10 Jan 20. Boeing’s ousted CEO departs with $62m, even without severance pay. Boeing Co’s (BA.N) ousted chief executive officer, Dennis Muilenburg, is leaving the company with $62m in compensation and pension benefits but will receive no severance pay in the wake of the 737 MAX crisis.
Muilenburg was fired from the job in December as Boeing failed to contain the fallout from a pair of fatal crashes that halted output of the company’s bestselling 737 MAX jetliner and tarnished its reputation with airlines and regulators.
The compensation figures were disclosed in a regulatory filing late on Friday during a difficult week for Boeing when it also released hundreds of internal messages — two major issues hanging over the company before new CEO David Calhoun starts on Monday.
The messages contained harshly critical comments about the development of the 737 MAX, including one that said the plane was “designed by clowns who in turn are supervised by monkeys.”
The 737 MAX has been grounded since March following the second of two crashes that together killed 346 people within a span of five months.
“It is incredibly heart wrenching to see the man at the heart of our loss walk away with a reward,” said Zipporah Kuria, whose 55-year-old father from Kenya died in the second crash.
Lawmakers also blasted Boeing.
“346 people died. And yet, Dennis Muilenburg pressured regulators and put profits ahead of the safety of passengers, pilots, and flight attendants. He’ll walk away with an additional $62.2 million. This is corruption, plain and simple,” U.S. Senator Elizabeth Warren said on Twitter.
U.S. Representative Peter DeFazio, who chairs the House Transportation Committee, said minutes of a June 2013 meeting showed that Boeing sought to avoid expensive training and simulator requirements by misleading regulators about a anti-stall system called MCAS that was later tied to the two crashes that killed 346 people.
The MAX has been grounded since the second crash in March.
Speculation that Muilenburg would be fired had been circulating in the industry for months, intensifying in October when the board stripped him of his chairman’s title – although he had also twice won expressions of confidence from Calhoun, Boeing’s board chairman.
A turnaround veteran and former General Electric Co (GE.N) executive who has led several companies in crisis, Calhoun will receive a base salary at an annual rate of $1.4 million and is eligible for $26.5m in long-term incentive compensation, Boeing said in a filing.
Boeing said in November Muilenburg had volunteered to give up his 2019 bonus and stock awards. For 2018, his bonus and equity awards amounted to some $20 million, according to filings.
In addition to the $62 million in compensation and pension benefits, Muilenburg holds stock options that vested in 2013, Boeing said. They would be worth $18.5 million at the closing price on Friday.
“Upon his departure, Dennis received the benefits to which he was contractually entitled and he did not receive any severance pay or a 2019 annual bonus,” Boeing said in a statement. (Source: Reuters)
10 Jan 20. Textron Aviation has announced the acquisition of Australian-based maintenance, repair and overhaul specialist company Premiair Aviation Maintenance. Previously named an Authorised Service Facility (ASF), Premiair now joins the Textron Aviation company-owned global support network to service Beechcraft, Cessna and Hawker products at service centre locations strategically located throughout Australia.
Kriya Shortt, senior vice president of global customer support at Textron Aviation, said, “Textron Aviation has been steadily investing in service options for the Asia-Pacific region to ensure customers flying all Textron Aviation aircraft receive the exceptional support they expect.”
Premiair operates in strategic locations across Australia, including Melbourne, Gold Coast (Coolangatta) and Western Australia (Jandakot).
“Throughout the past year, we substantially increased our regional footprint, capabilities and parts availability. The Premiair team demonstrated their commitment to quality, relationships and customer care as an ASF, and now we are excited to welcome them to Textron Aviation,” Shortt added.
The company’s footprint spans major markets in Australia and will allow Textron Aviation customers in the region close access to industry-leading aircraft maintenance and support, including avionics services and upgrades, scheduled and unscheduled maintenance, structural and component repair and overhaul and refurbishment.
The acquisition of Premiair follows other Textron Aviation investments in APAC, including a service and parts room expansion at the Singapore Service Centre, an increase in the number of regional field service representatives, the opening of a new parts warehouse in Australia, and the establishment of a new service location in Manila.
The company also continued to invest in mobile service units (MSUs) and grew the specially outfitted fleet of maintenance trucks to 75 units worldwide.
Textron Inc. is a multi-industry company that leverages its global network of aircraft, defence, industrial and finance businesses to provide customers with innovative solutions and services.
Textron is known around the world for its powerful brands such as Bell, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Arctic Cat, Textron Systems, and TRU Simulation + Training.
Premiair Aviation Maintenance is an industry leader in the aircraft maintenance sector, established in 2002 to provide maintenance services for private, charter, corporate and government aircraft owners.
Premiair have long standing relationships with CASA approved specialist companies that enable us to seamlessly integrate into our services CASR 21M repair, modification and fit-out design approval; machine or welded aircraft parts fabrication, interior refurbishment and aircraft painting. (Source: Defence Connect)
09 Jan 20. Wesco Aircraft Holdings Inc. (NYSE: WAIR), one of the world’s leading distributors and providers of comprehensive supply chain management services to the global aerospace industry, today announced that the expected acquisition of the company by an affiliate of Platinum Equity has been completed in a transaction valued at approximately $1.9bn. At closing, Wesco Aircraft was combined with Platinum Equity portfolio company Pattonair, a provider of supply chain management services for the aerospace and defense industries based in the United Kingdom.
The combined company, which will be headquartered in Valencia following closing, becomes a $2.4bn business with a global footprint in 17 countries and more than 4,000 employees. The combined company will serve more than 8,400 customers, including many of the world’s leading aerospace and defense original equipment manufacturers and their subcontractors. The combined company’s comprehensive portfolio of aerospace products will comprise more than 644,000 SKUs that are used in the production of commercial and military aircraft, including airframes, engines, hydraulic units, actuation systems and landing gear.
Todd Renehan, Wesco Aircraft’s Chief Executive Officer since 2017, has been named CEO of the combined company, and Wayne Hollinshead, Pattonair’s Chief Executive Officer since 2011, has been named President.
Mr. Renehan said, “I’m excited about the significant opportunities generated by bringing together Wesco and Pattonair. We have formed a highly diversified provider of end-to-end customizable supply chain solutions with greater scale, product range and purchasing ability. We plan to leverage these strengths, together with our robust value proposition and consistent delivery of service excellence, to be the go-to partner for bringing new products and technologies to the market.”
Mr. Hollinshead said, “I’m thrilled with the benefits this combination brings customers and our employees. We expect that our scale and reach, coupled with sophisticated inventory and supply chain management capabilities, will better position us to benefit from industry growth and drive greater operational efficiency. At the same time, we believe our broad footprint will enable us to align our service model with the needs of global customers, while enhancing their productivity through exceptional delivery performance.”
Louis Samson, Platinum Equity Partner, said, “Wesco’s broad customer base and industry leading capabilities have positioned it well to benefit from long-term trends in the aerospace and defense industry. Bringing Wesco and Pattonair together will create a truly global enterprise, benefiting the combined customer base through increased scale and access to new technologies.”
As of January 9, 2020, Wesco Aircraft is privately held, and shares of Wesco Aircraft Holdings Inc. common stock have ceased trading on the New York Stock Exchange.
Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC served as financial advisors to Wesco Aircraft, and Latham & Watkins LLP provided legal counsel to Wesco Aircraft. Hughes Hubbard & Reed LLP provided M&A legal counsel to Platinum Equity, Willkie Farr & Gallagher LLP provided financing legal counsel to Platinum Equity, and Baker & McKenzie LLP provided corporate and regulatory legal counsel to Platinum Equity.
07 Jan 20. Wynnchurch Capital Invests in California Amforge as Part of Premier Forge Group Platform. Premier Forge Group, a portfolio company of Wynnchurch Capital, LLC (“Wynnchurch”), announced the acquisition of California Amforge Corporation (“Amforge”). Located in Azusa, California, Amforge is a leading manufacturer of closed die, upset and rolled ring forgings for the aerospace & defense and oil & gas industries.
Bill Kerfin, CEO of Premier Forge Group, said in a statement, “We are excited to partner with the California Amforge leadership team, who has done a phenomenal job developing a reputation for superior quality and customer service. With the addition of Amforge, we gain significant scale in the aerospace & defense sector while further developing our oil & gas business. In addition, we can now offer our customers new products with additional forging capabilities and capacity, as we continue to enhance our value proposition and execute on our growth strategy.”
Sue Congalton, former CEO and principal shareholder of Amforge, stated, “I’m excited about the future of the company as Wynnchurch and management will bring the tools and resources to significantly grow the business and take it to the next level. This combination is not only a strong strategic fit with complementary products, capabilities, and end-markets, but also an excellent cultural fit with our shared dedication to customer service and our employees. This is an exciting time for California Amforge.” (Source: BUSINESS WIRE)
07 Jan 20. Continuing losses at Babcock DSG Ltd. Accounts of Babcock DSG Ltd. seen by BATTLESPACE show a continuing deterioration in performance and profitability at the Babcock segment with a loss of £.7167m (2018: £2.574m) announced on a declining turnover of £331.639m (2018: 371.986m). The 2018 loss was massaged by a one off £9.050m Royalty Dividend.
One of the causes of this continuing loss and turnover decline looks to be the MoD Land Rover Wolf Support Contract worth £7m in parts and an undisclosed amount for repairs and support, where, due to parts quality problems which caused the fleet to be off the road after a crash. (See: BATTLESPACE UPDATE Vol.21 ISSUE 35, 02 September 2019, DE&S Land Rover Wolf spares contract). The problem was recently addressed with a 9 month interim contract with Hobson Industries Ltd. to supply approved parts. We have suggested on more than one occasion that Babcock will have to take write-off on its huge DSG investment, but they seem to be holding off with limited time left for recouping the losses before the contract comes to an end. (See: BATTLESPACE UPDATE Vol.21 ISSUE 47, 25 November 2019, Hobson Industries VST contract)This was part of the much criticised Boatman Report – Babcock International, Burying The Bad News, which led to threats of legal action against David Robertson who was named by the Sunday Times as a contributing author of the Report. ‘In our opinion, Babcock International needs to write down the value of its Defence Support Group (DSG) subsidiary, which was acquired for £148m. According to our calculations, Babcock DSG has overvalued its main contract by £50m, based on an average assessment of underlying operating profits. An impairment on this scale would be equivalent to 12.8% of Babcock’s pre-tax profits. Based on a pessimistic assessment of DSG’s performance, the impairment would be £75m – equivalent to 19.2% of pre-tax profits.’ (See: BATTLESPACE UPDATE Vol.21 ISSUE 52, 30 December 2020, Babcock hunts down shadowy tormentor)
07 Jan 20. Meggitt announces HiETA Technologies investment. Meggitt (UK), a subsidiary of Meggitt PLC, a leading international company specialising in high performance components and subsystems for the aerospace, defence and selected energy markets, has announced an investment in HiETA Technologies, a UK company with world-leading capabilities in metal additive manufacturing.
The investment will accelerate the development of the next generation of thermal systems for aerospace and energy applications. It enables a new generation of high performance and light weight thermal systems to be brought to the market at a critical time for sustainable aviation and lower carbon power generation solutions.
Meggitt’s experience in designing and manufacturing advanced heat exchanger technologies for mission-critical aerospace and industrial applications complements HiETA Technologies’ experience in designing and using additive manufacturing to build high-performance components for aerospace, defence and motorsport applications.
Hugh Clayton, group director of engineering & strategy at Meggitt, said: “With a 160-year track record in bringing technology to the aerospace, defence and energy markets, innovation is at the heart of everything we do.
This is an exciting collaboration with HiETA and we’re proud to partner with them to push the frontiers of innovation. We look forward to a productive partnership which will shape our future: collaborating on additive manufacturing and thermal system technology to enable the next-generation of more sustainable aircraft propulsion systems and greener energy systems; ensuring a sustainable future for the generations to come.”
Mike Adams, CEO and co-founder of HiETA Technologies, said: “This is an exciting time for HiETA, as we follow our strategy of partnering with strong industrial players in key industrial sectors. The investment enables us to bring exciting new products to new markets. It also shows the potential for additive manufacture of our world class designs, when supported by outstanding industrial knowledge, experience and capability. The investment is therefore key to developing confidence in further adoption of additive manufacturing.” (Source: Google/https://www.aero-mag.com/)
03 Jan 20. Kaman Completes Acquisition of Bal Seal Engineering, Inc.. Kaman Corp. (NYSE:KAMN) announced today that it has completed the previously announced acquisition of Bal Seal Engineering, Inc. (“Bal Seal”), a leader in the design, development, and manufacturing of highly engineered products including precision springs, seals, and contacts. With this acquisition, Kaman has significantly expanded its portfolio of engineered products and offerings while creating new opportunities to reach customers in medical technology, aerospace and defense, and industrial end markets.
“I want to welcome all the employees of Bal Seal to the Kaman family,” stated Rick Barnhart, President, Kaman Aerospace Group. “We look forward to working with Rick Dawson and the entire team at Bal Seal to continue to build upon the history of hard work, innovation, and ingenuity that has made Bal Seal a world class supplier of seals, springs, and contacts for over 60 years.”
“We are excited to welcome the Bal Seal team to Kaman as we work together to leverage our expanded portfolio of highly engineered products, proprietary technologies and deep customer relationships,” said Neal J. Keating, Chairman, President and CEO. “Together with Bal Seal, Kaman is uniquely positioned to capitalize on the significant growth opportunities across a number of attractive end markets, including the higher growth medical end market. We look forward to realizing the strategic and financial benefits of this transaction, including anticipated meaningful near-term margin and cash flow accretion.” (Source: BUSINESS WIRE)
02 Jan 20. Could investing in military tech make your portfolio more defensive? Whether we like it or not, spending on arms and security will rise in the next few years. The rise of populism is not necessarily something investors will relish politically, but it nevertheless brings opportunities for the adventurous. By and large, populist leaders the world over like to spend more government money and they’re especially keen to spend taxpayers’ money on defence and state security. Like it or loathe it, it’s a trend clearly visible in countries as diverse as China, Poland and the US. It is because of those populists that more liberal Europe is now having to spend more money on its Nato commitments — even relatively peace-loving Germany says it intends to get to 2 per cent of GDP levels in the not too distant future, though I wouldn’t hold my breath on that. But there’s another big trend at work — how the disruptive technology sector is being sucked into the military industrial complex. Giants such as Google may encounter internal resistance to getting involved in defence and security (it dropped out of Project Maven because of employee unrest) but the likes of Amazon and Microsoft have no such inhibitions. In fact, the two companies recently battled it out on a mammoth $10bn US defence contract called Project Jedi, which Microsoft won (not without controversy). Insiders suggest Amazon is now increasing its commitment to defence and security technologies, chasing upstarts such as Palantir Technologies and Anduril (clearly Lord of the Rings fans founded both businesses) who have dominated this space until now.
The Americans are simply reacting to the obvious signals coming out of China, where big tech is being actively co-opted into a new high-tech defence and AI-enabled state security apparatus. The Chinese certainly seem to be ahead, but for investment purposes, it’s all but impossible for UK investors to find a way of playing this trend. However, the US could respond by rekindling its love affair with the Defense Advanced Research Projects Agency (Darpa), which has produced civilian by-products ranging from the first computer mouse to GPS navigation. Now there’s even talk in the press that UK government strategist Dominic Cummings wants to set up a Darpa equivalent in the UK. For investors, this determination to upgrade both external and internal defences has resulted in a bonanza for shareholders. The table below shows returns for the broad defence and aerospace sector in the US market against those for the wider index and also tech-specific stocks. As you can see, military stocks have nearly kept up with the fastest growing (software dominated) bit of the tech space, leaving returns for tech hardware and mainstream US stocks way behind. The case for defence Index 5 year annualised return S&P 500 Defence & Aerospace Index 17.54% S&P 500 Technology Select Sector Index 17.82% S&P 500 Technology Hardware Select Sector Index 7.55% S&P 500 index 10.98% Source etfdb.com Barron’s, an influential investor magazine in the US, questioned in June whether the military sector has been in a bubble. I’m inclined to think so, but one catalyst for a derating could be tougher defence department procurement rules.
Barron’s reported that performance-based payments to defence contractors “rather than being fixed at 80 per cent of costs would instead be paid in a range that starts at 50 per cent and could rise as high as 95 per cent. That would probably force defence companies to put up more cash at the beginning of big projects, something that would lower their returns on invested capital”. My guess would be that the big defence contractors who dominate the aerospace and defence sectors will come under some pricing pressure in future. Money will increasingly find its way into companies with a strong technology focus (as opposed to a more engineering led platform approach David Stevenson State Street in the US has a very successful exchange traded fund (ticker XAR on the NYSE) that follows the big participants in this sector. It rose by a cracking 38 per cent in 2019 (the S&P 500 by contrast is up 29 per cent over the same period). Large companies such as Raytheon, United Technologies Corporation and Northrop Grumman are all pushing towards all-time highs. At this late stage in the current procurement cycle (not to mention stock market cycle) I’d be wary about these giants. However, I am spending more time thinking through the new security technologies beginning to emerge on the fringes of the military industrial complex. Again, whether you like it or not, more money will be spent on police technologies, general surveillance and border security. That money will increasingly find its way into companies with a strong technology focus (as opposed to a more engineering-led platform approach pioneered by the military procurement giants). In this sphere, one would expect to see a bunch of second-tier defence engineering platform players prosper, such as L3 Harris and Teledyne (big on tech testing). Smaller companies that look well-positioned include Leidos Holdings (IT services and network management) as well as Kratos Defense and Security which is focusing on drones — one of its latest projects is the Valkyrie aircraft currently undergoing tests with the US Air Force.
Another way of playing these trends might be to look at a smaller State Street exchange traded fund in the US called the S&P Kensho Future Security ETF (US ticker FITE) which has a strong focus on these next generation security technologies. Over the past 12 months, it has risen by more than 36 per cent. Another less obvious stock worth looking at is called Axon Enterprise which has been on my watch list for ages. This is a pure play on security technologies for the US police, and is probably best known for its Taser technologies which comprise the majority of sales at the moment. Yet, Axon is busily diversifying and has built a second line of body cameras which come equipped with a subscription model to access the footage stored in the cloud. Obviously, Axon is trying to bundle up sales of Tasers and body cameras, shifting sales from lumpy equipment deals to subscription models, which could help the stock re-rate. More generally, Axon’s success points to the huge potential for businesses operating in the security surveillance space, one which I’m sure some readers will find innately distasteful, but is likely to be high margin and easily exportable. (Source: FT.com)