expectations of 17 cents a share, according to Thomson Reuters I/B/E/S. Total revenue rose to $30.1bn from $29.1bn. GE said weakness in power and renewables energy offset gains in its aviation and healthcare units. A decade and a half ago, GE was the world’s most valuable public company. But the Boston-based conglomerate foundered in several industrial markets and its move into financial services steered it into the global financial storm in 2008. GE shares have halved in the past year. Though investors are still interested in GE, many want to see the power and capital units stabilize and even improve before buying the stock, analysts have said.
‘THEY DIDN’T SCREW UP’
GE revealed no new bad news about ongoing accounting investigations, a shareholder lawsuit and a federal inquiry into subprime mortgage activity, and appeared to be operating better, some analysts said.
“They didn’t screw up,” said Nick Heymann, analyst at William Blair. “This was a quarter driven entirely by aviation and healthcare.”
GE beat earnings expectations in part because it cut overhead costs more than expected and the losses at GE Capital were less than analysts expected, said RBC’s Dray. The results capped an unusually busy quarter in which Chief Executive John Flannery announced a long-awaited plan to spin off its healthcare unit and sell its 62.5 percent stake in oil services firm Baker Hughes. In May, GE announced an $11.1bn deal to merge its locomotive unit with Wabtec Corp. In June, it announced a $3.25bn sale of its distributed power unit to U.S. buyout group Advent. GE also restated results for 2016 and 2017 to reflect new accounting standards. Last month, it was removed from the blue-chip Dow Jones Industrial Average. Finally, GE’s top executive in Latin America was jailed in Brazil after prosecutors said he was involved in a price-fixing scheme for medical equipment. Losses widened at GE Capital, the company’s financing arm, during the quarter. Power unit profit fell 58 percent in the quarter and orders there were down. GE’s power unit is relying on services revenue to offset declining sales of new equipment. But the services business also is under attack from competitors in important markets such as Saudi Arabia. Earnings from continuing operations attributable to GE shareholders fell to $736m, or 8 cents a share, from $1.03bn, or 12 cents a share, a year earlier. One positive for GE: Adjusted free cash flow from industrial activities swung to a positive $258m in the quarter from a negative $1.7bn in the first quarter. (Source: Reuters)
20 Jul 18. Esterline Technologies exploring potential sale – sources. Aerospace parts maker Esterline Technologies Corp (ESL.N) is exploring a potential sale, two people familiar with the matter said on Friday. Earlier on Friday, the Wall Street Journal reported that the company was exploring a sale, adding that the process was at an early stage and there was no guarantee of a deal. Esterline did not immediately respond to requests for comment. Shares of the company, which has a market capitalisation of more than $2bn, were up around 10 percent at $83 in afternoon trading. Esterline makes cockpit components and sensors for commercial jetliners, business jets and military aircraft such as Lockheed Martin (LMT.N) F-35 fighter jets. Any deal would add to a spate of consolidation in the industry, as companies look to deploy accrued cash at the same time as defence spending kicks up and firms search for more ways to grow capacity. In September last year United Technologies Corp (UTX.N) acquired Rockwell Collins for $30bn, and in March TransDigm Group (TDG.N) continued an acquisition spree with a $525m deal for Extant Components Group. Most recently, in June, Northrop Grumman (NOC.N) won U.S. antitrust approval to complete its $7.8bn acquisition of rocket maker Orbital ATK. (Source: Reuters)
20 Jul 18. Airbus renews attempt to sell parts maker PFW Aerospace: sources. Airbus (AIR.PA) is making a fresh attempt to sell supplier PFW Aerospace, which it acquired in 2011 to avoid an insolvency of the maker of precision tubes and components, sources close to the matter said. The German company was always seen as a temporary part of Airbus, and the sale indicates that concerns about this part of the planemaker’s supply chain have eased. After failing to sell the supplier in 2015, the sources said Airbus was poised to launch a new auction in the autumn for the company, which may be valued at €500-600m ($582-$698m). Investment bank Lazard (LAZ.N) has been brought in to organize the deal, the sources said. Airbus and Lazard declined to comment. The planned divestiture comes as Airbus and its rival Boeing are concerned global trade tensions could deter airlines from buying jetliners, although geopolitical uncertainty has allowed the two companies to sell more weapons. At this week’s Farnborough Airshow, the world’s largest planemakers repeated last year’s comparable haul of around 900 orders, but the tally was overshadowed by some 400 deals where the names of the buyers were withheld. PFW has its origins in a German airplane manufacturer Pfalz-Flugzeugwerke, which produced military airplanes in both world wars. It later became part of Deutsche Aerospace Airbus, before it was sold first to its staff and then in 2001 to buyout firm Safeguard, which still owns a minority stake. In Airbus’ earlier bid to sell the company in 2015, the business attracted interest from Eaton (ETN.N), Parker (PH.N), Total’s Hutchinson (TOTF.PA) as well as buyout groups such as Bridgepoint, Bregal and Liberty Hall. None were willing to meet Airbus’ asking price at the time. ($1 = 0.8591 euros) (Source: Reuters)
20 Jul 18. L3 Technologies Acquires Latitude Engineering. L3 Technologies has acquired Latitude Engineering, a unique unmanned aircraft systems company that has developed a family of commercial and military Vertical Take Off and Landing (VTOL) UAVs based on their Hybrid Quadrotor (HQ) technology. L3 Latitude’s innovative unmanned vehicles expand our company’s capability and provide a more affordable solution in the growing UAV market. Based in Tucson Arizona, L3 Latitude’s HQ-60 Hybrid Quadrotor UAV has proven market-leading endurance, and demonstrated autonomous shipboard takeoff and landings. (Source: UAS VISION/ YouTube)
19 July 18. Textron Inc. (NYSE: TXT) today reported second quarter 2018 income from continuing operations of $0.87 per share. This compares to $0.57 per share in the second quarter of 2017, or $0.60 per share of adjusted income from continuing operations.
“Operationally, we saw continued strength in our execution with margin improvements at Aviation, Systems, and Bell,” said Textron Chairman and CEO Scott C. Donnelly. “We are encouraged by revenue growth resulting from improving commercial demand across many of our end markets.”
Cash Flow
Net cash provided by operating activities of continuing operations of the manufacturing group for the second quarter totaled $468m, compared to $413m in last year’s second quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $399m compared to $341m during last year’s second quarter. In the quarter, Textron returned $571m to shareholders through share repurchases, compared to $143m in the second quarter of 2017.
Outlook
Textron now expects 2018 earnings per share from continuing operations to be in a range of $3.15 to $3.35, up $0.20 from our previous outlook. The company also expects full-year 2018 cash flow from continuing operations of the manufacturing group before pension contributions to be in a range of $750 to $850m, up $50m from its previous expectation.
Textron expects a one-time gain of approximately $400m from the Tools & Test divestiture in the third quarter of 2018, which is not reflected in this updated outlook.
“Our updated outlook reflects our strong first-half performance and the continuation of our strategy of growth through new product investments and acquisitions to increase long-term shareholder value,” Donnelly concluded.
Second Quarter Segment Results
Textron Aviation
Revenues at Textron Aviation of $1.3bn were up 9%, primarily due to higher volume and price.
Textron Aviation delivered 48 jets, up from 46 last year, and 47 commercial turboprops, up from 33 last year.
Segment profit was $104m in the second quarter, up from $54m a year ago, due to the favorable volume, mix, and price.
Textron Aviation backlog at the end of the second quarter was $1.6bn.
Bell
Bell revenues were $831m, up 1% primarily on higher commercial volume, partially offset by lower military revenues.
Bell delivered 57 commercial helicopters in the quarter, up from 21 last year.
Segment profit of $117m was up $5m.
Bell backlog at the end of the second quarter was $5.5 bn.
Textron Systems
Revenues at Textron Systems were $380m, down from $477m last year, largely on lower volumes at Weapons & Sensors related to the discontinuance of SFW production in 2017 and lower TAPV deliveries at Textron Marine & Land Systems.
Segment profit was down $2m, primarily reflecting the lower net volume partially offset by favorable performance.
Textron Systems’ backlog at the end of the second quarter was $1.2bn.
Industrial
Industrial revenues increased $109m largely related to higher volumes across all of our product lines and a favorable impact from foreign exchange.
Segment profit was down $2m despite the increase in revenues from the second quarter of 2017, due to the mix of products sold.
Finance
Finance segment revenues and profit were both flat with last year’s second quarter.
19 Jul 18. Thales 2018 Half year results.
. Solid order intake: €6.3bn, up 5%1 (up 8% on an organic basis2)
. Sales: €7.45 bn, up 4.7% (up 6.9% on an organic basis)
. EBIT3: €762 m, up 30% (up 33% on an organic basis)
. Adjusted net income, Group share3: €539m, up 39%
. Consolidated net income, Group share: €457m, up 53%
. Free operating cash flow3: -€272m
. All 2018 financial objectives confirmed
1 As of 1st January 2018, the Group has been applying IFRS 15 “Revenue from Contracts with Customers”. All changes are calculated compared with the H1 2018 figures restated for the application of this standard, which appear in the H1 2018 consolidated financial statements
2“organic” means at constant scope and currency. See note on methodology on page 12 and calculation
3 Non-GAAP financial indicators
4 The limited review of the financial statements has been completed and the statutory auditors’ report has been issued following
the meeting of the Board of Directors
Thales’s Board of Directors (Euronext Paris: HO) met on 19 July 2018 to review the financial statements for the first half of 20184.
“In the first half of 2018, Thales again posted a very solid performance. Organic sales growth reached almost 7%, ahead of the full year target. Order intake, up by 5%, was in line with our expectations. The operating margin rose sharply, breaking through the 10% barrier in H1 for the first time. As planned, we significantly increased our R&D investments, up 13% for H1 2018, in order to accelerate the development of the most innovative solutions in every one of our markets and plan for the future. These positive dynamics allows us to confirm our 2018 financial objectives. All Group teams are focused on the implementation of the second phase of our strategic plan Ambition 10, which combines the strengthening of our position as a technology leader in all of our markets with the ramp-up of new operational performance initiatives. The projected acquisition of Gemalto, a booster of this strategy, is proceeding as planned. It should be completed before the end of the year, once we have obtained all the necessary regulatory authorizations. Our ambition is simple: to grow profitably, faster than the market, and in a sustainable way, in order to maximize value creation.” Patrice Caine, Chairman & Chief Executive Officer
H1 2018 order intake amounted to €6,331m, up 5% compared with H1 2017 (up +8% at constant scope and currency). The commercial dynamics remained particularly solid in the Transport and Defence & Security segments. At 30 June 2018, the consolidated order book stood at €31.0bn, which represents nearly two years of sales.
Sales in H1 2018 came to €7,452m, up 4.7% compared with the H1 2017 sales restated for the application of IFRS 15, and up 6.9% at constant scope and currency (“organic” change). Sales maintained a high growth rate, driven by strong momentum in the Transport (organic growth of 22.2%) and Defence & Security (organic growth of 8.5%) segments.
In H1 2018, the Group posted consolidated EBIT of €762m (10.2% of sales), compared to €587m (8.3% of sales) in H1 2017, up 30% compared with the H1 2017 EBIT restated for the application of IFRS 15. All operating segments recorded a sharp increase in their EBIT margin while accelerating their investments in R&D, up by 14% on an organic basis. Adjusted net income, Group share rose by 39% to €539m, boosted by the improved EBIT
performance. Consolidated net income, Group share was €457 m. This figure was up 53%, benefiting primarily from the sharp rise in income from operations (+€174m). At -€272m, operating free cash flow for the first half of 2018 returned to a negative figure, with the change in WCR experiencing its usual seasonality. At 30 June 2018, net cash amounted to €2,311m, down €661m compared with 31 December 2017.
H1 2018 order intake amounted to €6,331m, up 5% compared with H1 2017 (up +8% at constant scope and currency10). The book-to-bill ratio was 0.85 for H1 2018 (0.84 for H1 2017), and 0.98 over the last 12 months.
In H1 2018, Thales booked six large orders with a unit value of over €100m (compared with eight such orders in H1 2017), representing a total amount of €1,814m:
. 3 large orders recorded in Q1 2018, covering the modernization of air traffic control in Australia (OneSKY project), the supply of systems onboard the 12 additional Rafale combat aircraft ordered by Qatar, and the renovation of signaling systems on one of the main railways in Poland;
. 3 large orders booked in Q2 2018:
o for Eutelsat, the design of a very high throughput next-generation satellite, fitted with the most powerful digital processor ever sent into orbit (Konnect VHTS)
o for the German Navy, the combat management system (CMS) for five K130 corvettes, in a consortium with Atlas Elektronik
o for the Australian Royal Navy, the modernization of sonar systems on six Collins class submarines
At €4,517m, orders with a unit value of less than €100m were down by 6% on H1 2017, impacted by phasing effects during the year (Q1: -15%, Q2: -0%).
From a geographical perspective11, order intake in emerging markets, which had benefited from three major orders in the previous year compared with just one this year, stood at €1,320m, down 19%. Meanwhile, order intake in mature markets rose sharply (+15% to €5,011m), driven in particular by the OneSKY project in Australia.
Order intake in the Aerospace segment stood at €2,042m, down 10% from €2,274m in H1 2017. This drop can be explained by lower order intake in military avionics and In-Flight Entertainment (IFE), with H1 2017 having benefited from the booking of a large order from a
North American airline. Order intake in the Space segment posted slight growth compared with the H1 2017; however, the first part of the year not being very material in this segment.
At €835m, order intake in the Transport segment remained particularly buoyant, up 26% compared with H1 2017, driven in particular by two major railway signaling contracts. Order intake in the Defence & Security segment amounted to €3,434m, up 13% from €3,035 for H1 2017, notably with strong momentum in equipment for military ships and submarines, air traffic control (with the OneSKY project), and cybersecurity.
Sales for H1 2018 stood at €7,452m, compared to €7,118m in H1 2017, up 4.7%. The organic change (at constant scope and exchange rate13) came in at +6.9%, driven by strong momentum in the Transport and Defence & Security segments. From a geographical perspective14, this performance reflected strong momentum, both in emerging markets (up 8.4%) and in mature markets (up 6.3%).
Sales in the Aerospace segment amounted to €2,768m, down 1.0% on H1 2017 (+1.1% at constant scope and currency). This low growth reflected the slowdown of the commercial telecommunications satellites market as well as a high basis of comparison in In-Flight Entertainment (IFE), partly offset by strong momentum in the military and institutional space markets.
In the Transport segment, sales amounted to €904m, up 18.8% on H1 2017 (+22.2% at constant scope and currency). The segment benefited from the ramp-up of the large urban rail signaling contracts signed in 2015 and 2016, combined with an upturn in mainline activity. However, growth in this segment is expected to slow down significantly during H2, with the basis of comparison becoming less favorable.
Sales in the Defence & Security segment represented €3,757m, up 6.3% compared to H1 2017 (+8.5% at constant scope and currency). A large number of activities contributed to this momentum: surface radar, combat aircraft systems, systems and services for military ships and submarines, military radio communications, and cybersecurity. Organic growth in this segment was particularly strong in mature markets (up 10.2%), reflecting the positive inflection of defence budgets and the Group’s solid commercial momentum in these markets. This growth is nevertheless expected to experience a slowdown in H1 2018, with the basis of comparison being significantly higher (organic growth in H1 2017: +6.5%, in H2 2017: +11.8%).
In H1 2018, the Group posted consolidated EBIT15 of €762m (10.2% of sales), compared to €587m (8.3% of sales) in H1 2017.
The Aerospace segment posted EBIT of €291 m (10.5% of sales), versus €260m (9.3% of sales) for the same period in 2017. The margin in this segment increased significantly, with the competitiveness initiatives and savings on sales and administrative expenses largely offsetting the acceleration in R&D expenses, particularly in Space.
EBIT for the Transport segment continued to recover, reaching €27m (2.9% of sales), compared with €8m (1.1% of sales) in H1 2017. The segment benefited from the gradual phasing-out of old contracts with low or zero margin and the leverage on indirect costs brought on by the strong growth in sales.
In the Defence & Security segment, EBIT increased significantly to €444m (11.8% of sales) versus €325m in H1 2017 (9.2% of sales). The increase in margin was driven by the strong commercial momentum, savings on sales and administrative expenses, and an exceptional provision reversal of €20m following the resolution of two trade disputes, which largely offset the sharp rise in R&D expenses.
Naval Group contributed €38m to EBIT in H1 2018, compared with €26m in H1 2017, benefiting from solid sales growth (up 10% over the half year) and its competitiveness initiatives. For the Full Year 2018, Naval Group targets a growth in its net income, group share of around 10% compared with 2017.
At -€3m in H1 2018 versus €2m in H1 2017, cost of net debt remained very low. Other adjusted financial income and expenses16 amounted to a net expense of -€1m in H1 2018, compared with a net expense of -€20m in H1 2017, primarily thanks to the recovery in foreign exchange performance. Adjusted finance costs on pensions and other long-term employee benefits16 improved slightly (-€27m versus -€31m in H1 2017), benefiting primarily from the fall in net pension obligations and in the discount rate in the United Kingdom. As a result, adjusted net income, Group share16 was €539m versus €387m in H1 2017, after an adjusted income tax charge16 of -€173m, compared with -€125m in H1 2017. A 26.6%, the effective income tax rate was stable (26.9% in H1 2017). At €457m, consolidated net income, Group share posted an increase of 53%, benefiting from the strong improvement in income from operations (up €174m) and from the improvement in the financial result (up €29m).
20 Jul 18. Saab’s results January-June 2018. Saab presents the results for January-June 2018. Statement by the President and CEO Håkan Buskhe:
Efficient project execution in focus. Demand for high-tech defence and security solutions remained strong in the first half of 2018. Security concerns and rapid technological developments have led to increased investment in defence materiel in many regions of the world.
During the first half of 2018, Saab achieved important milestones in several major development projects. This includes the successful first flight of the new generation GlobalEye Airborne Early Warning & Control system and the launch of the Swedish Navy’s HMS Gotland submarine after a mid-life upgrade and modification. The Gripen E programme is also progressing as planned. Execution of major projects was a priority for Saab in the first half-year and will remain so going forward.
Order bookings and sales
Order bookings of medium-sized orders were strong in the first half of 2018. In total, order bookings amounted to SEK 12.7bn. A large order was received during the period for Gripen development and operational support worth SEK 1.4bn. Large orders received in the same period of 2017 totalled SEK 10.7bn. Interest in Saab’s products remains high.
Sales amounted to SEK 15.7bn with organic growth of 1 per cent. The business areas Aeronautics, Surveillance and Kockums saw strong growth driven by increased activity in major projects.
Operating income
Operating income amounted to SEK 905m (886) and the operating margin was 5.8 per cent (5.8). The operating margin improved during the period within several business areas, and as expected the operating margin was negatively affected within the business area Dynamics by a lower delivery level than in the same period of 2017.
Operational cash flow amounted to SEK -2,750m (-443), according to plan. The main reason for the negative cash flow was a high level of capital employed within the Gripen operations and utilisation of previously received advances and milestone payments.
The financial net had a negative impact on net income due to changes in market value of derivatives related to hedged tenders mainly in USD.
Performance
Our efforts to improve efficiency continued in the first half of 2018, at the same time that an analysis is underway to identify measures to further increase productivity. The aim is to launch them this autumn.
Outlook statement for 2018: (unchanged)
We estimate that sales growth in 2018 will be in line with Saab’s long-term financial goal: annual organic sales growth of 5 per cent. The operating margin in 2018, excluding material non-recurring items, is expected to improve compared to 2017, bringing Saab a step closer to its financial goal: an operating margin of 10 per cent per year over a business cycle.
19 Jul 18. France to bolster anti-takeover measures amid foreign investment boom. France wants to tighten takeover rules to protect companies deemed strategic as it walks a fine line between preserving a surge in investments and preventing its technology falling into the hands of foreign powers like China and the United States. In a wide-ranging business bill to be debated in the autumn, President Emmanuel Macron’s government is proposing to widen the scope for state intervention and substantially increase the use of “golden shares” to protect national interests. Under the proposals, the finance minister could impose fines on investors who fail to seek prior approval to buy stakes in French companies deemed of strategic importance. These could be as high as 10 percent of the targeted company’s annual revenues, according to a draft seen by Reuters. The minister could also suspend investors’ voting rights or appoint a special trustee as part of the protective measures. The move comes after several national champions such as train-maker Alstom and telecoms equipment maker Alcatel-Lucent changed flags in recent years under deals that many political heavyweights deemed unfair or detrimental to the state. General Electric’s (GE.N) acquisition of Alstom’s power division – whose turbines equip all of France’s nuclear reactors – Technip’s merger with U.S.-based FMC Technologies (FTI.N) and Chinese investors’ increasing influence in Peugeot-Citroen (PEUP.PA) and Accor (ACCP.PA) are other recent examples. They triggered intense national discussion over the means the government had to fend off such buyouts and led to parliamentary inquiries that questioned the absence of a U.S.-style legislative apparatus. In the United States, the Committee on Foreign Investment in the United States, or CFIUS, has far-reaching powers to intervene and block foreign takeovers. While Macron is a former investment banker and advocate of free trade, he has shown willingness to head off foreign acquisitions when national interests may be at stake — he temporarily nationalised French shipyard STX in July 2017 to prevent it falling into foreign hands, although he later approved its acquisition by Italy’s Fincantieri (FCT.MI). He has pushed for the creation of European corporate champions, but has been criticised by opposition lawmakers for breaking with a long tradition of protecting France’s corporate jewels.
“This is a doctrine which, because it believes in free trade, knows that free trade cannot tolerate naivety,” said Stanislas Guerini, a member of the president’s majority in parliament and part of Macron’s inner circle.
BOOMING FOREIGN INVESTMENTS
The proposed anti-takeover legislation, which would increase powers given in a 2014 decree, is expected to be widely backed by a parliamentary majority and approved when it comes to a vote towards the end of 2018 or early 2019, Guerini said. Macron’s party holds an outright majority in parliament. A boom in foreign investment since Macron came to office has fuelled the sense of urgency. Direct investments by both the United States and China jumped by more than 25 percent in 2017, according to trade agency Business France. Assets to be covered by the special powers will be identified in detail at a later stage by decree. But the government has already indicated that the scope would be extended to the fields of artificial intelligence, microchips, space technology and data storage. Golden shares, which give special voting rights and the ability to block potential takeovers, could be distributed to the companies in France’s state-shareholding portfolio if national interests are considered at risk. Firms in which France’s state investment bank Bpifrance holds more than 5 percent would also be included, meaning companies ranging from carmakers PSA Group (PEUP.PA) and Renault (RENA.PA) to airline Air France-KLM AIF.PA and energy group Engie (ENGIE.PA) would fall under its umbrella. The European Commission issued updated guidance on investor rights on Thursday which restated that EU law permits golden shares provided member states use the powers in a non-discriminatory manner and that they are justified on the grounds of public security, public health, social rights, consumer protection or the preservation of the environment. Lawyers interviewed by Reuters praised the “golden share” tool as it allows debt-ridden France to sell part of its national jewels to generate cash while retaining influence.
“The full range is now comprehensive and efficient. It allows (the state) to cover all types of situations,” said Pascal Bine, a partner at law firm Skadden, Arps, Slate, Meagher & Flom.
Investors have been more ambivalent. “It’s very protectionist,” said Loic Dessaint, CEO of Proxinvest, a shareholder advisory firm. “But the French government has not made an excessive use of its control prerogatives (in recent cases).”
Colette Neuville, head of an interest group representing minority shareholders, said: “I am less opposed to this kind of thing than I was a few years ago.”
The draft legislation stipulates that the list of companies that qualify for the “golden share” protection could not be extended after the law’s adoption.
EUROPEAN TREND
France is not alone in seeking to tighten rules on takeover by overseas buyers in Europe. Germany, which was spooked by the acquisition of robotics firm Kuka (KU2G.DE) by China’s Midea (000333.SZ), became the first European Union country to tighten its rules last year and is now looking at lowering the threshold at which it can intervene. Its new regulations allow its government to block moves that present a risk of critical technology being lost abroad. Italy passed a law last year to protect companies from hostile takeovers after French media group Vivendi (VIV.PA) sharply increased its holding in broadcasting firm Mediaset (MS.MI) and Telecom Italia (TLIT.MI). European Union leaders agreed last year to consider screening investments by state-owned Chinese firms, and France, Germany and Italy have backed the idea of allowing the EU to block Chinese investments. A draft EU law that would limit the ability of non-EU firms to acquire companies and technology in the bloc remains under discussion. (Source: Reuters)
19 Jul 18. Dassault Aviation H1 net profits rise, company confirms 2018 targets. Aerospace company Dassault Aviation (AVMD.PA) reported higher adjusted first-half net profits on Thursday, and confirmed its 2018 financial targets. Dassault Aviation said adjusted net income had risen 12 percent from last year to 186m euros (£165.57m), with the order intake for the first-half of the year standing at 2.81bn euros compared to 1.42bn a year earlier.
Adjusted first-half net sales fell 17 percent to 1.71bn euros, reflecting lower sales of the Falcon jet compared to a year ago, but Dassault Aviation stuck to its overall 2018 financial targets.
“The group confirms its forecasts published on March 8, 2018, namely the delivery of 40 Falcon and 12 Rafale (3 to France and 9 for Export) and 2018 net sales should be close to 2017’s,” the company said in a statement. The Dassault family controls the majority of Dassault Aviation, while Airbus (AIR.PA) has a 9.9 percent stake in the group.(Source: Reuters)
19 Jul 18. Nato and post-Brexit defence catalysts. Whatever your thoughts on Donald Trump, it’s clear that he deviates from the political mainstream on several fronts, not least of which a disturbing tendency to follow through on campaign promises. Not that investors in the aerospace and defence sector will be complaining on that score. President Trump’s foreign policy, in keeping with that of Republican predecessor Ronald Reagan, is predicated on the use of ‘hard power’ – the use of economic incentives or military strength to influence friends and foe alike. That’s good news for investors at a time when Brexit negotiations have muddied the waters for the UK defence industry.
Nearly three months ago, legislators from the US House of Representatives released details of a $717bn (£520bn) annual defence policy bill, including new efforts to compete with Russia and China on cyber warfare. This underlines a view among defence analysts that an intensifying focus on potential security threats by regional powers such as India, China and Japan will provide the main catalyst for global defence spending in the years ahead.
The annual Jane’s Defence Budgets analysis published by IHS Markit (US:INFO) indicates that defence spending will grow for the fifth consecutive year, hitting $1.67trn in 2018 – an annual increase of 3.3 per cent and overtaking the previous post-Cold War high of $1.63trn recorded in 2010. Parallel analysis from Deloitte suggests a compound annual growth rate (CAGR) of around 3 per cent over 2017–22, crossing the $2trn mark by 2022.
Trump presses on the Nato obligation
However, the Deloitte analysis was completed ahead of last week’s Nato summit in Brussels, where Donald Trump claimed victory in his struggle to get US allies to increase their military budgets. As only a handful of member states have complied with the minimum Nato defence spending obligation of 2 per cent of GDP, the only surprising thing is that earlier US administrations hadn’t taken a similarly hard line on the issue. (The region with the fastest-growing defence spending is Eastern Europe, reflecting Baltic states’ anxieties about Russia’s military activities). Indeed, the International Institute for Strategic Studies claims that ifallNatoEuropean countries were to have met the 2 per cent of GDP target, their collective defence spending would have needed to rise by over 40 per cent.
Share prices for industry heavyweights, including leading US contractors Lockheed Martin (US:LMT) and Raytheon (US:RTN), rallied on news of the renewed commitments by Nato partners, although you’re left wondering if some European leaders haven’t simply kicked the issue into the long grass. In aggregate, the governments of France and Germany have committed to an extra €34bn (£30bn) in military spending, but the timeframes are such that the political tenures of both Emmanuel Macron and Angela Merkel will have already been consigned to the history books long before their countries’ defence budgets hit the Nato target rate.
Strategic issues the principal catalyst
That European powers have been coming up short of their ground floor commitments to Nato can be traced back to the ‘peace dividend’ that followed the collapse of the Soviet Union. The term turned out to be something of a misnomer, given that defence cuts across Europe were undertaken with limited co-ordination between state and industry or among governments, with the result that upwards of a third of UK defence jobs were cut in the early part of the 1990s.
Leaving aside the intervention of the US president, it’s conceivable that the pressure to increase European defence spending could also intensify simply because of strategic issues. Nato’s expansion into the Balkans is gathering pace, but has received minimal press coverage considering the geopolitical implications for both Turkey and Russia. So, aside from the Nato imperative, we think the growth of homegrown contractors will be supported by military escalation – or the preservation of strategic parity – in certain regional flash points, such as the South China Sea. But there are other catalysts at work.
Beyond the EU27 – gearing up for a post-Brexit settlement
Obviously, politics will always be a central consideration in defence procurement, and we may already be seeing signs that the UK might be looking to step up industry trade ties beyond the EU27 ahead of any post-Brexit settlement. Airbus recently warned that it could exit the UK if the nation leaves the EU single market and customs union without a transition deal. If, as some reports suggest, that the ultimatum was delivered at the behest of pro-EU members of government, it would have been interesting to note the reaction of Airbus executives a week or so later, when it emerged that the MoD was still intent on awarding a ‘sole-source’ contract to Boeing(US:BA) – the European group’s chief rival – to provide airborne early warning aircraft for the RAF, valued at an estimated $1bn.
Homegrown investment options
With the FTSE All-Share Aerospace and Defence index up 16.4 per cent in the year to date, valuations are obviously stretched, but the UK’s prime contractor and a civil defence option look the most viable plays at current prices.
Some might venture there was a political element behind news that BAE Systems (BA.) had beaten rivals from Spain and Italy to land a massive £20bn contract to build nine anti-submarine warfare frigates for the Royal Australian Navy. And the Minister of Defence, Gavin Williamson, has just announced that the government will invest £2bn over the next seven years towards the development of a new fighter dubbed ‘Tempest’ by 2035. The move is being portrayed as a sop to the combat aircraft industry after France and Germany excluded the UK from a joint project earlier this year, and while it will play well in the current political climate, the fact that the new-age fighter will be equipped with laser weapons and have the option of being flown manually or autonomously suggests that its genesis lays in BAE’s ground-breaking ‘Taranis’ drone project, which we’ve covered in these pages previously. Despite a succession of positive market updates, the valuation for Europe’s biggest contractor is far from prohibitive given long-term prospects.
Boeing happens to be a major global defence contractor, but with only a third of its top line derived from military budgets, its business will obviously benefit from the anticipated 4.8 per cent growth in revenues for the civil aviation market in 2018, with production levels likely to remain robust throughout. But the UK also has some operators straddling the military and civilian spheres.
We recently reviewed half-year figures for Avon Rubber (AVON), a manufacturer of high-performance gas masks and automated milking technologies. Ostensibly, a rather unusual product offering, but leaving aside the marked pro-rata increase in global dairy consumption, management at Wiltshire-based Avon have been tapping into the rapid growth of civil defence budgets (which in the UK alone grew at a CAGR of 7.6 per cent through 2012-17). With a market cap hovering around the £450m market, Avon is a relative minnow, but if you’ve got the march on competitors in niche markets, it doesn’t matter how big you are. Peel Hunt believes the forward price/earnings ratio is justified by “the strength of the order book”, allied to “a positive organic growth outlook”, while “the balance sheet and acquisition landscape support a compelling inorganic growth story”.
The analyst’s view
Criticism from US administrations regarding the failure of many Nato allies to spend at least 2 per cent of GDP on national defence is not a new development, but President Donald Trump has really stepped up the pressure since coming into office.
This is certainly adding to the impetus towards increasing defence investment among non-US members, but according to Jane’s data, several European Nato members began implementing increases soon after the agreement to move towards the 2 per cent of GDP obligation made in 2014 in the Wales Nato Summit Defence Investment Pledge. Eastern European defence spending returned to growth in 2014 following Russia’s annexation of Crimea and, as fiscal balances improved in the West, growth returned to major markets in 2015.
In 2018, seven Nato members met or exceeded the 2 per cent of GDP obligation – the US (3.5 per cent), Greece (2.4 per cent), Estonia (2.1 per cent), the UK (2.1 per cent), Lithuania (2.0 per cent), Latvia (2.0 per cent) and Poland (2.0 per cent). France and Romania fall just short of the target, while Bulgaria and the Czech Republic are both enacting significant annual increases to defence spending.
Several more members fulfil the other Nato defence spending guideline – to allocate 20 per cent of the entire defence budget towards investment on new equipment including research and development. In 2018, 17 Nato members will meet this target, including the US. Furthermore, there is evidence that this proportion has been on an upward trajectory since 2014-15 across the alliance.
Eastern Europe as a whole is aiming to boost interoperability with Nato and modernise outdated equipment at an incredibly rapid pace. Over the past 10 years, defence spending developments in Europe have hinged on economic developments, but now, as fiscal balances and economic growth have strengthened, the outlook for spending is now wholly dependent on political movements and the success of defence cooperation efforts.
Fenella McGerty, defence budgets analyst, Jane’s by IHS Markit
IC View
The recent Nato summit provided entertaining theatre, but we shouldn’t read too much into nominal spending commitments by member states. It’s likely that homegrown aerospace and defence stocks should benefit from a more favourable MoD procurement policy post-Brexit, though other factors will be just as deterministic. For instance, in many oil-exporting countries – a key market for the UK defence industry – increases in military spending over the past 10 years have been correlated with rising oil prices. But aggregate defence spending will be governed as much by the scramble to achieve strategic parity as technologies evolve – the ‘Dreadnought’ effect. Consider that three global defence heavyweights – BAE, Boeing and Lockheed Martin – each spent more on defence R&D than all but two European nations (France and the UK) in 2016. (Source: Investors Chronicle)
19 Jul 18. Boeing (NYSE: BA) strengthened its position as the global leader of the aerospace industry, booking historic orders and showcasing its innovation and strategy for growth at the Farnborough International Airshow. At the close of the industry portion of the show, Boeing announced a total of $98.4bn in orders and commitments for commercial airplanes at list prices and $2.1bn in commercial and defense services orders and agreements.
“Boeing led the way at Farnborough, demonstrating value for our customers, capturing important new business in products and services, and announcing the unique strength of our strategic partnership with Embraer. We also invested in our European communities, and launched our new Boeing NeXt organization—proving the future is built here, at Boeing,” said Chairman, President and CEO Dennis Muilenburg. “We will continue to win in the marketplace thanks to our talented team, who innovate across our enterprise with One Boeing collaboration and deliver on our proven portfolio with relentless customer focus.”
Boeing marked an outstanding week for order capture in commercial aviation, with customers announcing 673 orders and commitments in total, reflecting a continued resurgence in demand for freighters and strong order activity for the 737 MAX and 787 passenger airplanes. Boeing secured 48 orders and commitments for the 777F, five for the 747-8F, reflecting continued strengthening in the cargo market globally. Customers also continued to demonstrate a strong preference for Boeing’s passenger airplane portfolio, with 52 orders for the 787 and 564 for single-aisle 737 MAX, including a major commitment from VietJet for 100 airplanes and strong demand for the largest variant of the MAX family, with 110 orders and commitments for the 737 MAX 10. On the services side of the business, Boeing secured commercial and government customers including Antonov, Atlas Air, Blackshape, Cargolux, Emirates, EVA Airways, GECAS, Hawaiian Airlines, International Water Services, Malindo Air, Okay Airlines, Primera Air, Royal Netherlands Air Force, United States Air Force, WestJet and Xiamen Airlines.
At the show, Boeing also revealed its 2018 Commercial Market Outlook, raising its 20-year outlook for commercial airplanes and services to $15.1trn. The global market is forecast at almost 43,000 new airplanes, valued at $6.3trn, and demand for $8.8 trillion worth of commercial services through 2038. The strength of the cargo market, noted in the CMO, was underscored by more than 50 freighter orders and commitments at the show. The Boeing 737 MAX 7 and the Biman Bangladesh 787-8 starred in the daily flying display while the Air Italy 737 MAX 8, a Qatar Airways 777-300ER, and CargoLogicAir and Qatar Airways 747-8 Freighters were featured in the static display. The U.S. Department of Defense displayed the AH-64 Apache attack helicopter, the CH-47 Chinook heavy-lift helicopter and the F-15E Strike Eagle.
Additionally, Boeing and Embraer leaders held their first news conference together since announcing plans for a strategic partnership. Muilenburg, Boeing Chief Financial Officer and Executive Vice President for Enterprise Performance & Strategy Greg Smith and Embraer Chief Executive Officer and President Paulo Cesar de Souza e Silva presented details of the proposed partnership, which includes ventures in commercial airplanes and lifecycle services, as well as defense.
During the show, Boeing also announced its collaboration with artificial intelligence company SparkCognition to deliver unmanned aircraft system traffic management (UTM) solutions. This announcement coincided with the launch of Boeing NeXt, an incubator organization for future commercial mobility solutions that will shape the emerging world of travel and transport. Boeing NeXt will leverage the company’s research and development activities and investments in areas such as autonomous flight, smart cities and advanced propulsion, and address transportation challenges of the future by moving people and goods with proven technology. Boeing also highlighted its commitment to future aerospace innovators with a $5m investment in Newton Europe to launch Science, Technology, Engineering and Math (STEM) education “Newton Rooms” across nine European countries.
18 Jul 18. Babcock shares drop 10% on hit to marine division. Shares in Babcock International have dropped by 10 per cent as the engineer cut its full-year revenue growth target on Thursday. Shares in the company are trading at 720p, after the marine division of company, which provides specialist support to Britain’s defence ministry and other governments, was hit by delays in government spending on submarines. Babcock also suffered an expected decline in revenue from the Queen Elizabeth Carrier project. The company said it now expected to see “low single-digit” underlying revenue growth for the full year and that it intends to dispose of two low-margin businesses, as well as some others. It also highlighted that its order book is stable and that more than 80 per cent of revenue for the year ahead is in place. Babcock warned in February that the slowdown in defence procurement contracts and tough trading conditions in the oil and gas sector would mean full-year revenues were likely to be “slightly lower than previously expected”. (Source: FT.com)
18 Jul 18. Israel’s Elbit on hunt for more takeovers. Israeli military electronics firm Elbit Systems, which has just completed two acquisitions in the United States and Israel, remains on the lookout for potential takeover targets in the United States and Europe, a top official said Wednesday. Ran Kril, executive vice president for international marketing and business development, told Reuters the company was looking to increase its presence in several countries to benefit from growing demand for a wide range of military equipment.
“M&A has been and will be part of our strategy as we are trying to strengthen our presence in the U.S., U.K. and Europe,” Kril said in an interview at the Farnborough Airshow.
Elbit, which makes drones, pilot helmet displays and cyber security systems, last week unveiled a 1.6 tonne unmanned vehicle designed to fly in airspace currently reserved for piloted civilian planes. Kril said the planned acquisition of state-owned IMI Systems from the Israeli government for up to $522m would help Elbit offer far more comprehensive solutions to its customers. Completion of the deal, which must still be approved by the Israel Antitrust Authority, would likely see Elbit pass Israel Aerospace Industries as the country’s biggest defense contractor. The company completed the purchase of U.S.-based Universal Avionics Systems for $120m in April. Kril said he saw a big increase in European demand for military and security systems fueled by security concerns linked to the Russian annexation of Crimea, increased immigration, and as a result of long-neglected modernization needs.
“After many years, for defense industries, Europe has woken up. We see a dramatic change in budgets and demand, and in the willingness to promote security and defense,” he said.
One key growth area will be in the area of protecting aircraft against strikes by shoulder-fired air-to-surface missiles, said Arnon Bram, who heads the Elbit unit that makes such Direct Infrared Counter Measures (DIRCM) systems. Bram said 135 such systems had been sold or ordered by 19 customers in 15 countries, including Germany for its A400M military transport planes. The company expected to more than double that number in coming years, given growing demand from foreign militaries and for the transport of heads of state, Bram said. (Source: Reuters)
18 Jul 18. Naval Group reports 2018 first-half financial results.
. Sales amount to €1.87bn (+10 % vs first-half 2017), of which 29 % on
international markets
. Order intake of €1.92bn
. Increase in EBITA1 to €126.9m and return on sales of 6.8%.
. Annual forecast confirmed
Naval Group’s General Management Committee met on 17 July 2018 to examine the accounts of the 1st half of 2018, closed on 30 June.
Commenting these results, Frank Le Rebeller, Executive Vice President Finance, Legal and Purchasing, indicated in particular: “The results for the first half of 2018 (in accordance with IFRS standards and more specifically the IRFS15 standard) show an increase in our sales and an improvement, as foreseen, of our profitability. They demonstrate the success of our progress plan and confirm the improvement of our operational control. Several major milestones in the French and international programmes have been successfully achieved, in particular the launch of the FREMM Normandie frigate, the continuation of the launch campaign for the F21 torpedo, with three successful consecutive launches, and the transfer of the sub-sections of the first Brazilian submarine to its assembly hall. Furthermore, the group has received notification of the order for the 5th submarine of the Barracuda programme.”
Order intake: €1.92bn
The order intake over the first half of 2018 accounts for €1.92bn, bringing the backlog at the end of June 2018 to €13.8bn.
The main orders come from both France and international markets. They relate to all of the company’s sectors, from new-build programmes to services or equipment. The main notifications relate to the nuclear attack submarine (SSN) programme, the FREMM frigate programme and the refit of the La Fayette class frigates, as well as an additional order in relation to the Australian Future Submarine (AFS) programme.
The first half of 2017 benefitted from a particularly high level of order intake due to the notification of the medium-size frigate (FTI) programme.
Activity: sales up by 10 % to €1.87bn
The half-yearly sales accounts for €1.87bn, representing an increase of almost 10.2 % compared to the first half of 2017 (restated according to the IFRS 15 standard). This is bolstered by the major French national programmes, principally the Barracuda nuclear attack submarines and the FREMM multi-mission frigates. The international markets benefitted from the strong contribution of Brazil and Australia. Services have also contributed significantly, in particular through the modernisation programme for the Charles de Gaulle aircraft carrier and the M51 adaptation programme for the SSBN Le Téméraire.
Profitability: significant increase in EBITA and operating profit
EBITA (earnings before interest, taxes and amortisation) is €126.9m. The return on sales ratio increased from 3.8 % for the first half of 2017 (restated according to the IFRS 15 standard) to 6.8 % for the same period in 2018. This sharp progress demonstrates the operational improvement of the programmes and the effectiveness of the actions undertaken for over three years. The consolidated net income, group share amounts to €104.6m, which corresponds to an increase of almost €39m compared to the first half of 2017 (restated according to the IFRS 15 standard). This strengthens the group’s capacity to finance its future growth.
Perspectives: maintaining efforts to control costs and lead times
Throughout the 2018 reporting period, Naval Group will pursue its initiative to continuously improve the competitiveness of its offers and current programmes, both in France and on international markets, driven in particular by the control of costs and lead times. The improvement in profitability in 2017 should continue through 2018 and the consolidated net income group share is expected to increase by around 10%.
17 Jul 18. Google X Spins Off Loon and Wing. Today, unlike when they started as X projects, Loon and Wing seem a long way from crazy and thanks to their years of hard work and relentless testing in the real world, they’re now graduating from X to become two new independent businesses within Alphabet: Loon and Wing. As Other Bets, they’ll continue the missions they started here at X. Loon will work with mobile network operators globally to bring internet access to unconnected and under-connected people around the world. Wing is building a drone delivery system to improve the speed, cost, and environmental impact of transporting goods, and an unmanned-traffic management platform to safely route drones through our skies. In line with the spirit in which Alphabet was created, these new companies will have their own leaders. Alastair Westgarth is the new CEO of Loon, while James Ryan Burgess is the new CEO of Wing in partnership with Adam Woodworth as Wing’s CTO. (Source: UAS VISION/X Company Blog)
17 Jul 18. ATI Acquires Aerospace & Defense Additive Manufacturer Addaero. Allegheny Technologies Incorporated (NYSE: ATI) today announced that it has acquired Addaero Manufacturing (Addaero), a leader in metal alloy-based additive manufacturing for the aerospace and defense industries, located in New Britain, CT.
“This strategic acquisition brings together ATI’s deep knowledge and experience in commercial aerospace and our industry-leading powder metal manufacturing capabilities, including our new aerospace-qualified Bakers Powder Operations, and Addaero’s technical expertise to produce aerospace quality parts using various additive manufacturing technologies,” said Rich Harshman, ATI’s Chairman, President and Chief Executive Officer. “Addaero’s competencies are a natural extension of ATI’s metallic powder expertise and will expand our capabilities to provide comprehensive customer solutions ranging from the design of parts for additive manufacturing to the production of ready-to-install components. The acquisition of Addaero is another building block in our strategy to enhance ATI’s full specialty materials capabilities to provide end customers with finished products,” Harshman continued.
“We are excited to have Rich Merlino and the entire Addaero team join ATI,” said John Sims, ATI’s Executive Vice President, High Performance Materials and Components Segment. “They bring an extraordinary amount of aerospace and defense industry knowledge and real-world additive manufacturing experience. The complementary nature of our two businesses will allow for a seamless integration; creating a more capable end-to-end metallic powder component supplier to our key customers.”
“The Addaero team is excited to be a part of ATI. The combination of ATI and Addaero will increase the speed to market of new and innovative additively manufactured powder metal solutions for our aerospace and defense customers and beyond,” said Rich Merlino, President, Addaero Manufacturing. Including this acquisition, ATI expects 2018 free cash flow generation in excess of $150m, excluding contributions to the ATI Pension Plan. (Source: BUSINESS WIRE)
16 Jul 18. Czechoslovak Group reports rising revenues. Defence and manufacturing holding company Czechoslovak Group reported the results of its 2017 financial year on 16 July, revealing a rise in revenue of more than 50%. Sales were CZK24.1bn (USD1.1bn), up from CZK15.4 in 2016, while EBITDA reached CZK2.8bn. The company’s activities in the defence industry were responsible for about 50% of its revenue. (Source: IHS Jane’s)
15 Jul 18. Boeing and Embraer have a new deal. What it means for defense is unclear. Earlier this month, Boeing and Embraer struck a deal on a joint venture that would give Boeing control of the Brazilian company’s commercial jet business. But what the agreement will mean for their associated defense units is still being hammered out, a Boeing defense exec said Friday. During a briefing to reporters on the sidelines of the Royal International Air Tattoo, Gene Cunningham, who leads Boeing’s international defense business, called the Embraer-Boeing deal a work in progress, “particularly on the defense side.”
“So to talk about what we’re going to do marketwise or how we’re going to approach [our partnership], that’s probably a little premature right at this point in time,” he said. “I think what’s important is to see the strength of association of the companies and the product lines that are out there, as well as the great services/install base we have and how that really blends and matches for the products and services across the board. And that’s one that we’ve got to work our way through at this point.”
In its initial statement released after the commercial joint venture was announced, Boeing stated that both companies would seek to create another defense-specific joint venture “to promote and develop new markets and applications based on jointly identified opportunities.” Embraer’s KC-390 multi-mission plane was specifically mentioned as an area for potential cooperation. Both companies had already agreed in 2012 to jointly market the KC-390, with a deal signed in 2016 that laid out that Boeing would take responsibility for logistical support of the aircraft as it was sold to customers around the world.
Greg Smith, Boeing’s executive vice president for enterprise performance and strategy and chief financial officer, told reporters Sunday that the KC-390 has a special focus inside the Embraer tie-up. Asked specifically if Boeing would have a financial percntage in each KC-390 sold, Smith said “we’re still working through final details of that,” but did note that the two companies are going partner together to “sell that aircraft globally,” another sign the KC-390 agreement will cover more than just the services aspect. It’s possible that Boeing could even begin marketing KC-390 within the United States if an expanded partnership is agreed upon, Richard Aboulafia, an aerospace analyst with the Teal Group, told Defense News.
“Maybe Boeing can convince SOCOM [U.S. Special Operations Command] or somebody to take a few of these. It’s not inconceivable,” he said.
There may be a chance for Boeing to partner in some way with Embraer on the A-29 Super Tucano, which is sold in the United States through prime contractor Sierra Nevada Corp. It could also find a role in Saab’s Gripen E program, where Embraer is doing final assembly of Brazilian jets.
“The potential is great. If you apply Boeing’s’ cost control methods and supply management methods to the Gripen, you get the Gripen product at a lower price point,” he said. “That’s always been the Gripen’s problem. Great plane. Way too expensive for what it is.”
Another potential opportunity lies inside Embraer’s portfolio of business jets, a lucrative business for the Brazilian company that could plug a hole in Boeing’s aviation portfolio. Boeing’s super-profitable commercial side makes large airliners like the Boeing 777 or the 787 Dreamliner, but doesn’t produce small business jets — which has been a hindrance in international special mission aircraft competitions where foreign nations may prefer a smaller plane, Aboulafia said.
“Not everyone needs a full up Wedgetail,” he said, referencing Boeing’s 737-based airborne early warning aircraft. “They’ve been trying to sell the 737 for everything for so long. It’s a Rivet Joint replacement. […] It’s a Compass Call replacement. But people are pushing back and saying it’s not 737 for all occasions.” (Source: Defense News)
13 Jul 18. L3 Technologies Launches L3 Commercial Aviation Driven by Increasing Customer Demand for a More Integrated Solution. L3 Technologies (NYSE:LLL) announced today the launch of L3 Commercial Aviation. The business, which brings together key components of L3’s commercial aviation offerings, will be the first of its kind to integrate both on- and off-aircraft products and services for aviation customers. The business will provide customers across the aviation sector with aligned and holistic solutions to support the safety and efficiency of their operations. The launch of L3 Commercial Aviation is the latest evolution of L3’s presence in this sector and is a key component of its growth strategy. The new bundle of offerings will combine L3’s full suite of services in commercial aviation, including the development and management of on-aircraft avionics, integrated security solutions and complete pilot training offerings.“L3 Commercial Aviation is an example of our company’s transformation to deliver end-to-end solutions in support of customer requirements, specifically in the global aviation industry,” said Christopher E. Kubasik, L3’s Chairman, Chief Executive Officer and President. “L3 Commercial Aviation will provide a more integrated and tailored service to our customers worldwide.”
“This combination focuses L3’s efforts to facilitate the demanding passenger journey from airport curbside, through in-flight, and to arrival at the final destination safely, securely and efficiently,” continued Todd W. Gautier, L3’s Senior Vice President and President of its Electronic Systems business segment. “Air travel is changing, and L3 Commercial Aviation has aligned our products and offerings to be more connected and to effectively meet our customers’ evolving needs.” (Source: BUSINESS WIRE)
13 Jul 18. The Boeing Company [NYSE:BA] will recognize a charge to earnings to reflect a Delaware Supreme Court ruling that the company is not entitled to recover certain costs associated with the 2005 sale of its production facilities in Wichita, Kansas to Spirit Aerosystems. Boeing filed a complaint against Spirit in the Delaware Superior Court in 2014 seeking to enforce its rights to indemnification and to recover from Spirit amounts incurred by Boeing for pension and retiree medical obligations. Earlier this year, Boeing filed a notice of appeal with the Delaware Supreme Court, which ruled against the company in a decision issued yesterday. The $124m after-tax charge ($0.21 per share), which will be recognized in the second quarter, relates to the write-off of a receivable the company had previously recorded in connection with Spirit’s indemnification obligations. The charge does not affect revenue or cash flow.
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Odyssey is an independent corporate finance firm which advises on acquisitions, business sales, management buy-outs and raising finance, typically in the £5m to £100m range. We have extensive experience in the niche manufacturing sector with our most recent completed deal being the sale of MacNeillie to Babcock Plc. Details can be seen at: http://www.odysseycf.com/case-study-macneillie/
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