Sponsored by TCI International Inc.
08 Dec 21. Systems Planning and Analysis, Inc., Acquires Arena Technologies. Systems Planning and Analysis, Inc. (SPA), a leading provider of strategic advisory, systems engineering, modeling and simulation, advanced analytics, industrial policy, and program management solutions to government and defense customers in the United States and its Allies, has acquired Arena Technologies LLC (Arena). Founded in 2003, Arena is a specialized provider of systems engineering and trusted advisory services to the space and national intelligence community and related customers.
SPA President and CEO Dr. William Vantine said, “Arena aligns extremely well with our strategic inorganic priorities and provides access to new, dynamic customers for SPA’s mission-proven, data-driven advisory tools and capabilities. The addition of Arena also strengthens our positioning in the fast-growing space domain, and we are excited to partner with Arena to share the SPA story and our cutting-edge capabilities with this critical customer set as a part of our broader corporate objective to build the premier trusted advisor for our customers. Consolidation has created a void in the technical advisory market, and this transaction marks the first of many investments we are making to fill it.”
Arena cofounder and CEO John Pollard shared, “This transaction is an exciting time for Arena as we now have the weight of SPA behind us to expand our suite of capabilities and service offerings to meet the needs of our Intelligence Community customers and partners. Joining the SPA team will provide our employees with expanded career opportunities, and it will also establish a platform that prioritizes advisory work and the highly technical employees who are seeking an unconflicted home from which to continue serving the mission. With access to SPA’s corporate infrastructure, credentials, and past performance, we are poised to rapidly expand in our current customer base and further support their mission. We are also better able to deliver differentiated capabilities to adjacent customers responding to similarly critical and complex threats and challenges.”
Holland & Knight served as legal counsel to Systems Planning and Analysis. G2 Capital Partners served as financial advisor and Greenberg Traurig served as legal counsel to Arena.
SPA provides innovative and leading-edge solutions that integrate technical, operational, programmatic, policy, and business factors in support of important national security objectives. Our differentiated capabilities include Advanced Analytics; Software Tool Development; System Engineering and Safety Analysis; Strategy, Policy and Compliance; and Program and Acquisition Management. Our employees have expertise in many domains, including Land, Undersea, Surface and Air Warfare Operations; Radar and Sensor Systems; Unmanned Systems and Counter Systems; Nuclear Deterrence Policy, Safety and Security; Defense Industrial Base; Space Systems; Ballistic Missile Systems; and Hypersonics. (Source: PR Newswire)
08 Dec 21. Torch.AI Acquires Leading Data Warehouse and Analytics Firm DataTech, Expands U.S. Department of Defense Support. Torch.AI, the leader in artificial intelligence (AI) powered ultra-high speed data processing, announced today the acquisition of The DataTech Group (DataTech), a technology solutions provider that delivers software and technical expertise across data warehousing solutions, decision support systems, and enterprise architectures with a focus on complex IT environments and systems from Teradata, Oracle, Sybase, Informix, and more.
Based in Illinois, DataTech provides government and private sector clients the ability to analyze, plan, and improve efficiencies through sophisticated data solutions. Organizations such as the Defense Information Services Agency (DISA) have benefited from DataTech’s rapid deployment and sustained, cost effective, and impactful operational capabilities.
“DataTech and the team have built a robust product catalog of capabilities, including Government off-the-shelf (GOTS) solutions that are deployed globally and instrumental in a variety of mission-critical applications. Like us, DataTech is obsessed with customer satisfaction,” says Brian Weaver, Chairman and CEO of Torch.AI. “As we look to the future, Torch.AI is excited to support these customers with additional resources and technologies to enable better mission outcomes.”
“Torch.AI and DataTech have symbiotic experience building out large-scale, complex data environment deployments for Federal clients,” stated David Kervin, Chief Executive, Federal. “As Torch aggressively expands into the Federal market, our combined talents and expertise will further enhance our position as a leading provider of AI enabled, data intelligence solutions.”
“I was immediately impressed with DataTech’s technical acumen and results-driven mindset,” stated Josh Wellner, Vice President of Mission Success. “Combine those traits with an intimate knowledge of the Federal space, and you have a winning combination. Torch’s best-in-class capabilities just got even better.”
At The DataTech Group, we understand the importance of successful IT project deployment and its impact on your business’ agility, responsiveness, and performance. At the center of our philosophy is “Sustainable Value.” Our focused range of capabilities coupled with our emphasis on providing IT solutions with your users in mind sets us apart in achieving a high rate of project successes.
Technologies change. Organizations change. Information changes. The need to make informed decisions does not change. With success deploying multi-billion-row active data warehouses and focused data marts, DataTech has the necessary public and private sector expertise to solve the toughest data challenges. DataTech effectively extracts and transforms our clients’ raw data into cleansed information, which is then loaded into the best-in-class data warehouse platform for each unique enterprise requirement. DataTech complements its core offering by providing focused capabilities in Enterprise Architecture, Information Security, and a broad range of expert IT consulting services.
Torch.AI’s Nexus™ platform changes the paradigm of data and digital workflows, forever solving core impediments caused by the ever-increasing volume and complexity of information. Customers enjoy a single unifying solution which begins by instantly deconstructing and describing any data, in real-time.
Purpose built for massively scaled, ultra-high-speed data processing, the platform comes equipped with security features, flexible data workloads, compliance capabilities, and drag and drop functionality that is unrivaled in today’s technology landscape. The company’s solutions have helped to fight fraud, secure information, make better decisions of trust, evolve operational capabilities, and create better customer experiences. (Source: PR Newswire)
08 Dec 21. Fairbanks Morse Defense Acquires Welin Lambie Ltd. Marine defense provider expands portfolio with acquisition of military and commercial davit manufacturer. Fairbanks Morse Defense (FMD), a portfolio company of Arcline Investment Management (“Arcline”), has acquired Welin Lambie Ltd. (Welin Lambie), a U.K.-based leading designer and manufacturer of davits used specifically for the launch and recovery of all types of craft from ships or shore-based installations. The acquisition further expands FMD’s capabilities and service solutions for shipyard, defense, and commercial marine customers, including the U.S. Navy, the U.S. Coast Guard, and the Canadian Coast Guard. Additionally, FMD’s acquisition of Welin Lambie enhances its product and service offerings for future uncrewed ship programs, as davits that launch and recover crafts and mission packages are expected to be increasingly critical in uncrewed environments.
“As naval forces around the world upgrade existing vessels and expand their fleets, the demand for local, high-quality aftermarket services is greater than ever before,” said George Whittier, CEO of FMD. “Our acquisition of Welin Lambie brings Fairbanks Morse Defense one step closer to becoming a full-service provider for our core marine customers so we can better support their mission-critical operations. Welin Lambie’s products and services easily align with our service solutions, and we’re excited to have them join the FMD brand.”
Over many decades, Welin Lambie has established strong relationships with the U.S. Navy and U.S. Coast Guard. Its products are installed on a wide variety of vessels stationed worldwide, including U.S. Navy amphibious vessels, LCS vessels, CVN aircraft carriers, USCG cutters, and frigates for the Royal Saudi Navy currently under construction at Marinette Marine.
Since 1901, Welin Lambie has been rooted in maritime history, having designed and built integrated davit systems for several world-renowned ships, including the 1912 original “unsinkable” White Star Liner Titanic and the 1997 blockbuster film Titanic. Operating from its facility in Brierley Hill, West Midlands, U.K., Welin Lambie serves customers in the U.K., North America, and worldwide.
“Welin Lambie has established strong marine defense customer relationships because of our ability to seamlessly adapt to changing regulations and requirements,” Welin Lambie Managing Director Norman Rose said. “These qualities will be an asset to Fairbanks Morse Defense customers as our products and services are integrated into their offerings. We’re looking forward to expanding our presence under the Fairbanks Morse Defense brand.”
In recent years, FMD has expanded its capabilities, inventory, and geographic presence with several key acquisitions to better serve the defense industry. So far this year, FMD acquired Hunt Valve, a specialty naval valve manufacturer, and Ward Leonard, a motor and control solutions provider. FMD also acquired diesel engine repair and rebuilding service provider BRECO International in November 2020.
About Fairbanks Morse Defense
Fairbanks Morse Defense (FMD) is a leading provider of high value equipment for naval defense customers. For more than 100 years, FMD has been a principal supplier of reliable power systems, parts, and aftermarket services to the U.S. Navy, U.S. Coast Guard, Military Sealift Command, and the Canadian Coast Guard. Through its six strategically located service centers and a robust aftermarket team, FMD is able to provide round-the-clock field service and parts support. Additionally, its suite of full lifecycle solutions extends asset life and enables it to run more efficiently. With a growing portfolio of companies under the FMD brand, the company continues to integrate these mission-critical products and innovative service solutions to power marine defense. FMD, a portfolio company of Arcline Investment Management, is based in Beloit, Wisconsin. Learn more about FMD at www.FairbanksMorseDefense.com.
About Welin Lambie Industries
Established in 1901 as Welin Davit and Engineering Company, Welin Lambie operates worldwide on Navy and Coast Guard platforms, offshore supply vessels, oil rigs, and ferries. NASA uses Welin Lambie Davits to support its SRB (Solid Rocket Booster) recovery systems. Welin Lambie offers a complete range of standard and bespoke davits that meet the requirements of Safety of Life at Sea (SOLAS) and recognized certifying authorities, as well as meeting the demands of military customers including shock, vibe, and EMI requirements. (Source: BUSINESS WIRE))
07 Dec 21. Babcock makes progress in fortifying balance sheet. Margin improves due to fewer Covid disruptions but company suffers big cash outflow.
- Net debt falls to 2.1 times cash profit after Fraser Nash sale
- Asset disposals set to continue in second half
Defence contractor Babcock (BAB) is making progress in repairing its balance sheet, having sold off three businesses worth £400m in recent months.
Net debt reduced marginally to £1.39bn during the period, but will fall further once the proceeds of recent sales are accounted for. Debt excluding operating leases stood at £938m at the end of September, or 2.8 times Babcock’s cash profit. The £290m sale of engineering consultancy Fraser Nash to US industry giant KBR in October effectively reduces this figure to 2.1 times and the company’s near-term target is to cut this below 2 times.
Restatements made earlier this year to last year’s figures to more accurately assess contract profitability – which includes a £761m prior-year goodwill write-down – make some comparisons meaningless, but the company said on an underlying basis its operating profit rose 36 per cent to £115m as its margin increased to 5.2 per cent, up from 4.1 per cent, as several business units faced fewer Covid-related disruptions.
Chief executive David Lathwood, who was appointed in June last year to lead a turnaround of the business, is clearly taking some difficult decisions.
For example, there was a £160m free cash outflow as Babcock stepped up efforts to repay creditors and the company increased capital expenditure by 51 per cent to £72.1m to fund new work.
He also has some laudable goals, such as simplifying Babcock’s structure and making environmental, social and governance (ESG) a key part of the company’s strategy – although it is difficult to imagine some investors will ever consider a defence contractor to be an ‘ethical’ business.
But the task of fixing Babcock is far from over. The company is spending £40m on restructuring over the course of the year and more asset sales are likely in the second half. Until a clearer picture emerges of the business’s long-term future, it’s one to avoid. Sell. Last IC View: Sell, 277p, 30 July, 2021. (Source: Investors Chronicle)
07 Dec 21. Piaggio Aerospace sale stalls. The sale of Italy’s Piaggio Aerospace to an undisclosed buyer has stalled, company officials confirmed to Janes on 7 December.
The company’s Extraordinary Commissioner, Vincenzo Nicastro, met with trade union representatives following local press reports that the sale had been “interrupted”. According to Nicastro, no binding offer was received from the unnamed sole bidder. The bidder had been selected in September to begin exclusive negotiations to acquire the company following “long and careful screening”.
“The potential investor made us just aware [of] what the conditions would be for the purchase: these conditions were not consistent with the tender rules they had formally accepted and were linked to events [that were] difficult to realise. In agreement with the Italian Ministry of Economic Development, we decided therefore to start discussions with other parties interested in purchasing the company assets,” Nicastro said in a statement.
A further advertisement for bidders for the company’s assets will be published in the coming weeks, with the overall process of selecting potential buyers being shortened as existing documentation and company data is already prepared.
“We shall fix tight deadlines for both the due diligence phase and the submission of binding offers,” Nicastro said.
Piaggio Aerospace manufactures the P.180 Avanti EVO business aircraft, as well as developing an unmanned variant of the aircraft known as the P.1HH HammerHead. A multirole patrol aircraft variant designed for aerial surveillance and patrol was being developed in collaboration with the United Arab Emirates’ (UAE’s) ADASI. (Source: Janes)
07 Dec 21. J.F. Lehman & Company Acquires Narda-MITEQ. J.F. Lehman & Company (“JFLCO”), a leading middle-market private equity firm focused exclusively on the aerospace, defense, maritime, government and environmental sectors, is pleased to announce that an investment affiliate has completed the acquisition of the assets of the Narda-MITEQ division and the stock of Narda Safety Test Solutions, GmbH (collectively, “Narda-MITEQ” or the “Company”) from L3Harris Technologies, Inc. (“L3Harris” (NYSE:LHX)).
Narda-MITEQ is a market leader in the design, engineering and manufacturing of custom radiofrequency (“RF”) and microwave subsystems and components for defense and commercial end markets. The Company’s highly engineered solutions facilitate the conditioning, management and transfer of RF and microwave energy in demanding operating environments across a variety of radar, space, test and measurement and intelligence, surveillance and reconnaissance applications. With a legacy dating back to 1953, Narda-MITEQ employs approximately 400 individuals across three facilities in Hauppauge, NY, Pfullingen, Germany and Cisano, Italy.
“Narda-MITEQ has established an exceptional reputation for providing innovative RF and microwave solutions to the most demanding customer specifications,” said Glenn Shor, a Partner with JFLCO. “We are excited for the Company to join our portfolio and believe Narda-MITEQ is an excellent fit with our established investment strategy given its highly technical and proprietary product portfolio, diverse customer base and legacy of supporting defense and government end markets.” Ben Hatcher, a Vice President with JFLCO, added, “We believe Narda-MITEQ is well positioned for growth as an independent entity and are thrilled to support the Company’s pursuit of its organic and acquisitive growth initiatives.”
Bob Tavares, who will be joining the Company as CEO, commented, “JFLCO is the ideal partner for the business given their extensive experience in the Company’s target markets and substantial capital to accelerate our innovation and drive Narda-MITEQ’s growth. We look forward to expanding our portfolio of RF and microwave solutions and service to our customers in the government and commercial markets.”
Debt financing for the transaction was provided by Barings Finance and Siemens Financial Services. Shearman & Sterling served as lead legal counsel for JFLCO. Baker Hostetler provided government contracts, defense security and international trade advice and Jones Day served as counsel for the debt financing. Houlihan Lokey and Holland & Knight served as financial and legal advisors to L3Harris, respectively.
06 Dec 21. Safran Enters into Exclusive Discussions to Acquire Orolia, a World Leader in Resilient Positioning, Navigation and Timing. Safran recently announced that it has entered into exclusive discussions to acquire Orolia from Eurazeo. Orolia is one of the world leaders in Resilient Positioning, Navigation and Timing (PNT) solutions that improve the reliability, performance and safety of critical civilian, military and space operations, including in harsh or altered Global Navigation Satellite System (GNSS) environments.
Safran is an international high-technology group, operating in the aviation (propulsion, equipment and interiors), defense and space markets. The company recently announced that it has entered into exclusive discussions to acquire Orolia from Eurazeo.
Orolia has a broad portfolio of technologies across the Resilient PNT value-chain with full system capabilities and is a provider of PNT equipment, simulation and test solutions. Orolia is also providing emergency locator beacons for commercial aviation and military applications.
The acquisition represents a unique opportunity for Safran and Orolia to extend their Resilient PNT solutions globally. With this addition, Safran will be able to build a world-leading position in all aspects of PNT, inertial navigation, time and GNSS receivers and simulators, covering aerospace, governmental and high integrity applications.
“I am delighted by this announcement,” said Olivier Andriès, Safran Chief Executive Officer. “The acquisition of Orolia will strongly complement our navigation product line and expand its international footprint. Combining Safran and Orolia’s capabilities will create a world leader in Resilient Positioning, Navigation and timing systems for all applications. This is fully in line with the strategy outlined at our recent Capital Markets Day to strengthen our position in key technologies for our sovereignty activities.”
Safran intends to accelerate the development of Orolia under the leadership of its current CEO, Jean-Yves Courtois, and in full collaboration with its teams. The mutual customer base will benefit from the leveraging of respective strengths and route-to-market capabilities.
“The combination of Orolia and Safran will create a PNT world leader with capabilities that will be unsurpassed in depth and breadth,” said Jean-Yves Courtois, Orolia Chief Executive Officer. “Our perfect complementarity in terms of technology expertise, market presence and geographic footprint will allow us to push further Resilient PNT to the next level and to offer our government, aerospace and commercial customers the most advanced solutions they need for their critical operations. Orolia will contribute especially through its world-leading positions in timing, GNSS simulation and emergency location technologies, and through its strong presence in the US market. We are looking forward to working with our new Safran colleagues to advance our common vision.”
Orolia is expected to generate revenues of more than EUR 100m in 2021 and has approximately 435 employees with facilities in France, United States, Switzerland, Spain and Canada.
The terms of the deal were not disclosed. The transaction is subject to the usual regulatory approvals. Orolia will be consolidated within Safran’s Equipment & Defense division upon closing, expected around mid-2022.
Celebrating its 15th anniversary, Orolia is the world leader in Resilient Positioning, Navigation and Timing (R-PNT) solutions that improve the reliability, performance and safety of critical, remote or high-risk operations, even in GPS denied environments. Orolia provides virtually fail-safe GPS/GNSS and PNT solutions for military and commercial applications worldwide. www.orolia.com (Source: PR Newswire)
07 Dec 21. SAIC reported FQ3:22 Adj. EPS of $1.85 vs. our est./cons. of $1.44/$1.49. Revs increased 4.4% y-o-y and were 2% ahead of our forecast. Organic growth was 2.1%. Adj. EBITDA margins of 9.0% were 80 bps ahead of our estimate of 8.2% and flat with a year ago. Compared to our estimates, GAAP EBIT was $0.30 better, with taxes and share count modest tailwinds. EPS guidance was raised 4% at the midpoint to $6.75-$6.95 vs. our est./cons. of $6.65/$6.78.
FY22 EPS Guidance Raised to a Range of $6.75-6.95 (vs cons of $6.78 and $6.50-$6.70 prior). Mgmt. expects FY22 sales of $7.35-7.40BB (vs. prior guide of $7.30-7.40BB), incorporating a COVID impact of $125m, coupled with the addition of $100MM of revs from Halfaker. Revenue guidance implies 3% growth in Q4 at the mdpt, with organic revs up 1% given labor challenges. The mdpt of revenues of $7.38bn compares to our est./cons. of $7.37BB/$7.39bn. SAIC expects positive organic growth in FY23 w/o a full recovery in supply chain.
Q3 Revenue Performance was 2% Above Our Expectations. Revenues of $1.90BB in FQ3 grew 4% y-o-y and were 2% above our $1.86m estimate. Revenue grew 2.1% organically, which came in above our ests for flattish organic growth. Contribution from Halfaker was in the ~$42m range vs. our est. of $45m (closed July 2021). SAIC absorbed a COVID impact of $30m, or 2-pts in Q3, primarily tied to the supply chain business.
SAIC reported 0.7X B2B for FQ3:22 and TTM B2B of 1.1X. Net bookings of $1.4bn in the quarter included $348m of contract awards from space and intelligence community organizations, including a $100m contract to deliver digital engineering for a classified space customer. The company also won a $1.bn award with NAVSEA for the US Navy’s MK-48 Mod 7 torpedo afterbody tailcones and MK29 Mod 0 Warshot fuel tanks after quarter close. SAIC ended Q3 with a backlog of $23.7bn, including funded backlog of $3.4bn. Backlog was up 5% y-o-y, mostly due to unfunded backlog, which stepped up 5%.
Adj. EBITDA Margins Flat YoY, but 80 BPS Above Our Estimate. Adj. EBITDA margins of 9.0% were flat y-o-y but came in 80 bps above our expectation of 8.2%. The delta was largely driven by net favorable changes in contract estimates and the accelerated amortization on certain off-market liability contracts, partially offset by higher employee benefit costs. EBITDA margin guidance for FY22 was raised to 9.0-9.1% from 8.9-9.0% (vs. cons. 9.0%), with YTD margins of 9.6% implying a deceleration to 7.2% in FQ4 at the midpt. FY23 adj EBITDA is guided in the high-8% range.
Solid FCF with 137% Conversion YTD. FQ3 FCF ex-MARPA represented $124MM, or 115% conversion to Adj. NI, which compares to $222m a year ago due to the timing of payroll tax deferrals. YTD FCF of $373m totals 83% of our FY22 estimate of $451m and is 134% conversion of Adj. NI. FCF ex-MARPA guidance was raised at the lower end to $450-$470m vs. $430-470m previously. FY23 and FY24 FCF are each guided up 10% y-o-y vs. our est up 4% and 10%, respectively. SAIC repurchased $63m of shares in FQ3 ($154m YTD). SAIC has paid down $83m of debt YTD, ahead of our $70m est for the full year, ending the Q with 3.5X ND/EBITDA. (Source: Jefferies)
07 Dec 21. Takeaways from 2021 Reagan National Defense Forum. We listened to the 2021 Reagan National Defense Forum sessions on Dec. 4. Key takes include: 1) China the pacing threat driving cyber, space, and hypersonics spending; 2) US must accelerate disaggregated space tech w/domain no longer benign; 3) Supply chain key risk w/ microelectronics and manufacturing shortage; 4) International alliances strengthen deterrence; and 5) Innovation must accelerate through better procurement process and increased risk taking.
China Viewed as The Pacing Threat. Sec. Austin made clear that China is the largest threat facing the US as the only peer that can provide a sustained challenge to the military. Nonetheless, the competition with China does not necessarily have to escalate into conflict, with the DoD’s Integrated Deterrence strategy focused on driving all capabilities of the US and its allies in order to make clear the costs of any conflict, including investing in long-range strike, unmanned, space, and cyber. This has also fostered strengthened alliances, such as AUKUS bolstering technology sharing.
Cyberspace Threat Growing With US Giving Away Some of Its Edge. Cyberspace is inextricably linked to all facets of U.S. national security, as even regional threats in the Taiwanese straits by the Chinese would place domestic critical infrastructure at-risk. The U.S. is number one in software capability, but many technologies end up with adversary governments, giving away the U.S. competitive edge. One solution could be more publicity around U.S. deterrence capabilities in the cyber domain.
Space Innovation Needs to Accelerate to Maintain Edge. International competition is the impetus of bipartisan U.S. space development support and a $17BB Space Force budget. With China and Russia demonstrating hypersonic and anti-satellite capabilities, a new space race has heated up. The U.S. leads, but the risk is China developing capabilities at 2X the rate and possibly overtaking the U.S. by 2030. The U.S. must accelerate development and lower barriers to innovation to protect its dominance in space militarily and commercially.
Supply Chain Risk From Offshoring and Hiring. The supply chain risk is from lack of ability to manufacture certain products, with needs currently being filled by China. The demand for new skills is rising faster than the ability to keep the workforce. There also needs to be more low cost capital to invest in cutting edge technologies. The workforce is a key issue with nearly 1MM open manufacturing jobs in July 2021, more than double the 2019 avg., reflecting a skill and wage gap.
Accelerating Innovation Requires Risk and Change in Mindset. There is a focus on driving innovation to regain an edge. Part of this has materialized with rising R&D budgets to catch up for neglect during the wars in the ME. There are a number of changes that could foster accelerated innovation including: 1) more accommodating procurement system; 2) increased risk taking; 3) stable technology road map; 4) fixing programs rather than killing when early issues arise; 5) DoD focus on attracting/keeping engineering talent. Innovation can be further harmed by the CR, which can paralyze new starts and curtail expected increases in R&D. (Source: Jefferies)
07 Dec 21. Babcock International Group PLC half year results for the six months ended 30 September 2021. Delivering on our strategy, turnaround on track, results in line.
Financial results in line with expectations
- Contract backlog up to £10.9bn following signing of Future Maritime Support Maritime Programme (FMSP)
- Revenue up 8% (up 10% excluding foreign exchange and disposals)
o c6 percentage points of revenue growth driven by growth in Marine (Type 31 ramp up) and Nuclear (infrastructure ramp up)
o c.4 percentage points of revenue growth from less COVID-19 interruption than the prior period
- Statutory operating profit of £75.4m compared to a £785.3m loss in the prior year, which includes charges from the CPBS and a restatement of HY21 goodwill of £760.5m
- Underlying operating profit of £115.3m helped by lower COVID-19 business interruption than the prior period (estimated £25m YoY benefit)
- Underlying EPS of 15.3p includes benefit of £6.2 m of other income related to the sale of our oil and gas aviation business
- Cash generated from operations was £(10.5)m and includes a £110.7m decrease in payables
- Underlying free cash flow of £(160.6)m includes material cash outflows previously communicated, including pension deficit contributions (£89m) and a large working capital outflow (£140m), partly as the period end deferral of creditors is reduced
- Net debt to EBITDA (covenant basis) 2.8 x at 30 September 2021, with liquidity headroom of £1.4bn
- Net proceeds from sale of Frazer-Nash of £290m received after 30 September 2021
- Pro forma net debt to EBITDA 2.1 x after disposal of Frazer-Nash
As outlined on 30 July 2021, our full year results for the 2021 financial year included a series of presentational changes to our reporting and the results of our Contract Profitability and Balance Sheet review (‘CPBS’). Results for the half year ended 30 September 2020 (HY21) have been restated for these presentational changes and to include the results of the CPBS. See pages 6 – 11 for further details.
Progress on our strategy
- Three disposals announced in the first half with c.£400 m of proceeds expected to pay down debt:
o Oil and Gas aviation business completed in August 2021 for £10m (£8m net proceeds)
o Frazer-Nash Consultancy completed in October 2021 for £290m cash consideration
o Sale of stake in AirTanker Holdings for £95m (net of shareholder loans) expected to complete in the second half
- Portfolio alignment programme to continue
o Proceeds generated will either be used to strengthen the balance sheet further or will be invested in future growth
- New operating model being implemented across the Group
o Continue to expect c.£40m annualised cost savings (c.£20m benefit this financial year)
o Changes include streamlined processes, strengthened controls, centre-led functions and more standardisation
- People strategy being rolled out
o New Group Principles launched and agile working being rolled out across the Group
- Developing our ESG strategy
o Continue to progress our plans to be net zero (scope 1 and 2) by 2040
o Integrating climate-related risk and opportunity into our risk management and strategic processes
- Developing international opportunities including winning our first export order for Arrowhead 140 (licence agreement with Indonesia) and signing a Memorandum of Implementation with Ukraine to be the prime contractor on a programme of naval defence projects
Recent business development
- Contract backlog at 30 September 2021 was £10.9bn. This includes the Future Maritime Support Programme (FMSP), a
c.£3.5bn contract signed in September that runs to March 2026. It replaces the previous MSDF contract and continues our support work for the UK Royal Navy across ships, submarines and naval bases
- Other significant new contract wins in the period included:
o c.€500m contract for defence aviation training activities in France
o c.£150m logistic support contract, part of the UK’s next generation tactical communications & information systems
o c.£110m contract to deliver the new Defence Strategic Radio Service for critical UK military operations
- In October, we won a c.£100 m contract for the design, manufacture, delivery, commissioning and in-service support to the Maritime Electronic Warfare Systems Integrated Capability (MEWSIC)
- In December, we were selected by the Australian Government as the preferred tenderer to upgrade and sustain the Defence High Frequency Communication System (DHFCS) to support the Australian armed forces over the next 10 years, with a further four extension options, each of two years
- Full year outlook unchanged:
o Our new operating model is on track to deliver savings of approximately £20m in this financial year
o While we have seen a recovery of activity from the heavily COVID-19 impacted prior period, and we have largely been able to recover extra costs, we are cautious about our ability to maintain activity levels and recover all costs in the remainder of this financial year given the uncertainty from new COVID-19 variants and varied government responses
o We are investing in our business, including business development and strengthening our control environment
o Some external uncertainty remains for the second half of the year as we manage inflation and supply chain pressures
- The disposals of Frazer-Nash and oil and gas aviation will impact the reported results for this year
- As stated before, FY22 free cash flow is expected to be significantly negative. This reflects material cash outflows including additional pension contributions, restructuring costs, investments in facilities and IT upgrades and the unwinding over time of the historical management of working capital around period ends
- We remain confident in our future prospects. We believe that our new strategic focus and operating model will significantly improve the Group’s profitability, and most importantly its cash generation, over the medium term
David Lockwood, Chief Executive Officer, said: “We are on-track with our turnaround strategy with around £400m of disposals to bolster our balance sheet announced to date. We will continue to align our portfolio to best support the Group’s capital allocation priorities and future growth. The ongoing implementation of our new operating model means Babcock will be a simplified, more focused Group. We are pursuing a number of important growth opportunities, with significant contract wins in military communications, our first order for an export licence for our Arrowhead 140 frigate as part of the Type 31 programme, and an agreement for potentially significant work in Ukraine, supported by both the UK and the Ukrainian governments. While our half year results show some recovery from the financial impact of COVID-19, we remain cautious as we are early on in our transformation and as we manage inflationary and supply chain pressures across the business and potential interruptions from COVID-19. However, the Board believes the actions we are taking will enable the Group to take advantage of the many opportunities ahead of us, leading to improved cash generation and profitability in the medium term.”
07 Dec 21. Thyssenkrupp might shed naval business. German industrial conglomerate Thyssenkrupp is exploring divesting its Marine Systems (TKMS) business to facilitate consolidation in the fragmented European naval shipbuilding industry.
One option under consideration is to combine TKMS with another shipbuilder, Thyssenkrupp said on 2 December. Another is to turn TKMS into a standalone entity, which could ultimately lead to a merger with another shipbuilder. The TKMS review is in an early stage, according to Thyssenkrupp CEO Martina Merz.
TKMS builds submarines, surface ships, and electronic systems for naval customers. In fiscal year (FY) 2020–21, which ended on 30 September 2021, the business generated sales of EUR2bn (USD2.3bn), an 11.1% increase from the previous year, fuelled by surface ship deliveries to the German and Israeli navies. Its adjusted earnings before interest and taxes rose 30% to EUR26m, and its order intake more than tripled to EUR6.7bn.
Two other German shipbuilders – Lürssen Group and German Naval Yards Kiel – announced in May 2020 that they had agreed to combine their naval activities into a joint company to increase their efficiency and scale. The parties are still discussing how to carry out the merger, a Lürssen spokesperson told on 6 December.
German naval expert Sebastian Bruns, who is the inaugural McCain Fulbright visiting professor at the US Naval Academy in Annapolis, Maryland, said that Dutch shipbuilder Damen’s 2020 win in Germany’s F126 frigate competition has spurred German shipbuilders to pursue consolidation to increase their competitiveness. The Damen contract award “was basically a watershed moment for the German shipbuilding industry”, Bruns told Janes. (Source: https://mynewslinks.com/)
06 Dec 21. Thales completes acquisition of Moog navigation aids business.
- With the Moog navigation aids business, Thales extends its navigation aid offerings and accesses additional “man-portable” technology, further supporting customers’ contingency air operations and evolving mobility needs.
- Moog employee expertise will expand Thales’ U.S.-based engineering, industrial and technology capabilities.
- Through this acquisition, Thales can offer its civil and military customers an even more advanced technology with varying solutions for their specific needs.
Thales has acquired the Moog ground-based navigation aids business located in Salt Lake City, Utah, enabling it to provide a more comprehensive navigation aid offering to its customers worldwide.
The acquisition was completed after Thales received the required regulatory approvals in October 2021.
Both Thales and Moog have recognized histories and deployments in the United States (U.S.) and around the world. A trusted partner of the aviation industry, Thales provides air traffic management solutions and navigation aids to the U.S. Federal Aviation Administration and the U.S. Department of Defense, as well as Air Navigation Service Providers (ANSPs) and airports worldwide. Similarly, Moog has demonstrated the quality, reliability and longevity of its navigation aids to the U.S. Navy, the U.S. Marine Corps, and global ANSPs and military forces.
“Radio air navigation offers unmatched reliability and convenience for all aviation stakeholders from pilots to ANSPs,” said Kais Mnif, Managing Director, Navaids and Surveillance Business, Thales. “Additionally, the ways we design our navigation aids and bring them to the market have dramatically evolved with technological advances and creative delivery models. Our civil and military customers are discovering the value of investing in high performance, digital, compact, low consumption and low maintenance systems. Through the acquisition of Moog, we can offer them an even more advanced technology with varying solutions for their specific needs.”
06 Dec 21. Seraphim Space Investment Trust plc (LSE: SSIT), the world’s first listed fund focused on Space Tech, announces that it has made a new $25m investment into ICEYE Oy (“ICEYE”), the global leader in synthetic aperture radar (SAR) satellite imaging technology.
SSIT has invested $25m in ICEYE to enable it to significantly expand its unique SAR satellite constellation. Seraphim Space LP first invested in ICEYE in 2017, prior to it launching its first satellite, and has participated in every subsequent ICEYE funding round. ICEYE has since deployed the world’s first and largest constellation of miniaturised satellites that use radar to image the Earth day and night, even through clouds.
ICEYE’s radar technology has the ability to monitor change in near real time with unrivaled sensitivity and at global scale. The unique insights this data provides holds enormous potential to help combat some of the world’s most pressing problems, including climate change. For example, ICEYE’s data is used by customers, including governments, to track illegal deforestation in the Amazon, and insurance companies to respond quickly to natural disasters such as floods.
Following today’s announcement, and as set out at the time of SSIT’s IPO, the Company now expects to complete the acquisition of Seraphim Space LP’s shareholding in ICEYE. A further announcement will be made once transfer has been effected.
As part of the transaction, James Bruegger, Chief Investment Officer of Seraphim Space (Manager) LLP, SSIT’s investment manager, has been appointed to the ICEYE Board.
Will Whitehorn, Chair of Seraphim Space Investment Trust plc, commented: “ICEYE is a very exciting business. With its large and growing constellation of new space satellites, it is able to identify and monitor changes on Earth in the range of millimetres. This enables entirely new applications, including predicting, preventing and responding to events such as natural disasters, building collapses and floods. It is another excellent example of how Seraphim Space Investment Trust plc is backing businesses with exciting technologies allowing us to unlock science that has never been possible before.”
James Bruegger, Chief Investment Officer of Seraphim Space (Manager) LLP, commented: “The doubling down on our investment in ICEYE reflects our belief in the potential this breakthrough technology will have across maritime, disaster management, insurance, finance, security and intelligence sectors. Life on earth is constantly changing. The ability to see and track these changes is key to understanding, predicting and responding to events around us. Satellites that use optical cameras to take images of the Earth have in recent decades spawned the $5bn ‘Earth Observation’ market. By using ICEYE radars rather than cameras to take images, it is possible to monitor the Earth, day and night, in all weather conditions and in near real time. This is a real game changer.”
03 Dec 21. Airbus looks to keep portfolio flying in Europe through 2060 — with wider ambitions abroad. Despite growing competition in its backyard, Airbus is laser-focused on keeping its military aircraft in Europe’s skies — and hoping to soon make it across the Atlantic. Looking to 2022 and beyond, the European aerospace company has lofty ambitions to expand its Eurofighter fleets, while planning upgrades that will turn the Typhoon into a fifth-generation fighter jet, and lead directly into the tri-national Future Combat Air System (FCAS) program, officials shared in a Nov. 30 media briefing.
Meanwhile, on the military-transport side of the business, Airbus sees itself as a natural fit for Europe’s next-generation strategic lift efforts, and will submit an “Americanized” version of the A330 MRTT to the U.S. Air Force alongside Lockheed Martin.
Company officials had bullish news to share at the annual trade media briefing, held virtually for the second year in a row due to COVID-19. In late summer, A400M and A330 MRTT military transport aircraft demonstrated their capabilities when NATO members pulled thousands of refugees and personnel out of Kabul, following the withdrawal of coalition troops from Afghanistan. For Airbus Defence and Space CEO Michael Schoellhorn this mission was a “turning point in terms of the reputation” of the two aircraft, which have been hampered by availability problems.
Meanwhile, several Eurofighter fleets will be upgraded to Tranche-4 capabilities in the next several years, and the complex Franco-German-Spanish FCAS program — led by Airbus, Dassault, and Indra Systems — will soon enter its latest phase of development. The newest Eurofighter aircraft will serve as a logical “bridge” to the FCAS next-generation fighter aircraft, scheduled to enter service by 2040, officials argued.
But the company also took a heavy loss when Switzerland announced in June it would buy the Lockheed Martin-made F-35 Joint Strike Fighter, in a competition that included the Eurofighter Typhoon, Dassault’s Rafale and Boeing’s F/A-18 Super Hornet. Moreover, the F-35 periodically pops up as a potential replacement candidate for Spain’s aging F-18 Hornets, against the Typhoon, though the Spanish defense ministry recently said it has no such plans. And on FCAS, the three industry partners have yet to settle on a formal agreement that would launch the program’s upcoming demonstrator phase.
Looking at 2022 and beyond, Airbus needs to stay at the “cutting edge of what technology can provide to our partners, to our armed forces, to our customers,” said Schoellhorn, who took over for former Defence and Space CEO Dirk Hoke this past July.
Keeping Eurofighter in Spain
The Spanish government continues to deliberate which aircraft will ultimately replace its aging F-18 fleet. Officials previously said that the Eurofighter Typhoon and Lockheed Martin’s F-35 are both being considered.
Spain does expect to procure the Eurofighter to replace its 20 oldest Hornets, based in the Canary Islands. But the decision for the wider F-18 fleet remains to be solidified, officials told Defense News last month at the biennial FEINDEF trade show in Madrid. After the show, Reuters reported that the F-35 was ruled out due to budget issues, quoting a Spanish defense spokesperson.
That being said, Airbus wasn’t taken aback that the Spanish government had talked to Lockheed about the jet fighter, said Kurt Rossner, Airbus Eurofighter lead. Airbus, BAE Systems and Leonardo make up the multinational Eurofighter Jagdflugzeug GmbH venture.
“The F-35 is an available aircraft,” he said during the media briefing. “It would be a surprise if Spain would not have discussed it.”
The company is ready to deliver new Eurofighters “as fast as possible” should Spain officially select the jet for the so-called HALCON program, Rossner said.
In a few years, the aircraft will receive major upgrades under the ongoing Long-Term Evolution (LTE) contract, which is planned to include a new E-scan radar, boosted computing power and aerodynamic capabilities, and manned-unmanned teaming features via a new cockpit and helmet design, Rossner said.
“LTE is a retrofit program for existing fleets, and hopefully also a new-build aircraft,” he noted, adding that these reforms will enable Eurofighter customers like Germany, Spain, Italy and the United Kingdom, to continue flying the aircraft through 2060.
The path to FCAS
The Tranche-4 Typhoons and LTE upgrades are planned to fit seamlessly into the eventual FCAS system-of-systems architecture, which will include a sixth-generation fighter jet outfitted with a new engine and weapon systems, “loyal wingman”-type unmanned aerial systems, an advanced combat cloud network, and cutting-edge sensors and stealth technologies.
The FCAS team has completed the two-year Joint Concept Study phase, and “are about to successfully close on the … Phase 1B,” Schoellhorn said. The German, Spanish, and French air forces have mutually agreed on key operating requirements, and the respective governments last summer each signed off on funding the next phase of development.
While much remains to be accomplished on the FCAS program in the short term, several European air force officials have also recently addressed its long-term potential. In 2021, both the Italian and German air force chiefs of staff expressed a desire for the Franco-German-Spanish FCAS program to eventually merge with a similar effort in development by the United Kingdom, Italy, and Sweden, known as Tempest.
Such a decision would be a political one decided by the states in question, Schoellhorn noted, but added that “conventional wisdom would say in the end, it will be difficult to have room for two such large programs in Europe.”
If the two programs were to merge, the industry partners should be able to come together easily, especially considering many of them already partner together on Eurofighter, he added. “I don’t think that would be the thing that would hold it up, to be very honest.”
“Of course, when you get more players around the table, you have the question of industrial return,” he continued. “But so far, we’ve always demonstrated we find win-win situations.”
Meanwhile, Airbus is still “in exchanges” with Dassault regarding the next-generation fighter jet component of FCAS, Schoellhorn acknowledged.
“It is a complex coming together of two successful companies with a very big importance for the decades to come,” he said. “So we all have agreed [that] we need to give the due diligence and invest the time that it takes to really come to the conclusions that we need.”
Future European airlift ambitions
On the airlift side, the European Defense Agency (EDA) recently announced a new slate of 14 projects under the Permanent Structured Cooperation (PESCO) framework. One of those, dubbed “Strategic Air Transport for Outsized Cargo,” involves the development of a common aircraft fleet for long-haul cargo flights. It includes Germany, the Czech Republic, France, the Netherlands and Slovenia as initial members, but is also open for “possible third-state participation.”
While the effort was not discussed at Airbus’ trade media briefing Tuesday, a spokesperson confirmed via email that the company plans to be involved.
“Airbus, as European leader in military transport aircraft, will be an essential candidate in this European project related to strategic airlift,” the spokesperson said Thursday.
Eyes across the pond
While Europe remains Airbus’ main hub, the company is ready for a rematch against the Boeing KC-46 in the U.S. Air Force’s “KC-Y” bridge tanker competition. Airbus partnered with Lockheed Martin to pitch the LMXT, an “Americanized” variant of the A330 MRTT, for consideration in the KC-Y program. Under the contract, the winning bid could include up to 160 new aircraft to help bridge the gap between the ongoing KC-46 contract — which is limited to 13 production lots — and the next tanker recapitalization phase.
Jean-Brice Dumont, Airbus executive vice president for military aircraft, called LMXT an “evolved, Americanized successor to the MRTT for the U.S. market.”
“Industrially speaking, there must be American content, and technically speaking, there are specific U.S. DOD, U.S. Air Force requirements that are going to transform the aircraft for the U.S. need,” he said Tuesday, noting that as a non-U.S. citizen, he would not be entitled to look at or discuss those specific requirements.
Airbus previously submitted the A330 MRTT for the KC-X program, which the Air Force awarded to Boeing in 2010 and which led to the development of the KC-46A Pegasus. The service expects to release the final request for proposals for the KC-Y program by the end of 2022. (Source: Defense News)
TCI International, Inc., is a wholly-owned subsidiary of SPX Corporation. TCI provides turn-key solutions for spectrum management and monitoring, direction finding, geolocation and communications intelligence to civilian, government, military and intelligence agencies as well as antennas for communications and high-power radio broadcasting. TCI is headquartered in Fremont, California, USA. For more information, visit www.tcibr.com.