24 Jul 20. Defense Update: Some Moves FWD, but Big Milestones Ahead, USA Aerospace & Defense Electronics. The FY21 Defense Authorization continues to move forward with the next step a House/Senate reconciliation. Defense funding levels will be set by Appropriations, with the House close to passing its version and the Senate next to act. There are likely few funding surprises in FY21 with funding levels set in the Budget Agreement. However, given timing a CR is likely to start FY21. The focus shifts to FY22+ given a potential change in Administration
Ironing Out the Details. The FY21 Defense Authorizations out of the House and the Senate set up a conference that should iron out the details. The House passed its version on July 21st by a margin of 295-125. The bill supports national defense spending of $740.5bn, which is in line with the President’s request and up from $738bn in FY20. The Senate’s version supports the same level of funding, and is currently being voted on. The next step will be going to conference and agreeing on key differences, both funding and policy. The WH has already threatened to veto the House version based on policies around military base renaming and around space and program responsibilities.
Differences Around Procurement and R&D in Authorization. Most relevant to the defense contractors are the investment accounts, including procurement and R&D. For procurement, the House authorized $132.8bn vs. $134.0bn in the Senate version. These levels are up 1.7% and 2.5% from the budget request and represent a 0.7% decline and 0.1% growth vs. FY20 funding (Ex.1). There were modest changes to R&D, with the House and Senate Authorization including $106.5bn and $106.7bn of funding, adding 20 and 40 bps to the budget request and up roughly 2% from FY20 funding levels (Ex. 2).
Some Program Disagreements. We highlight some of the larger changes to procurement and R&D programs in Ex. 3 and 4. The biggest areas of disagreement focus on the F-35 and funding for Marine. The Senate added funding to all three F-35 variants (95 aircraft up from 79 in request), which was not in the House version. The House added funding for the P-8 (added 6 vs. 0) and CH-47 (11 vs. 6 in request) in disagreement with the Senate. Both sides support add’l funding for Marine, w/the House adding a second Virginia class and Senate adding to Advanced procurement. R&D cuts were more around excess funding and delays in award funding. The largest funding items such as Next Gen OPIR, GBSD, Long Range Strike, and other prototyping accounts such as Next Generation Air Dominance are largely untouched.
Next Steps for Appropriations. The House began marking up FY21 spending bills the week of July 6th with votes likely the week of July 27th. The House Bill of $695.1bn (Exludes DoE and other spending) is $3.7bn Below the President’s request and down 1.6% vs. FY20 enacted levels. Procurement and R&D as marked are $133.6bn and $104.3bn which includes adds to the FY21 request for procurement with R&D cut slightly. vs. the budget request. The Senate has not set a timeline for its bill, but given the need for Conference and recess schedule, a CR is inevitable. The FY22 budget debate will center around the next Administration with a request expected in Feb. (Source: Jefferies)
24 Jul 20. Skyborg Contract Award Key Milestone for Valkyrie. Kratos Defense & Security Solutions, Inc. (KTOS.). On July 23, KTOS was selected as one of four companies for a combined six-year $400MM ID/IQ prototyping contract in support of the Skyborg Vanguard Program. The contract is expected to be closely followed by the first funded production task order for Valkyrie, likely in the August to September timeframe. We estimate that Valkyrie could contribute $100MM in 2022 sales, from $20MM expected in 2020, supporting a 24% organic CAGR for UAS.
Skyborg Contract Awarded to Four Suppliers. On July 23, KTOS was selected as one of four companies awarded a contract for orders in support of the Skyborg Vanguard Program. The combined ceiling of $400m will be split between BA, General Atomics, KTOS, and NOC over a six-year performance and five-year ordering period. There were a total of 18 bid submissions. The contract supports prototyping, experimentation, and autonomy development to deliver missionized prototypes for operational experimentation and the first Skyborg platform enabled for manned/unmanned teaming. The award is a key step toward the first funded task order for Valkyrie production, expected in the August to September timeframe.
Skyborg Program History. The USAF is soliciting 20-30 aircraft under the Skyborg prototype program for an artificial intelligence wingman capable of training alongside manned aircraft. The program envisions a family of drones with each targeted for a specific mission or set of missions. The drones will have modular hardware and software, but a common AI suite. The UAS is considered attritable, which means a loss of the aircraft is ok even though it is not built to be expendable and is expected to be reused. On March 13, 2019, the Skyborg RFI was announced to port AI into UAS. The AF released an RFP in May 2020 with decisions targeted for July and a potential task order in August/September. The contract award today is as expected with a set of prototyping awards to contractors. Prototyping and experimentation could lead to an operational Skyborg by 2023.
Valkyrie Drone Could Contribute $100m in 2022 Sales. The Valkyrie development to first flight was three years in total, with first flight on March 5, 2019. KTOS expects 5 test flights to be completed by the end of the year with the next flight test expected in the early fall after a delay due to COVID. From order to flight this would be a 30-month development timeline. The plane’s distinguishing features are a 27-foot wingspan with 30-foot length and a 3,000 nm range. Production will occur in the new Oklahoma plant. KTOS is under an original development contract with AFRL. The Skyborg Vanguard Program is expected to be the first funded production order for Valkyrie. Additionally, the Air Force released the NGAT RFI for a suite of fifth-generation stealth target drones designed to imitate Chinese and Russian aircraft with an RFP expected this year. KTOS believes Valkyrie fits the request. KTOS believes there is $100m in the FY20 budget for the Valkyrie aircraft. The SASC version of the FY21 NDAA includes a potential additional $128m plus up. KTOS has started production of the first 12 Valkyrie vehicles, with deliveries expected to begin in Q1:21 at a rate of 1-2 per month. (Source: Jefferies)
23 Jul 20. French group Thales sees lower profits and sales after coronavirus crisis. France’s Thales (TCFP.PA) slashed financial forecasts for the year on Friday after seeing its profits fall by more than half in the first half, “heavily impacted” by the coronavirus crisis. Europe’s largest defence electronics supplier joined most major French groups in suspending its outlook at the end of the first quarter and reintroduced forecasts on Friday at sharply lower levels than original estimates published in February.
Thales, whose products range from fighter radars to train signalling systems for the London Underground, predicted its revenues would fall in 2020 to 16.5-17.2bn euros (15.03-15.67bn pounds) from 18.4bn, compared with a pre-crisis forecast of 19-19.5bn. It abandoned hopes of maintaining margins at some 10.9% in 2020 and predicted a roughly one-third drop in operating profit to 1.3-1.4bn euros, implying a profit margin closer to 8%.
But Chief Executive Patrice Caine told reporters the impact would have been much greater if Thales had been more of a “pure-play” civil aeronautics player, like some of its peers. Thales has said civil aerospace contributes about 11% of its revenue.
The forecasts are based on a “stabilising economic and public health situation” after the COVID-19 crisis hit demand for civil aerospace products and interfered with production or installation of others, such as new London Underground signals.
“They closed the network at the peak and asked us not to come…and that generates a (temporary) loss of revenue,” Caine said, referring to a contract to upgrade 30% of the London Underground.
Caine said the prospect built into the forecasts of a sharp second-half improvement in sales compared to the first half, and a return to more normal operating margins, was reasonable based on the virus’s progress in Europe, although it was only a “hypothesis”.
“I am neither optimistic nor pessimistic, just looking at facts,” he told reporters.
He distinguished between demand that could be affected for some time, such as a 50% drop in demand for civil aerospace, and the shorter-term industrial effects of the health crisis.
For the first half, Thales posted operating profit of 348m euros, down 57%, or down 63% on a like-for-like basis.
The intake of new orders fell 13% to 6.1bn euros, lagging behind sales which fell 5.4% to 7.8bn. Thales nonetheless predicted a book-to-bill ratio – the ratio of order intake to sales – above 1 in 2020. The company said an internal plan implemented in April to cope with the crisis had generated savings of 320 m euros, clawing back roughly half of the 740 m that Thales estimates it has lost in gross profit due to COVID-19. The company is targeting 800m savings for the full year. (Source: Reuters)
23 Jul 20. Thales reports its 2020 half-year results.
- Order intake: €6.1bn, down 13% (-23% on an organic basis)
- Sales: €7.8bn, down 5.4% (-13.6% on an organic basis)
- EBIT: €348m, down 57% (-63% on an organic basis)
- Adjusted net income, Group share: €232m, down 60%
- Consolidated net income, Group share: €65m, down 88%
- Free operating cash flow: -€471m
- New financial objectives set for 2020, based on a stabilising economy and public health situation:
— Book-to-bill  above 1, benefiting from the positive trend in Defence & Security
— Sales between €16.5 bn and €17.2bn
— Impact of the global adaptation plan: approximately €800 m for the full year 
— EBIT between €1,300m and €1,400m
Thales’s Board of Directors (Euronext Paris: HO) met on 23 July 2020 to review the financial statements for the first half of 2020.
“The results of the first half of 2020 were heavily impacted by the Covid-19 pandemic. The decline in sales and profits was due both to the sharp contraction of the civil aeronautics market and to the impact of public health measures on production and project execution.
On behalf of the Board of Directors, I would like to thank all Group employees who continued to make every effort to serve our customers throughout this unprecedented crisis.
The global adaptation plan that we launched very early on significantly reduced the impact of the crisis on our first-half financial statements. We expect this plan to save around €800 m over the full year.
The first half of the year was also very busy from a commercial point of view, with historical successes in space-based environmental monitoring and military naval systems. As these contracts are being finalised, they should be booked in the upcoming months.
In the second half of the year, based on a stabilising economy and public health situation, we anticipate a significant increase in sales compared to the first half and a recurring operating margin back to a level close to the second half of 2019.
Thanks to its unique positioning focused on key societal issues of tomorrow’s world — sustainable mobility, technological autonomy, digital identity and security — Thales has what it takes to return to profitable growth once this crisis is over.”
Patrice Caine, Chairman & Chief Executive Officer
H1 2020 order intake amounted to €6,092m, down 13% compared to H1 2019 (-23% at constant scope and exchange rates), following numerous delays in finalising and signing contracts due to the Covid-19 public health crisis and the collapse in civil aeronautics demand in the second quarter. At 30 June 2020, the consolidated order book remained robust at €31.7 bn, which represents 1.7 years of sales.
Sales stood at €7,751m, down 5.4% from H1 2019 and down 13.6% at constant scope and exchange rates, including a second quarter that was down 20% at constant scope and exchange rates.
In the first half of 2020, the Group posted EBIT of €348m (4.5% of sales), compared to €820m (10.0% of sales) in the first half of 2019, a decline by 57%. The EBIT margin dropped 5.8 points at constant scope and exchange rates.
In early April, Thales launched a global adaptation plan in order to maintain its production capacity at the service of its customers, limit the industrial and financial impact of this crisis and strengthen its funding capacity in the event that the crisis persists or worsens. The plan has generated estimated savings of around €320m in the first half, or approximately 40% of the crisis’s estimated €740 m impact on gross margin. It also drove a 16% reduction in net operating investments at constant scope.
At €232m, adjusted net income, Group share was down 60%, in line with the decrease in EBIT.
Consolidated net income, Group share came in at €65m, down 88% compared to H1 2019, which had benefited from a €221m capital gain on the sale of the GP HSM business.
At -€471m, free operating cash flow in H1 2020 reflected the usual WCR seasonality as well as the impact of the public health crisis, partially offset by the measures taken under the global adaptation plan. Net debt stood at €3,928m at 30 June 2020, down €469 m year-on-year.
H1 2020 order intake amounted to €6,092m, down 13% compared to H1 2019 (-23% at constant scope and exchange rates). The book-to-bill ratio was 0.79 for H1 2020, versus 0.85 in H1 2019 and 1.01 over the last 12 months.
In H1 2020, Thales booked four large orders with a unit value of over €100m (compared with seven in H1 2019), representing a total amount of €560m:
- one large order booked in Q1 2020, for an air surveillance system for a Middle Eastern country;
- three large orders booked in Q2 2020:
o the supply of anti-submarine sonars to the US navy (Defence & Security segment)
o a 10-year contract for the supply of munitions to the Australian army (Defence & Security segment)
o a space contract for an undisclosed customer (Aerospace segment)
The Group also recorded major commercial successes in military naval systems and space-based Earth observation:
- In June, the Federal Office of Bundeswehr Equipment awarded a contract to the consortium comprising naval shipyards Damen, Blohm+Voss and Thales to supply the German navy with four MKS180 frigates. It is the largest project in the history of the German Navy.
- The European Space Agency selected Thales Alenia Space for five of the six Copernicus missions planned for the coming years, of which 3 as prime contractor. Copernicus is the world’s largest programme for the provision of environmental monitoring data.
The above contracts are expected to be signed in the coming weeks and will be included in H2 order intake, for a total of approximately €1.7bn.
At €5,532m, orders with a unit value of less than €100 m rose by 4% compared to H1 2019, after the integration of Gemalto.
The base of small orders worth less than €10 m held up well despite the crisis, mitigating the volatility of large contracts. Specifically, small orders were up 7% after the integration of Gemalto, and only down by around 5% at constant scope and excluding the impact of the sharp drop in orders in the civil aeronautics businesses.
Geographically, order intake was down 11% in emerging markets after the integration of Gemalto, and down 29% at constant scope and exchange rates. Order intake in mature markets was down 14% after the integration of Gemalto and down 21% at constant scope and exchange rates.
Order intake in the Aerospace segment stood at €1,625m, down 8% from €1,758m in H1 2019. This limited decline (considering the collapse in demand in civil aeronautics of around 50% in the second quarter) was due to a strong first quarter and favourable prior-year comparatives in the space business, which had not recorded many orders in H1 2019.
Order intake in the Transport segment was down 21% to €442m, due to contract finalisation delays related to the public health crisis.
Order intake in the Defence & Security segment stood at €2,425m, compared with €3,809m in H1 2019 (-36%), including the three large orders with a unit value of over €100m mentioned above. The decline was due to the natural volatility of large contracts (three large orders in H1 2020 versus six in H1 2019) and contract finalisation delays related to the public health crisis. These delays should disappear in the second half of 2020, which should also benefit from the booking of orders related to the MKS180 project.
At €1,587m, orders in the Digital Identity & Security segment were close to sales, considering that most of the businesses in this segment do not book long-term orders. The sharp increase compared to H1 2019 reflects the integration of Gemalto as from 1st April 2019.
H1 2020 sales stood at €7,751m, compared with €8,190m in H1 2019, down 5.4% after the integration of Gemalto. The organic change (at constant scope and exchange rates) was -13.6%, the organic decline in sales being due to the 20% sales drop in the second quarter as a result of the civil aeronautics demand collapse (down by approximately 50%) and Covid-19 –related disruptions affecting operations across all Group businesses.
Geographically, the decline in sales was most marked in emerging markets (-27.9% on an organic basis), reflecting anticipated phasing effects on a few large contracts. The decline was more moderate in mature markets (-7.5% on an organic basis).
Sales in the Aerospace segment amounted to €1,946m, down 25.8% on an organic basis compared to H1 2019. Unsurprisingly, this decline in sales mainly affected the Group’s civil aeronautics businesses (flight avionics and in-flight entertainment and connectivity systems), which were directly impacted by the drop in demand of around 50%. Other businesses (military aeronautics, space, microwave tubes) were impacted by the disruption of operations related to public health measures implemented throughout the second quarter.
In the Transport segment, sales amounted to €717m, down 14.1% compared to H1 2019 (‑13.7% at constant scope and exchange rates). In addition to the phasing effects on major urban rail signalling contracts (particularly in Doha (Qatar) and London), which have been weighting on the segment’s growth since the end of 2018, the decline was due to disruptions related to the public health crisis, particularly for installations and on-site testing.
Sales in the Defence & Security segment totalled €3,588m, down 7.6% compared to H1 2019 (-7.3% at constant scope and exchange rates). Despite the crisis, six of the segment’s 13 business lines continued to grow, particularly in naval systems, military communications and protected vehicles.
This limited decrease in sales, after two years of strong organic growth (+8.5% in H1 2018 and +6.8% in H1 2019) reflects the strong momentum of the Group’s solutions, based on an order book of more than €20 bn at end-June 2020.
At €1,472m, sales in the Digital Identity & Security segment held steady at constant scope (compared to H1 2019 + Gemalto’s Q1 2019). The organic decline was limited to -4.9% in the second quarter, reflecting the adverse impact of the public health crisis on the demand for biometric solutions and IoT connectivity modules, partially offset by stronger-than-expected sales in EMV payment cards and SIM cards.
In H1 2020, the Group posted an EBIT of €348m (4.5% of sales), compared with €820m (10.0% of sales) in H1 2019.
The global adaptation plan generated estimated savings of around €320m in the first half, or just over 40% of the decline in gross margin before savings, estimated at €740m.
At its 23 July meeting, the Board of Directors accepted the Chairman & Chief Executive Officer’s proposal to reduce his fixed annual compensation by around 10% during the temporary furlough period, in order to show solidarity with Group employees subject to these measures. This will come in addition to the substantial reduction in his 2020 variable annual compensation which, if targets are met, represents 50% of his 2020 annual overall compensation.
The Aerospace segment posted an EBIT of -€109m (-5.6% of sales), versus €270m (10.3% of sales) in H1 2019. The loss recorded for the period was due to the impact on the gross margin of the significant decline in sales (-25.4%) in the first half of the year, partially offset by the impact of the global adaptation plan.
The Transport segment posted an EBIT of €4m (0.6% of sales), versus a loss of €42m (5.0% of sales) in H1 2019. Despite the crisis, the transformation plan undertaken in the segment continued to deliver a gross margin improvement. EBIT also benefited from the non-recurrence of negative one-off items recognised in the first half of 2019.
In the Defence & Security segment, EBIT came in at €359m (10.0% of sales) versus €564m in H1 2019 (14.5% of sales). Against the backdrop of the public health crisis, the segment maintained a double-digit margin thanks to a quick adjustment of its indirect costs (proportional to the decline in sales) combined with ongoing efforts to increase gross margin, the strict control of overheads and solid project execution despite operational disruptions.
At €140m (9.5% of sales), the Digital Identity & Security segment’s EBIT benefited from a positive gross margin mix effect, cost synergies and a significant reduction of indirect costs in the framework of the global adaptation plan.
Naval Group made a negative contribution to H1 2020 EBIT of -€15m, versus a positive contribution of €29m in H1 2019. This decline was the result of major disruptions to the production of military ships and submarines due to public health measures, causing sales to fall by 26% in the period. The positive impact of the various measures implemented should allow Naval Group to end 2020 with a positive contribution to Thales’s EBIT.
The increase in net financial interest (-€30m versus -€16m in H1 2019) was due to the rise in the Group’s average debt following the acquisition of Gemalto. Other adjusted financial income remained low (-€15m compared with -€4m in the first half of 2019). At ‑€20m versus -€27m at 30 June 2019, adjusted finance costs on pensions and other long-term employee benefits fell slightly thanks to the ongoing reduction in discount rates.
As a result, adjusted net income, Group share was €232m versus €574m in H1 2019, after an adjusted income tax charge of ‑€66m (‑€184m in H1 2019). At 23.2% at 30 June 2020 versus 26.6% at 30 June 2019, the effective tax rate benefited notably from a favourable country mix.
Adjusted net income, Group share, per share stood at €1.09, down 60% from H1 2019 (€2.70).
Consolidated net income, Group share came in at €65m, down 88% compared to H1 2019, which had benefited from a €221m capital gain on the sale of the GP HSM business.
Financial position at 30 June 2020
In the first six months of 2020, free operating cash flow amounted to -€471m, versus ‑€332m in H1 2019. The change was largely due to the decline in operating cash flow before interest and tax (-€315m), even though it was smaller than the decline in EBIT (‑€471m). It was partially offset by a negative change in WCR that was smaller than in 2019, thanks in particular to the measures taken under the global adaptation plan.
This free operating cash flow includes net operating investments amounting to €161m, down €14m from H1 2019. The adaptation measures resulted in a decline of €28m (‑16%) compared to H1 2019 at constant scope and exchange rates, which was greater than the decline in sales.
At 30 June 2020, net debt amounted to ‑€3,928m, down €469m year on year (‑€4,397m at 30 June 2019) but up €617 m since 1 January 2020 when it stood at ‑€3,311m. As approved by the General Meeting of 6 May 2020, and in a spirit of responsibility vis-à-vis all Group stakeholders, the Group did not distribute any dividends during the period.
At 30 June 2020, equity attributable to equity holders of the parent company totalled €4,843m, versus €5,449m at 31 December 2019, largely due to the increase in pension commitments, driven by the decline in the UK discount rate.
The Group enjoys a very robust financial position. At 30 June 2020, it held €3.8bn in cash and cash equivalents and two confirmed and undrawn syndicated credit facilities totalling €2.8bn, one maturing in October 2021 and the other in December 2021. The next bond maturity is in March 2021 and amounts to €300m.
The global environment has been profoundly changed by the Covid-19 public health crisis, which is affecting all companies, including Thales. Furthermore, the public health and macro-economic context remains uncertain and could affect the pace of recovery of air traffic and corporate investment plans, particularly in cybersecurity and the Internet of Things.
Thanks to the efforts of all staff, Thales expects internal productivity to return to a level close to normal as from the Summer. However, business will still be disrupted by travel restrictions, difficulties in accessing certain customer sites and occasional supply-chain issues.
The Group will also rely on the visibility afforded by its order book, worth more than €31bn, and the positive trend in orders in the Defence & Security segment.
Thales will also benefit from the full effect of its global adaptation plan, which should generate savings of around €800 m for the year: around €750m in the EBIT and a reduction of at least €50 m in net operating investments, at least in line with the expected decline in sales.
Consequently, based on a stabilising economy and public health situation, Thales has set itself the following objectives for 2020:
- As in 2019, a book-to-bill ratio above 1;
- Sales in the range of €16.5 bn to €17.2bn, taking into account significant disruptions in civil aeronautics combined with the recovery of productivity in other businesses;
- EBIT in the range of €1,300m to €1,400m, corresponding to an EBIT margin of around 8% for the full year, thanks to the full effect of the global adaptation plan, ongoing Ambition 10 competitiveness initiatives, and the ramp-up of cost synergies related to the Gemalto acquisition. In the second half of 2020, the recurring operating margin is expected to return to a level close to the second half of 2019.
 Non-GAAP financial indicators
 Ratio of order intake to sales
 Of which, €750m in savings included in EBIT, and at least a €50m cut in net operating investments
 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
 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
 Recurring operating margin: EBIT before restructuring costs and joint-venture contributions as a proportion of sales
 Non-GAAP financial indicators, see definitions in the appendices.
 Net debt at 30 June 2019.
 Mature markets: Europe, North America, Australia, New Zealand. Emerging markets: all other countries. See table on page 16.
 Taking into account a negative exchange rate effect of €16 m and a net positive scope effect of €728m, relating mainly to Gemalto’s consolidation at 1 April 2019 (Digital Identity & Security segment)
 Contract worth a total of €600m over 10 years, of which €200m booked in 2020
 Approximately €1.5 bn for MKS180 and €200m for the first phases (advanced definition B2 phases) of the Copernicus projects, per ESA contracting practices.
 2019 net operating investments: €496m
 Based on the scope and exchange rates of July 2020.
 Based on €130m in restructuring costs (€102m in 2019) and €70m in joint-venture contributions (€171m in 2019)
 Recurring operating margin: EBIT before restructuring costs and joint-venture contributions as a proportion of sales
21 Jul 20. Lockheed Martin Reports Second Quarter 2020 Results.
– Net sales of $16.2bn
– Net earnings of $1.6bn, or $5.79 per share
– Generated cash from operations of $2.2bn
– Achieved record backlog of $150.3bn
– Increases 2020 outlook for all financial metrics
Lockheed Martin Corporation (NYSE: LMT) today reported second quarter 2020 net sales of $16.2 bn, compared to $14.4bn in the second quarter of 2019. Net earnings in the second quarter of 2020 were $1.6bn, or $5.79 per share, compared to $1.4bn, or $5.00 per share, in the second quarter of 2019. Cash from operations in the second quarter of 2020 was $2.2bn, compared to cash from operations of $1.7bn in the second quarter of 2019.
“I’m pleased to see continued strong operational and financial results this quarter as we remain focused on performing with excellence for our customers while protecting the well-being of our employees and keeping our supply chain strong during this global pandemic,” said James Taiclet, Lockheed Martin president and CEO. “Our dedicated Lockheed Martin team, and strong portfolio, coupled with supportive governmental actions have positioned us to deliver vital national security solutions for our country and international partners, and long-term value for our shareholders.”
Second quarter 2020 net earnings include a non-cash impairment charge of $128m ($96m, or $0.34 per share, after tax) for an investment in a joint venture that the corporation has entered into an agreement to sell.
The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place” and quarantine restrictions, and created significant disruption of the financial markets. Lockheed Martin has taken measures to protect the health and safety of its employees, work with its customers and suppliers to minimize disruptions and support its community in addressing the challenges posed by this ongoing global pandemic. The pandemic has presented unprecedented business challenges, and the corporation has experienced impacts in each business area related to COVID-19, primarily in increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, access to some locations, and the impacts of remote work and adjusted work schedules. Despite these challenges, the corporation and U.S. Government’s proactive efforts, especially with regard to the supply chain, helped to partially mitigate the disruptions caused by COVID-19 on the corporation’s operations in the second quarter. In addition, favorable contract award timing and strong performance more than offset the impacts of COVID-19 on the corporation’s financial results in the first half of 2020. Given the results year-to-date and expectations for the remainder of 2020, the corporation is updating its 2020 guidance for net sales, segment operating profit, earnings per share and cash from operations to reflect the recent performance across all four business areas. However, the ultimate impact of COVID-19 on the corporation’s financial outlook in 2020 and future periods remains uncertain.
The corporation’s 2020 outlook assumes, among other things, that its production facilities continue to operate and it does not experience significant work stoppages or closures, it is able to mitigate any supply chain disruptions and these do not worsen, and it is able to recover its costs under U.S. Government contracts and government funding priorities do not change. While these are the corporation’s current assumptions for its 2020 outlook, they could change because the future impact of COVID-19 on the corporation’s operations and financial performance, including the corporation’s ability to execute programs in the expected timeframe, remains uncertain and will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent and manage disease spread, all of which are uncertain and cannot be predicted.
The corporation’s cash activities in the second quarter of 2020 included the following:
- paying cash dividends of $671m, compared to $622m in the second quarter of 2019;
- repurchasing 0.7m shares for $259m; compared to repurchasing 0.6m shares for $219m in the second quarter of 2019. In the second quarter of 2020 the corporation also received and retired an additional 0.4m shares upon settlement of the accelerated share repurchase agreement entered into in the first quarter of 2020 for no additional consideration;
- making capital expenditures of $343m, compared to $249m in the second quarter of 2019;
- no net proceeds from or repayments of commercial paper, compared to making net repayments of $400 m in the second quarter of 2019.
In May 2020, the corporation received net proceeds of $1.13bn from a $1.15bn debt issuance of senior unsecured notes, consisting of $400m aggregate principal amount of 1.85% Notes due 2030 and $750 m aggregate principal amount of 2.80% Notes due 2050. In June 2020, the corporation used the net proceeds from the May 2020 debt offering plus cash on hand to redeem $750m of the outstanding $1.25bn in aggregate principal amount of the 2.50% Notes due 2020, and $400 m of the outstanding $900m in aggregate principal amount of the 3.35% Notes due 2021. As a result of these transactions, as of June 28, 2020, the corporation’s debt balance remained unchanged.
The corporation operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. The following table presents summary operating results of the corporation’s business segments and reconciles these amounts to the corporation’s consolidated financial results.
Net sales and operating profit of the corporation’s business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Operating profit of the corporation’s business segments includes the corporation’s share of earnings or losses from equity method investees as the operating activities of the investees are closely aligned with the operations of its business segments.
Operating profit of the corporation’s business segments also excludes the FAS/CAS operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.
The corporation recovers CAS pension cost through the pricing of its products and services on U.S. Government contracts and, therefore, recognizes CAS pension cost in each of its business segments’ net sales and cost of sales. The corporation’s consolidated financial statements must present pension and other postretirement benefit plan expense calculated in accordance with U.S. generally accepted accounting principles (referred to as FAS expense). The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and CAS pension cost. The non-service FAS pension expense component is included in other non-operating expense on the corporation’s consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension expense (both service and non-service).
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the corporation’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the corporation’s contracts for which it recognizes revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes.
Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.
The corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 27 percent of total segment operating profit for both second quarter of 2020 and second quarter of 2019.
Aeronautics’ net sales in the second quarter of 2020 increased $953m, or 17 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $700m for the F-35 program due to increased volume on production, development, and sustainment contracts; and about $125m for higher volume on classified development contracts.
Aeronautics’ operating profit in the second quarter of 2020 increased $147m, or 25 percent, compared to the same period in 2019. Operating profit increased approximately $130m for the F-35 program due to higher volume and risk retirements on production, sustainment, and development contracts. Adjustments not related to volume, including net profit booking rate adjustments, were $75 m higher in the second quarter of 2020 compared to the same period in 2019.
Missiles and Fire Control
MFC’s net sales in the second quarter of 2020 increased $390m, or 16 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $295 m for integrated air and missile defense programs due to increased volume (primarily Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD)); and about $150m for tactical and strike missile programs due to increased volume (primarily Guided Multiple Launch Rocket Systems (GMLRS) and High-Mobility Artillery Rocket Systems (HIMARS)). These increases were partially offset by a decrease of $25m as a result of lower volume on energy programs due to the divestiture of the Distributed Energy Solutions business in November 2019.
MFC’s operating profit in the second quarter of 2020 increased $43m, or 13 percent, compared to the same period in 2019. Operating profit increased approximately $30m for integrated air and missile defense programs due to increased volume on international contracts (primarily PAC-3 and THAAD); about $20m for tactical and strike missile programs due to higher risk retirements on classified programs; and about $10m for energy programs due to higher risk retirements. These increases were partially offset by a decrease of $15m for sensors and global sustainment programs due to lower risk retirements across the portfolio partially offset by net lower current period charges of $10m for performance matters on an international military program. Adjustments not related to volume, including net profit booking rate adjustments, in the second quarter of 2020 were comparable to the same period in 2019.
Rotary and Mission Systems
RMS’ net sales in the second quarter of 2020 increased $271m, or 7 percent, compared to the same period in 2019. Net sales increased approximately $240m for Sikorsky helicopter programs due to higher volume primarily on Seahawk production programs and VH-92A production contracts.
RMS’ operating profit in the second quarter of 2020 increased $82 m, or 24 percent, compared to the same period in 2019. Operating profit increased approximately $80m for training and logistics solutions (TLS) programs due to a $60m charge for an army sustainment program in 2019 not repeated in 2020 and $45m for Sikorsky helicopter programs due to higher volume and risk retirements on VH-92A production contracts. These increases were offset by a $25m decrease for integrated warfare systems and sensors (IWSS) programs due to lower risk retirements (primarily Radar Surveillance Systems and Aegis) and a $15m decrease for C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower risk retirements (primarily undersea combat systems programs). Adjustments not related to volume, including net profit booking rate adjustments, were $35m higher in the second quarter of 2020 compared to the same period in 2019.
Space’s net sales in the second quarter of 2020 increased $179m, or 7 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $90m for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR)); and about $85 m for strategic and missile defense programs due to higher volume (primarily hypersonic development programs).
Space’s operating profit in the second quarter of 2020 decreased $36m, or 13 percent, compared to the same period in 2019. Operating profit decreased approximately $35 m for government satellite programs due to lower risk retirements (primarily Advanced Extremely High Frequency (AEHF)). Adjustments not related to volume, including net profit booking rate adjustments, were $45m lower in the second quarter of 2020, compared to the same period in 2019.
Total equity earnings recognized by Space from equity method investments (primarily ULA) represented approximately $10m, or 4 percent of Space’s operating profit in the second quarter of 2020, compared to approximately $15m, or 5 percent in the second quarter of 2019.
The corporation’s effective income tax rate was 17.1 percent in the second quarter of 2020, compared to 15.6 percent in the second quarter of 2019. The higher rate for the second quarter of 2020 is primarily due to a decrease in tax deductions for foreign derived intangible income. The rates for both periods benefited from the research and development tax credit, tax deductions for foreign derived intangible income, dividends paid to the corporation’s defined contribution plans with an employee stock ownership plan feature, and tax deductions for employee equity awards.
22 Jul 20. Lockheed, Boeing Got Half of $2.3bn in Pentagon Virus Cash.
Initial estimate had unneeded $700m for one contract.
Projected accelerated progress payment estimate $2.4bn.
Lockheed Martin Corp. and Boeing Co. received about half of an initial $2.3bn in increased, accelerated payments the Pentagon provided contractors to help companies’ cash flows after the Covid-19 pandemic erupted in the U.S.
The initial infusion was included in $13bn in regular, periodic progress payments paid to the companies, according to newly released defense figures. Lockheed Martin initially received $685m while Boeing got $670m, according to a Pentagon statement to Bloomberg News
In a separate statement, Lockheed Martin said that modifications to existing contracts resulted in additional accelerated payments to the company, increasing its total received to $1.1bn by June 30, “all of which we have flowed down to our supply base.”
Lockheed and Boeing are the top two U.S. defense contractors, so they were expected to get the biggest share of the funds. Other companies receiving the accelerated payments include:
- Raytheon Technologies Corp.: $410m
- L3 Harris Technologies Inc.: $74m
- The Boeing/Lockheed United Launch Alliance LLC: $70m
- Northrop Grumman Corp.: $70m
Another $321m went to other companies.
The companies are benefiting from a policy the Pentagon announced in March, just as the pandemic was building in the U.S., that provided for faster, and bigger, payments to companies. The move was intended to guarantee that critical national security contracts — including the production of key weapons systems and supplies — weren’t interrupted by companies having problems accessing cash or credit. The extra funding would ensure production lines were able to stay open.
The Defense Department’s move meant that larger firms could get as much as 90% of their payments for contracts in progress, up from 80% previously. For smaller businesses, which might be more susceptible to virus impacts, the rate rose to 95% from 90%.
As the initial funds were identified, the Pentagon “worked with each of the major primes to ensure that they were identifying at risk companies in their supply chain and flowing down payments to those companies, as well as all companies doing work for the prime,” said the statement.
The major contractors “have been flowing down payments, in some cases more than the payments received from DOD,” it said.
Pentagon officials initially estimated in March about $3bn would be paid but that number included a potential $700m payment on a long-standing contract that further analysis deemed was not necessary.
In addition to the accelerated progress payments, the Air Force in April released to Boeing $882 m withheld from the company over current deficiencies with its KC-46 military tanker program as part of Covid-19 relief efforts.
After the program was announced, Senator Elizabeth Warren, who serves on the Armed Services Committee, expressed concern about its oversight. In particular, the Massachusetts Democrat questioned whether companies might try to divert the increased payments for stock buybacks, dividends or executive pay.
Pentagon Undersecretary for Acquisition and Sustainment Ellen Lord in a May 15 letter to Warren said that hasn’t been the case.
“Companies do not divert payments for incurred costs to share buybacks, dividends or executive salaries because contractors must have already incurred costs before they receive the increased progress payments,” Lord wrote. (Source: Defense News Early Bird/Bloomberg)
23 Jul 20. IBM’s bet on the cloud starts to pay off. Once bitten, twice shy. International Business Machines (NYSE: IBM) famously came unstuck when it either failed to anticipate, or chose to ignore, the inexorable rise of the personal computer (PC). The group’s interim figures through to the end of June suggest that it is now far more attuned to technological trends in an industry it dominated throughout much of the post-war period.
It is worth remembering that IBM had become a leading developer of the PC by the early 1980s, but its primacy in the mainframe/server space may have bred complacency.
It approached a teenage Bill Gates to provide an operating system for its range of PCs, but, crucially, it failed to secure the source code within its intellectual property portfolio, enabling the young entrepreneur to also licence his Microsoft Disk Operating System (MS-DOS) to other computing companies. The rest, as they say, is history, though it is hard to imagine that the likes of Google or, indeed, Microsoft (US:MSFT) itself, would not have neutralised or simply acquired a potential rival technology application right from the get-go.
A decade on from that initial interaction, and matters had deteriorated badly. IBM was booking an $8.1bn (£6.37bn) loss with prices for mainframe computers falling through the floor.
MS-DOS had well and truly bolted, but the group’s most compelling commercial advantage – its ability to provide integrated solutions for customers – was still intact.
Plans had been in place to break up the group’s business units into separate companies, but Lou Gerstner, the group’s newly appointed chief executive, duly put the kibosh on the plans and, instead, concentrated on a model that variously incorporated a consultancy/supply/after-sales/integration approach. The thinking was that a prospective customer would be far more inclined to establish a long-term commercial relationship if all their IT requirements (hardware, data storage, software issues, maintenance, etc) were available from a single source.
IBM’s early supremacy in the mainframe market is partly explicable in terms of capital and intellectual property – it had the money and the minds. But the advent of personal computing, made possible by ever shrinking microprocessors, changed the industry dynamic. ‘Big Blue’ was left floundering like a beached whale as a new generation of coders and IT analysts made their way out of the campuses of Berkeley and Stanford.
It is conceivable that even if IBM’s management had the foresight to tie-up the MS-DOS software, another alternate operating system may have become the default setting for the industry anyway.
Nearly 30 years down the track and IBM is now faced by a proliferation of challenges across its existing business segments. That was perhaps inevitable, as it does operate in what is sometimes referred to as a ‘white-water’ industry – endless churn.
So, what really matters is how well it continues to adapt to technological change, together with its readiness to rationalise its business segments accordingly. Broadly speaking, the signs are positive. Market research from International Data Corp shows that IBM holds pole position in the worldwide artificial intelligence (AI) market, with a 9.2 per cent share in 2018, a year in which global AI revenues grew by 35.6 per cent.
The group has gradually jettisoned some of its hardware and software capabilities in favour of its service offering, establishing strong market positions in hybrid cloud technology and cognitive solutions.
This transition away from crowded, mature corners of the IT market in favour of rapidly growing segments stands in contrast with its earlier failure to adapt to the evolution of the PC market, although it has come at a cost. Group revenue has fallen by 23 per cent since 2010, partly because of the effects of discontinued assets, although there has been a significant increase in the proportion of net income to gross profits since 2017. However, the income margin trails the sub-sector average and the group’s debt-to-equity ratio also suffers by comparison.
Has the transition been worth it? Well, as with so much else, the pandemic has muddied the waters. IBM’s cyclical global business services unit suffered through the second quarter as clients put discretionary spending on hold due to Covid-19. And although reported figures were down year on year, they still came in ahead of the consensus. More importantly, second-quarter revenue at the group’s cloud business was up 30 per cent, a probable sign that corporations are already accelerating their digital shift in response to the disruption brought about by the virus. A 109-year-old tech corporation could well be one for the future. (Source: Investors Chronicle)
23 Jul 20. Cohort reaps rewards of Chess acquisition. Defence technology group Cohort (CHRT) saw its adjusted operating profit jump by 12 per cent to a record £18m in the year to 30 April, despite a £1m hit from Covid-19. It benefitted from the first full year contribution from Chess Technologies, the electro-optical and electro-mechanical systems supplier purchased in 2018. Boosted by strong export demand for naval systems, Chess more than doubled its profits to £3.9m.
The pandemic hit in the group’s traditionally busiest quarter, with the impact most keenly felt at engineering business SEA. Export orders for naval defence products such as torpedo launcher systems were delayed, a trend that has continued into the new financial year. The division’s cost base is now being trimmed by £1.3m.
Cohort is set to acquire German naval sonar business ELAC for €11.3m (£9.8m) by the end of September. The purchase will widen its footprint in the naval market and provide cross-selling opportunities with SEA.
Even with that outlay, it expects net debt will be in line with last year, when (excluding lease liabilities) it came down by 27 per cent to £4.7m. This was aided by the UK Ministry of Defence (MoD), accelerating payments to support suppliers during the pandemic.
House broker Investec anticipates adjusted pre-tax profit of £17.6m and EPS of 22.5p in 2021, versus £17.5m and 36.7p in 2020.
Defence budgets could come under pressure post-pandemic and the UK’s defence spending review is also now underway. Cohort derives just under 50 per cent of its revenue from the MoD, although chief executive Andy Thomis says it would be “a very radical defence review indeed” if it were to cut into its core service offering. Meanwhile, the group has visibility over 75 per cent of its expected revenue for the current year, and unlike many others, is paying an increased final dividend. Buy. Last IC View: Buy, 615p, 12 Dec 2019. (Source: Investors Chronicle)
22 Jul 20. GridRaster Secures $2.5m in Additional Financing to Support its Cloud-Based XR Platform. Capital Enables GridRaster To Further Develop and Deploy its Cloud-Based XR Solutions for Enterprise-Level Clients.
GridRaster, a leading provider of cloud-based XR platforms that powers high-performance and scalable AR/VR/MR experiences on mobile devices for enterprises, announced today it has closed an additional $2.5m in venture funding led by Blackhorn Ventures with participation from other existing investors MaC Venture Capital and Exfinity Venture Partners. This infusion of additional capital enables GridRaster to continue developing its XR solutions, powered by cloud-based remote rendering and 3D vision-based AI, in key customer markets that include Aerospace, Defense, Automotive and Telecommunications.
Market Potential for Immersive AR/VR
According to Statista, the immersive AR/VR market is forecast to grow into a $160bn industry by 2023. According to a recent industry survey commissioned by GridRaster, 56% of executives polled said they have implemented some form of AR/VR technology into their organization over the last 12 months, and another 35% said they are considering doing so. More than a quarter (27%) said they have fully deployed an AR/VR solution and are looking to scale further.
“Immersive technologies like AR/VR have quickly had a significant impact on large enterprises seeking greater efficiency and cost reduction in their design, manufacturing, and training regimens,” said Rishi Ranjan, CEO and Founder of GridRaster. “Particularly with the financial and social distancing strains put forth by COVID-19, we believe enterprises in several key industries will rely on AR/VR even further to maintain workflows, create greater efficiencies and cut costs out of the production cycle.”
Philip O’Connor, Co-Founder and Managing Partner of Blackhorn Ventures said, “We are very excited to be partnered with GridRaster, not only do they have an exceptional team but their platform is unlocking the immense efficiency improvements that VR/AR/MR can offer to industrial applications. Their solution is not only innovative, but it is also very timely, which has been demonstrated by its adoption in critical processes. Blackhorn Ventures invests in companies that are redefining industrial resource efficiencies.”
The investment brings GridRaster’s total funding since launching its pioneering cloud-based XR platform to $5.7m, and it comes on the heels of several successful customer project completions of key pilot programs. Added Ranjan, “We developed the GridRaster XR Cloud Platform working with a select group of customers and partners in the industry. This additional capital will expedite our product development efforts and enhance our customer support as we deploy in production settings. The new investment round will enable GridRaster to further capitalize on its position as a leader in cloud-based XR for our target industry.”
About Grid Raster Inc.
GridRaster is a leading provider of cloud-based XR platforms that power compelling high quality AR/VR/MR experiences on mobile devices for enterprises. The company works with manufacturers in automotive, aerospace and defense, and technology to launch and scale AR/VR solutions. The company utilizes a cloud-based approach leveraging distributed edge computing, low-latency remote rendering and 3D Artificial Intelligence (AI) to help clients overcome performance, scalability and legacy project limitations. For more information please visit www.gridraster.com. (Source: BUSINESS WIRE)
23 Jul 20. Cohort Plc. Preliminary Results For The Year Ended 30 April 2020. Cohort plc today announced its audited results for the year ended 30 April 2020.
Revenue: £131.1m (2019: £121.2m)
Adjusted operating profit1
- Results in line with expectations as announced 21 May 2020; increased revenue, adjusted operating profit and EPS.
- Better than expected cash performance.
- Dividend increased by 11%.
- COVID-19 negatively impacted the Group revenue by £3m and adjusted operating profit by £1m. Sites continue to be operational with social distancing and enhanced health and safety protocols.
- Divisional overview:
O Record performance from MASS
o Chess delivered a good first full year performance
o Improvement at EID
o Weaker results at MCL and SEA, the latter due to slippage of export orders.
- As expected, lower order intake of £124.4m (2019: £189.9m, included a large multi-year renewal of over £50m).
- Agreed to acquire ELAC for €11.25m (£9.8m) in December 2019; completion due by 30 September 2020.
1 Excludes exceptional items, amortisation of other intangible assets, research and development expenditure credits and non-trading exchange differences, including marking forward exchange contracts to market.
22 Jul 20. Private equity firm buys Humvee-maker AM General. Humvee-maker AM General has been acquired by KPS Capital Partners, a private equity firm known for buying financially distressed manufacturers, the companies announced Wednesday.
KPS acquired AM General of South Bend, Indiana, from MacAndrews & Forbes in a deal in which terms were not disclosed. AM General has largely been stagnant since losing the competition for the U.S. Army’s Joint Light Tactical Vehicle in 2015 to Oshkosh.
Following its loss in the JLTV competition, the company turned to the international market to continue growing its Humvee business, such as through offering to foreign customers a multipurpose truck with a military-grade rolling chassis from its Humvee design with a la carte add-ons.
KPS Partner Jay Bernstein said in a joint statement that the firm would continue to work with AM General’s chief executive, Andy Hove, as well as its management and employees “to build on this great platform, organically and through acquisition.”
“We intend to leverage the Company’s commitment to research, technology, innovation and new product development, as well as its heritage and iconic brand name,” Bernstein’s statement read.
Hove said the firm would work with KPS “to continue to execute our strategy and invest in our very ambitious growth plan.”
“KPS’ demonstrated commitment to manufacturing excellence, continuous improvement and commitment to invest in technology and innovation will only enhance the Company’s ability to compete in today’s military and commercial marketplace,” Hove said.
“Plenty of industrial companies and investment firms had considered buying AM General,” James Hasik, senior fellow at the Center for Government Contracting at George Mason University, told Defense News July 22. “And plenty of companies have considered teaming with AM General for a bid on a forthcoming production program.”
AM General has continued to try to adapt to the needs of the U.S. military, bringing a robotic combat vehicle to an Army demonstration last year as the service mulls the future of robots on the battlefield. The company also competed for the Squad Multipurpose Equipment Transport vehicle program but was not selected.
Yet, AM General has remained a single-product firm with the Humvee, Hasik noted, and the future of the Humvee is “hard to call.”
Many militaries around the world use Humvees, and the U.S. Army plans to keep some in its fleet, but the U.S. Marine Corps is divesting its stock. According to Hasik, it’s possible that since the Humvee is less expensive than the JLTV and would likely be relegated to noncombat roles, the Army might choose to purchase pickup trucks instead.
“The Humvee was developed in part because the Army’s pickup trucks of the 1970s were unimpressive, but that was 50 years ago, and automotive technology has advanced,” he said. “Today’s pickup trucks are much cheaper to buy and operate, and that’s what the Canadian Army has done.”
While AM General has come up with some novel ideas, “nothing has stuck,” Hasik said. For several years, the company has shown up at trade shows touting a howitzer on a Humvee, like it did at London’s DSEI exposition in late 2019. Still, the U.S. Army is struggling to figure out how it would fit into formations.
The good news for KPS is that the company has a running factory with “efficient, medium-speed production of 4×4 military trucks and a production team who know how to do that,” Hasik said. “That’s an important skill set, as it works better for military programs than enlisting a pickup truck factory, which must make them in the hundreds of thousands to make money.”
AM General has advertised on its website that it could build bigger trucks, and the Army has just issued a request for information for a program to replace all of its heavy trucks, Hasik pointed out. “It could also build small trucks, similar to the Humvee, for future autonomous applications. There’s no guarantee, but we might see lots of those in a few years.”
“All in all, I suspect that KPS didn’t buy AM General just to wring some more efficiencies out of the Humvee program. The folks there probably see some of these upside possibilities as well,” he added. (Source: Defense News)
21 Jul 20. HII Technical Solutions unit restructures its business groups. Huntington Ingalls Industries’ (HII) Technical Solutions division has restructured its internal organisation and business groups. The move follows a review of the division’s current capabilities and organisational structure.
It is expected the reorganisation will help offer an enhanced service to customers, both existing and future, and attain support function proficiencies. As part of this, there are now three Technical Solutions business groups. The existing Fleet Support group and Mission Driven Innovative Solutions (MDIS) group have been merged to form the Defense and Federal Solutions group.
The Defense and Federal Solutions group will be led by the former president of MDIS, Garry Schwartz.
The other two Technical Solution groups are the Unmanned Systems and Nuclear and Environmental Services.
Schwartz said: “We are incredibly excited about what we have accomplished and what we plan to deliver to our customers going forward.
“We have some of the most talented engineers, scientists, analysts, and technicians in the world working on helping our government solve some of its most important challenges.
“We look forward to leading the charge in changing how innovative solutions are provided to our government customers, particularly in the ISR and military simulation and training markets, while continuing to build on the legacy of over a century of cutting-edge naval shipbuilding and decades of fleet sustainment excellence.” (Source: naval-technology.com)
22 Jul 20. KMW+Nexter Defense Systems (KNDS) looks back on a successful year 2019. The strategic alliance between KMW and Nexter, completed in 2015, thus presents itself as an ongoing Franco-German success story.
The KNDS Group was able to book a confirmed order intake of €4,375m in 2019 – a significant increase over the previous year (€3,514m). The order backlog grew by 23.5 percent compared to 2018 and stands at €9,633m plus conditional tranches and options (€ 4,000m). A large share of this was accounted for by the order for more than 500 Boxer wheeled vehicles from the UK, the orders for PUMA VJTF infantry fighting vehicles and Leopard 2 main battle tanks for the German Bundeswehr, as well as the GRIFFON and the JAGUAR for Belgium, the TITUS IMV wheeled vehicle for the Czech Republic and the Danish order for further CAESAR artillery systems. Sales also increased to €2,539m, well above the 2018 figure (€2,245m). The number of employees was increased by 328 to 7,873 by the end of 2019.
On course for joint products
The integration of KMW and Nexter continues to move forward. This includes joint projects related to Tanks, Artillery, Ammunition and armored vehicles. One key project is the EMBT (European Main Battle Tank), consisting of a German Leopard chassis and a French Leclerc turret, which was presented as a demonstrator at the international defence and security exhibition Eurosatory 2018. KNDS has made steady progress in developing this project to match market needs and short/mid-term availability.
MGCS (Main Ground Combat System)
The development towards the future Main Ground Combat System, for which entry into service is planned from 2035, has been advanced further. On 16 October 2019, the defence ministers of Germany and France made a clear commitment to this defence project and the development of the MGCS. The joint venture subsequently formed in December 2019 by the participating companies KMW, Nexter and Rheinmetall AG provides the industrial framework for the first MGCS contract, which was signed in May 2020. The so-called System Architecture Design Study Phase 1 (SADS1) forms the beginning of the MGCS development process. The contract is the industrial starting signal for the first step towards one of the largest land system procurement programmes in the history of Germany and France. The tank system houses Nexter and KMW will contribute their expertise to all aspects of the programme.
Outlook for 2020
A major challenge for KNDS is, of course, the economic impact of the global pandemic. The aim remains to maintain customer and shareholder satisfaction, to further strengthen the integration of the Group, and to advance the joint programmes.
Frank Haun and Stéphane Mayer, co-CEO’s of KNDS, declared:
“The excellent KNDS key figures for 2019 show that we have achieved our objectives. These results demonstrate the significance of joining KMW and Nexter strengths. KNDS is growing and we remain on track to fulfill our ambition to become the European leader in land defence. Therefore, we notably welcome the success of recent order intakes in Europe.”
21 Jul 20. Mu-Del Electronics Announces the Acquisition of Luff Research. Del Electronics LLC, an Ironwave Technologies Company and a leading manufacturer of high-performance RF and Microwave based systems, is proud to announce another milestone in the history of the company with the acquisition of Luff Research. Luff Research, based in Floral Park, New York, is a leading manufacturer of high-performance RF oscillators and synthesizers. “With this acquisition, Mu-Del will be able to enhance Luff’s manufacturing quality and volume, thus offering superior products to the marketplace, while gaining additional market share”, says Sami Antrazi CEO of Mu-Del Electronics.
Greta Gorder, President of Luff, adds that “we are excited to join Mu-Del Electronics, as their approach to product development and customer support, along with their critical mass and strong business acumen, enables the business growth of our current, and future, customers – which our customers are requesting.”
“The combined engineering and product offerings of our American based companies will allow us to expand our product offering to our current and future clients”, says Mr. Jim Guinaw, Executive VP of Sales for Mu-Del Electronics.
Mu-Del Electronics LLC, http://www.mu-del.com, based in Manassas Virginia, designs and manufactures radio frequency and microwave sub-systems and components for national defense purposes of intelligence collection, telemetry, radar signal processing and communication, in airborne, ground based and naval platforms.
Luff Research Inc., http://www.luffresearch.com is a leader since 1980, focusing on design development and manufacture of high performance frequency synthesizers, phase-locked oscillators and complex assemblies that incorporate these components.
Ironwave Technologies LLC, http://www.iwtllc.com invests in RF and Microwave technologies used in Electronic Warfare, communications, telemetry and surveillance. It has several current investments in this space and is actively pursuing additional acquisitions. (Source: PR Newswire)
21 Jul 20. J.F. Lehman & Company Raises $1.35bn for Fifth Fund. J.F. Lehman & Company (“JFLCO”), a leading middle-market private equity firm focused exclusively on the aerospace, defense, maritime, government and environmental sectors, announced the final closing of its fifth fund with aggregate commitments representing $1.35bn, including affiliated investment vehicles.
“We greatly appreciate the strong support for both our organization and established investment strategy,” said Louis N. Mintz, Partner. “We are thankful that market participants recognized and valued the experience and cohesiveness of our team, the strength of our reputation and performance built over three decades of exclusive sector focus and our demonstrated investment discipline.”
Initially targeting $1.0bn, JFL Equity Investors V, L.P. (“Fund V”) was oversubscribed and reached its hard cap. Strong support from JFLCO’s longstanding limited partners and notable new investors resulted in a diversified investor base comprised of leading public and private pensions, insurance companies, financial institutions, endowments, foundations, family offices and high-net-worth individuals from across the U.S. and Europe.
Credit Suisse Securities (USA) LLC acted as exclusive placement agent for Fund V and Jones Day served as legal adviser.
21 Jul 20. Lockheed’s new CEO rules out commercial aerospace in deal hunt. Lockheed Martin Corp.’s new chief executive officer, Jim Taiclet, is prowling for deals amid the coronavirus pandemic and economic downturn. Just don’t expect the world largest military contractor to rummage for bargains in the distressed commercial aerospace industry, where Boeing Co. and its suppliers are grappling with an unprecedented collapse in air travel.
“Pure-play defence is going to be the field we’re playing on,” Taiclet said in an interview Tuesday after Lockheed exceeded Wall Street’s earnings estimates and raised its 2020 financial forecasts. “But we may want to expand the edges of the field,” he said, pointing to artificial intelligence as the kind of area that might strengthen the company’s weapons line-up.
Taiclet’s priorities squelched earlier speculation that Lockheed would consider a commercial aerospace deal to counter the tie-up of Raytheon and United Technologies, which formed Raytheon Technologies Corp. earlier this year. The pandemic has injected too much risk into such deals, Lockheed’s new boss said, particularly for a company sitting on a record US$150bn backlog of defence contracts.
Lockheed rose 2.6 per cent to close at US$375.12 in New York. The stock has dropped 3.7 per cent this year while the S&P 500 has gained 0.8 per cent.
The CEO inherited a solid performer from predecessor Marillyn Hewson, with strong fighter-jet, missile-defence and hypersonic-aircraft offerings. Hewson stepped into the chairman’s role in June at Lockheed, which makes the F-35 Lightning II fighter, the Pentagon’s costliest weapons program.
When it comes to allocating capital, Taiclet said shareholders shouldn’t expect the large-scale share repurchases that companies such as Boeing used before the pandemic to entice investors.
In his “batting order,” the dividend comes first and is sacrosanct, he said. That’s followed by research and development that has the promise to generate strong returns. Then there are mergers and acquisitions.
“The fourth, lonely batter that comes to the plate is share repurchases, because that means I didn’t have a better use for my cash,” he said.
A former U.S. Air Force pilot who flew Lockheed aircraft during the Desert Storm operation of the early 1990s, Taiclet went on to work in aerospace for engine maker Pratt & Whitney and Honeywell International Inc. before jumping to American Tower.
He intends to build on the strategy he used for about 17 years as CEO of American Tower, a real estate investment trust with an emphasis on telecommunications.
“Define your scope,” he added, “become great at that, and scale it.”
21 Jul 20. UAE’s EDGE to buy Lockheed stake in military maintenance company. United Arab Emirates state defence conglomerate EDGE said on Tuesday it was taking full ownership of UAE military repair and maintenance company AMMROC by buying the 40% stake held by Lockheed Martin (LMT.N). Abu Dhabi-based EDGE has entered into a conditional agreement to buy the stake from Lockheed Martin and its subsidiary Sikorsky, it said in a statement. The value of the transaction was not disclosed. (Source: Reuters)
22 Jul 20. Melrose Industries PLC (“Melrose” or the “Group”) publishes the following trading update for the half year period ended 30 June 2020 (the “Period”) prior to the publication of its interim results. All numbers are calculated at constant currency.
The Period covered by the trading update has been extraordinary. For part of this Period the Automotive and Powder Metallurgy businesses had factories that were largely closed in Europe and the Americas, and the Aerospace and Nortek businesses had factories which were largely open but with hugely reduced requirements. As a consequence, your Board cancelled the final dividend due in May 2020, negotiated waivers for its EBITDA to net debt covenant for June and December 2020, and focused the Group on cash generation. Your Board is grateful for the swift and unanimous support of its lending banks in renegotiating these banking arrangements which has been a significant benefit to Melrose stakeholders.
As a result of this cash focus, the Group has generated c.£200m of free cash flow, before restructuring costs and the acquisition of Forecast 3D in January 2020, resulting in net debt, at constant currency, reducing by c.£90m in the Period. Consequently, the committed bank headroom has increased to over £1.1bn as at 30 June 2020. Additional to this headroom the Group has cash in hand of over £300 m. The Group therefore beat its target of being cash neutral in what was a hugely difficult trading environment and your Board is pleased with this achievement.
It is natural that, as the businesses recover from the consequences of closed factories, some working capital requirements will need to increase as factories re-open. Importantly, there is still the opportunity to reduce inventories in the Group by over £150m to significantly mitigate this, which is in addition to the c.£200m of reduction in inventory and capital expenditure achieved since March 2020.
It is also necessary to adapt the businesses for the new economic environment, which means that there has to be an even stronger focus on cost reduction throughout the Group with some inevitable impact on employee numbers. Your Board estimates that such cost reduction measures taken this year will have a net beneficial contribution to the Group of c.£100m in 2021 after assuming the scheduled withdrawal of worldwide government support schemes and furlough.
In the Period Group revenue declined by 27% which was reflective of trading in line with expectations until mid-March 2020 followed by a steep decline in the second quarter. The focus on cash and reducing working capital has some detrimental effect on profitability for the year. The Group was loss-making in the second quarter of this year, but rebounded to be breakeven at the adjusted operating profit level in the month of June as recovery started to take place. This means Melrose is likely to make a small adjusted operating profit in the Period. Bearing in mind the focus on cash generation, your Board regards this as a significant achievement.
In line with the industry, sales in Aerospace for the Period reduced by approximately 18% and are not expected to recover in the second half of the year. Overall it is anticipated that sales for the year are likely to reduce by approximately 25-30% year-on-year and for the business to broadly breakeven. Therefore, a substantial reduction of the Aerospace cost structure is underway. This will significantly improve this business’s performance in 2021 without relying on sales growth from the level anticipated this year. This is a world leading business and as such is well positioned in its market to adjust to the demands of the new aerospace environment.
The Automotive and Powder Metallurgy businesses saw very similar trends to each other in the Period with a sharp decline in the second quarter due to many of their factories being shut and sales in the Period subsequently being down 36%. However, these businesses are also now seeing recovery. With COVID-19 cases currently rising in parts of the world and an unknown effect of customer restocking it cannot be certain these trends will continue at their current strength, but at present trading in China is ahead of last year (and has been for a couple of months), trading in the US is forecast over the summer to be within 10% of last year and there are some signs of improving European demand. All of this currently gives hope for a faster recovery than was sometimes feared would be the case though it is too early to be certain of this.
Existing travel restrictions mean that the Automotive Investor Day in New York, intended to be held in October 2020, will be rescheduled.
Nortek Air Management is performing well, and as a result, sales in the Period were only down 7%. The exciting StatePoint technology, aimed at improving the energy and water usage in data centres around the world, is gaining significant traction, with forecast sales this year of over $100m. The business is receiving significant interest in its products from a number of data centre providers. Melrose announced on 5 March 2020 that it had appointed advisers to explore the strategic options for Nortek Air Management: this review was suspended later in March this year. Whilst there remains uncertainty on timing, it is the intention to revisit these options early in 2021. In the meantime, there is confidence that the improvements in these businesses this year (StatePoint and elsewhere) have further enhanced the quality of this division.
The Other Industrial businesses are in various end markets impacted by COVID-19 to variable extents. Brush is benefiting from the significant restructuring projects which it completed in 2019 and Ergotron has seen strong demand for its health sector products.
While the COVID-19 crisis has been challenging for all our businesses, the Group has sought to protect investment in R&D and continue to develop world leading technologies. Aerospace is investing in ground-breaking technologies for both electric and hydrogen powered aircraft. Automotive pressed ahead with its investment in e-Drive auto systems and recently produced its millionth e-Drive unit. Powder Metallurgy has continued to develop its 3D printing capability including the acquisition of Forecast 3D. Nortek Air Management, as stated above, is also continuing to develop its revolutionary StatePoint technology. Further development of these and other exciting projects are key to the successful development of the Group.
While we are encouraged by the strong cash performance in the Period, your Board does not consider it appropriate to pay an interim dividend to shareholders in 2020. The Company will publish its full interim results on 3 September 2020.
Simon Peckham, CEO of Melrose Industries PLC said:
“This has been an extraordinary period which has needed our management teams and employees to carry out difficult actions with speed and determination. As a result we have generated £200m of free cash flow and started to adapt our world leading businesses to take advantage of the market and acquisition opportunities the future will bring. For this year the focus is on cost control and cash generation, but we have protected investment in innovation for the future. Whilst timetables will have been affected, we remain confident that our businesses will adapt and produce good returns for our shareholders.”
21 Jul 20. IFS reports strong H1 financial results.
- Despite heightened disruption due to the global pandemic, IFS demonstrates resilience and continued growth with 56% growth in Cloud and a 16% increase in revenue
– IFS, the global enterprise applications company, today announced its financial results for the first half of 2020 that ended 30 June, 2020. The results validate IFS’s business strategy, which delivered a 26% growth in software revenue.
In the midst of the most unpredictable market conditions in modern history, IFS showed remarkable resilience. The company took quick action to adapt its business operations to protect its employees, serve its customers with the best solutions in the market and attract new brands to its roster—including Alfa Laval, Amentum, BRITA, Carlsberg and Panasonic. These businesses are among the growing majority of companies who understand the urgency to digitally transform leveraging service.
IFS Chief Executive Officer Darren Roos commented, “Our focus remains on delivering value to our customers and never before has this mission been more critical to their survival. Our close collaboration with our partners has ensured we remain relevant, which is reflected in our results. Our recent announcement about EQT and TA Associates’ ownership is a real endorsement of our strategy and our enormous potential to continue to capture market share.”
IFS Chief Financial Officer, Constance Minc added, “Our net revenue growth of 16% combined with our ongoing margin expansion really highlights the quality of the business. We see recurring revenue is now at 80% of total software revenues.”
Financial and Operational Highlights for H1 2020:
- Net revenue was 3,482m SEK (US $360m), an increase of 16% versus H1 2019
- Cloud revenue increased 56% versus H1 2019
- Gross margin improved 19%
Earlier this month, IFS was recognised as a Leader in the 2020 Gartner Magic Quadrant for Field Service Management1, a designation the company has enjoyed five times running. In June, IFS placed as a Visionary in the 2020 Gartner Magic Quadrant for Cloud ERP for Product-Centric Enterprises2. Also earlier this year, Gartner Peer Insights named IFS a Customers’ Choice recipient for its Enterprise Asset Management solutions3. IDC has recognised IFS as a Leader in its 2020 MarketScape for SaaS and Cloud-Enabled Large Enterprise ERP Applications4, a Leader in its 2019 MarketScape for SaaS and Cloud-Enabled EAM Applications5, and also a Leader in its 2019 MarketScape for Manufacturing FSM Applications6. Continued recognition and validation from respected third-party industry experts confirm IFS’s prominent market position as it looks to expand its market reach further in 2H 2020.
Note: revenue growth figures based on Swedish Krona H1 2020 versus H1 2019 and are reported in actual currency.
15 Jul 20. A New Direction for Airbus U.S. Space & Defense Business.
Airbus U.S. Space & Defense, Inc., has new direction for the business and has unveiled a new leadership team and has signaled the company’s intent to expand its presence in the U.S. space and intelligence markets.
Airbus U.S. Space & Defense Chief Executive Officer, Chris Emerson, formerly the President of Airbus Helicopters Inc., intends to build on the company’s known reputation for military aircraft and helicopters. His organization will offer capabilities in low-cost satellite design and manufacturing, space exploration, geospatial intelligence, space-based sensors and equipment, secure communications and High Altitude Pseudo-Satellite technology.
Operating under a Special Security Agreement with the U.S. government, Airbus U.S. Space & Defense is approved to deliver on highly sensitive national security and defense requirements. The company is currently executing multiple contracts with U.S. government entities, including the National Aeronautics and Space Administration, Defense Advanced Research Projects Agency, the National Geospatial-Intelligence Agency (NGA), and all of the service branches of the U.S. military.
To meet these demands, Emerson has assembled an almost entirely new leadership team, including industry veterans and top picks from the U.S. Airbus executive community. These changes were prescient, coming at a time when the U.S. DoD is spearheading a transformation in national security space, and industry has been shifting to deliver the U.S. government vision.
Understanding the U.S. government’s need for a resilient national security infrastructure, Emerson is also building up the company’s U.S.-based geospatial intelligence capabilities. Airbus U.S. Space & Defense has readily-available, affordable, commercial imagery that can be delivered with the speed, precision and accuracy that the U.S. government requires.
Emerson has built a leadership team that he believes has customer service at the core. The new Board of Directors, Board of Advisors, and leadership team bring a diverse set of experiences, including strong backgrounds in the space, intelligence, defense and homeland security sectors.
- Letitia Long – Former Director of the NGA
- The Honorable Frank Miller – Former Department of Defense (DOD) Senior Executive and Special Assistant to President George W. Bush
- Gen. William L. Shelton, U.S. Air Force (Ret.) – Former Commander of the Air Force Space Command
- Mark Sirangelo – Scholar in Residence, University of Colorado, Member of the DoD Defense Innovation Board and previous head of Sierra Nevada Space Systems
- Rear Adm. Kevin Sweeney, U.S. Navy (Ret) – Former Chief of Staff to the Secretary of Defense
Board of Advisors
- The Honorable Michael J. Bayer – President of Dumbarton Strategies and Chairman of the Defense Business Board
- Robert Cardillo – Former Director of the NGA
- Robert B. Charles – Former Assistant Secretary of State
- Gen. Peter Chiarelli, U.S. Army (Ret.) – Former Vice Chief of Staff of the U.S. Army
- Kathryn A. Condon – Former DOD Senior Executive
- Brig. Gen. (Ret.) Stephen D. Mundt – Former Director of Army Aviation at Headquarters Department of the Army
- Vice Adm. James M. Zortman, U.S. Navy (Ret.) – Former Commander of U.S. Naval Air Forces
“Leveraging our decades of experience delivering Lakotas to the U.S. Army, we have reorganized our U.S. operations also to optimize our ability to support the growing U.S. space and intelligence markets,” said Emerson. “In addition to continuing our success with the Lakota program, we are building on the global Airbus portfolio of innovative technologies for the U.S., with reliability and commitment to our customers’ mission needs. The recent financing for OneWeb enables continued production of the OneWeb constellation in the high-volume, high-speed advanced satellite production facility operated by Airbus OneWeb Satellites in Florida. Airbus is thrilled to continue to leverage this low-cost capability in the U.S. to support the growing demand from U.S. customers for LEO constellations. We will position the new business to meet the growing demands of the U.S. space market, blending longstanding expertise in space systems and exploration with commercial investments and an entrepreneurial spirit.”
Parent company Airbus has been present in the U.S. for more than 50 years and currently supports over 275,000 jobs in more than 40 states. Airbus has contributed to more than $48bn in aircraft-related expenditures in the U.S. in the last three years and has over 450 suppliers and teammate relationships. (Source: Satnews)
16 Jul 20. SES Americom + Inmarsat Want Payments. On July 15th, it was reported that SES Americom was arguing with Intelsat’s bankruptcy court that Intelsat should pay $1.8bn to SES because of a “contract violation” over the pair’s C-band Alliance (CBA) agreement and the clearance of spectrum for 5G.
Following the news, satellite analyst Sami Kassab from investment bank Exane/BNPP issued a guidance note to clients, saying the bank understands that there was a legally-binding agreement in place between C-band members on how proceeds would be broken down between members and how the CBA would operate. SES claims Intelsat breached that agreement.
“Throughout the C band process, consensus (based on Intelsat rough guidance) assumed that Intelsat and SES would get the same share of C band proceeds (probably reflecting the perceived nature of the CBA agreement). However, the FCC ultimately awarded $897m more to Intelsat than to SES in its final order. SES is claiming compensatory damage of $450m (which is half the $897m excess proceeds Intelsat is due to receive). In addition, SES is claiming punitive damage worth a typical 3x the compensatory damage claim (ie $1350 m),” stated the bank. “We note however that the total C band breakdown has been decided by the FCC and not by a satellite operator. The breakdown has been accepted by all operators. We believe this is likely to be the defense strategy Intelsat will adopt.”
The bank then added, “We do not expect any delays to the timing of C band clearing and payments from this legal development. SES reports on August 7th.
Adding to the legal miasma within the satellite industry, last week Australia-based Speedcast (in bankruptcy reconstruction) struck an agreement with Intelsat (in Chapter 11 bankruptcy) which will see Speedcast continue its relationship with Intelsat over the next 15 months and pay what it owes to Intelsat.
Speedcast owed Intelsat $45 m of old pre-bankruptcy invoices and will pay $24m to cover obligations through June of this year.
Now London-based Inmarsat wants a similar deal and with outstanding invoices to Speedcast of almost $26m. Inmarsat is the second-largest creditor for Speedcast.
Inmarsat filed a motion with Speedcast’s bankruptcy court and asked the court to order Speedcast to cough up $1.35m in undisputed and outstanding invoices. The invoices have all been raised after Speedcast’s bankruptcy on April 23rd and cover 44 separate invoices.
Inmarsat says the company is concerned about its own financial position and told the court that, despite receiving some $90m in ‘debtor in possession’ financial help, the Speedcast bills are piling up rapidly. Inmarsat stated that $2.74m is owed and already past due for the second-half of July and at least $3.1m for August.
The Inmarsat bills for Speedcast are varied in size ranging from a modest $75 from Inmarsat Canada to $703,698 due to Inmarsat Cyprus. (Source: Satnews)
13 Jul 20. OneWeb Sale Approved by US Bankruptcy Court + Arqiva Layoffs. OneWeb is now well on its way to being purchased by a joint-venture between the UK government and India telco Bharti Global. A US bankruptcy court approved the sale of OneWeb to the consortium on July 10th in return for a guaranteed $1bn sum, which will be paid 50/50 by the UK and Bharti.
OneWeb issued a statement in which the firm stated, “The parties will work to complete the plan sale process, including filing our plan and disclosure statements with the court, conducting voting with our creditors, and seeking regulatory approval and completing customary closing conditions, and expect the process to be completed by the fourth quarter of 2020.”
The UK/Bharti rescue plan presented to the New York court provides about $640 m to take the business forward – after various settlement costs are deducted.
There are other hurdles to overcome, including regulatory approvals, although the parties stress they do not see serious obstacles ahead.
Meanwhile, the bankruptcy court dealt on July 10th with a slew of other matters relating to the OneWeb bankruptcy. The firm’s ‘debtor in possession’ authorization was extended — that allows OneWeb to continue in business. One important aspect was OneWeb’s relationship with the existing joint-venture with Airbus in Airbus OneWeb Satellite, which has been building OneWeb’s satellites at a Florida factory.
The court permitted OneWeb to enter into an agreement with the satellite arm of the business and pay an advance sum of $50.7m for the purchase of satellites.
The Court also received OneWeb’s next 13-week budget of $92.25m in expenditure plus a further $29m in costs relating to the restructuring of the company. The court has also approved periodic financing to flow into ‘new’ OneWeb from the buyers as part of the company’s restructuring and transition out of bankruptcy.
In additional news, Arqiva, the UK broadcast transmission and cellular mast operator, is reportedly planning to lay off about a third of its employees, according to a report in the Daily Telegraph.
The report stated that the company, which is in the end-stages of selling its cellular mast division, is planning a radical restructuring that would see more than 500 of the firm’s staff made redundant.
Arqiva is owned by a consortium led by PSP Investments and the Canada Pension Plan Investment Board (48 percent) along with Australian fund manager and 25 percent by investment bank Macquarie (via its Macquarie European Infrastructure Fund). However, a £2bn sale of Arqiva’s cellular towers business to Spain’s Cellnex Telecom has been passed by the UK’s Competition & Markets Authority in April. The sale to Cellnex is expected to close during this quarter.
Recently, Arqiva appointed a new CEO in Paul Donovan, an existing board member, and who took over that position on June 30th.
Arqiva retains its important broadcast TV and radio division, along with media playout, satellite teleports and uplinking and asset management businesses. (Source: Satnews)