BAE Systems (OTC: BAESY) has received a $184 million contract option from the U.S. Marine Corps for more Amphibious Combat Vehicles (ACV) under full-rate production. The order demonstrates the Marine Corps’ confidence in a program that is on track to deliver this critical capability to the Marines. This contract award will cover production, fielding, and support costs for the ACV personnel carrier (ACV-P) variant. BAE Systems was awarded the first full-rate production contract option in December for the first 36 vehicles. This option on that contract increases the total number of vehicles under full-rate production to 72, for a total value of $366 million.
The ACV is a highly mobile, survivable, and adaptable platform for conducting rapid ship-to-shore operations and brings enhanced combat power to the battlefield. BAE Systems is under contract to deliver two variants to the Marine Corps under the ACV Family of Vehicles program: the ACV-P and the ACV command variant (ACV-C). A 30mm cannon (ACV-30) is currently under contract for design and development and a recovery variant (ACV-R) is also planned.
The Marine Corps selected BAE Systems along with teammate Iveco Defence Vehicles for the ACV program in 2018 to replace its legacy fleet of Assault Amphibious Vehicles (AAV), also built by BAE Systems. BAE Systems was also recently awarded an indefinite delivery indefinite quantity (IDIQ) contract worth up to $77 million for the ACV program that includes the provision of spare and replacement parts, testing equipment, and other services.
ACV production and support is taking place at BAE Systems locations in Stafford, Virginia; San Jose, California; Sterling Heights, Michigan; Aiken, South Carolina; and York, Pennsylvania.
The U.S. Army has awarded BAE Systems a $45 million contract for the Extended Range Cannon Artillery (ERCA) Increment 1 prototype with the purpose of increasing the range and rate of fire on current and future M109A7 self-propelled howitzers.
The development of ERCA is in collaboration with the Army’s Combat Capabilities Development Command (CCDC) Armaments Center.
This prototype phase will address capability gaps in the Army’s indirect fire systems and improve the rate and range of fire with the development of power distribution software and hardware integration solutions. ERCA will be integrated onto the M109A7 and will require the M109A7’s current 39-caliber turret to be replaced with a 58-caliber, 30-foot long gun barrel with the objective of creating firepower double the current range.
“ERCA is a significant technological step forward for the Army’s artillery portfolio,” said Scott Davis, vice president or programs, BAE Systems’ Combat Vehicles business. “We were selected based on our years of experience in the development of self-propelled howitzer systems. Long-range precision fire is a top priority for the Army, and we are pleased to be a partner in efforts to equip soldiers with the latest technology.”
The development program aims to provide the warfighter with extended range while maintaining the weight found in current systems to minimize performance impacts on the chassis. Under separate contracts, BAE Systems is also developing precision guidance kits with anti-jamming capabilities (PGK-AJ) that can operate in the challenging ERCA firing environment. PGK-AJ is compatible with existing and new long-range rounds for multiple firing platforms, including the M109 self-propelled howitzer.
BAE Systems is currently producing the M109A7 configuration for the Army in the low-rate initial production phase.
Development work on ERCA Self Propelled Howitzer will take place at the Army’s Picatinny Arsenal and BAE Systems’ facilities in York, Pennsylvania; Sterling Heights, Michigan and Minneapolis, Minnesota.
United Technologies, Raytheon to create $120 billion aerospace and defence giant
(Reuters) – United Technologies Corp agreed on Sunday to combine its aerospace business with U.S. contractor Raytheon Co and create a new company worth about $121 billion, in what would be the sector’s biggest ever merger.
The deal would reshape the competitive landscape by forming a conglomerate which spans commercial aviation and defense procurement. United Technologies provides primarily commercial plane makers with electronics, communications and other equipment, whereas Raytheon mainly supplies the U.S. government with military aircraft and missile equipment.
While United Technologies and Raytheon have some common customers, their business overlap is limited, an argument the companies plan to make once U.S. antitrust regulators start scrutinizing the merger.
However, the two major commercial aircraft makers, Boeing Co and Airbus SE, as well as the Pentagon, have been known to use their significant purchasing power to seek concessions from their suppliers and may not welcome a potential lessening in competition among them.
When United Technologies rebuffed an acquisition offer from Honeywell International Inc in 2016, United Technologies chief executive Greg Hayes justified the decision partly by predicting that Boeing and Airbus would never accept having a supplier that would “build the plane from tip to tail.”
United Technologies has said it is on track to separate its Carrier air conditioning and Otis elevator businesses, leaving the company focused on its aerospace business through its $23 billion acquisition of Rockwell Collins, which was completed in 2018, and the Pratt & Whitney engines business.
Chinese authorities scrutinized the acquisition of airplane parts maker Rockwell Collins closely, given the companies’ footprint in that country’s market. This resulted in the deal closing in November 2018, as opposed to the targeted third quarter.
Trade tensions between the United States and China were blamed at least partly by analysts for that delay, but a source close to the deal said the companies did not expect this to be repeated because Raytheon does not do business in China.
Under the deal announced on Sunday, Raytheon shareholders will receive 2.3348 shares in the combined company for each Raytheon share. The merger is expected to result in more than $1 billion in cost synergies by the end of the fourth year, the companies said.
United Technologies shareholders will own about 57% of the combined business, called Raytheon Technologies Corporation, which will be led by Hayes. Raytheon shareholders will own the remaining stake, and Raytheon CEO Tom Kennedy will be named executive chairman. The companies negotiated the terms over several months, according to the source, who requested anonymity discussing the confidential deliberations.
The deal has been structured so that no shareholder of either company will receive a premium. United Technologies and Raytheon have market capitalizations of $114 billion and $52 billion, respectively.
The deal is expected to close in the first half of 2020.
The newly created company is expected to return between $18 billion and $20 billion of capital to shareholders in the first three years after the deal’s completion, the companies said. The new company will also assume about $26 billion in net debt, they added.
DEFENSE SPENDING RISE
Raytheon, maker of the Tomahawk and the Patriot missile systems, and other U.S. military contractors are expected to benefit from strong global demand for fighter jets and munitions as well as higher U.S. defense spending in fiscal 2020, much of it driven by U.S. President Donald Trump’s administration.
However, Pentagon spending is projected to slow down after an initial boost under Trump. A deal with United Technologies would allow Raytheon to expand into commercial aviation.
Conversely, United Technologies could benefit from reducing its exposure to commercial aerospace clients amid concerns that the rise of international trade protectionism will suppress economic growth and weigh on the flow of goods through air traffic.
The International Air Transport Association, which represents about 290 carriers accounting for more than 80% of global air traffic, cited these concerns earlier this month, when it said the industry is expected to post a $28 billion profit in 2019, down from a December forecast of $35.5 billion.
The deal with Raytheon could put pressure on General Electric Co, which competes with United Technologies for commercial aerospace clients, to seek scale. It could also push other defense contractors, such as Lockheed Martin Corp, to explore expanding their commercial businesses.
Last year, military communication equipment providers Harris Corp and L3 Technologies Inc announced an all-stock merger that, once completed, will create the sixth-largest U.S. defence contractor.
Morgan Stanley, Evercore Inc and Goldman Sachs Group Inc were financial advisers to United Technologies, while Wachtell, Lipton, Rosen & Katz was its legal adviser. Citigroup Inc was financial adviser to Raytheon, and RBC Capital Markets LLC provided a fairness opinion. Shearman & Sterling LLP was legal adviser to Raytheon.
(Reporting by Harry Brumpton and Kate Duguid in New York; Additional reporting by Mike Stone in Washington and Rama Venkat in Bengaluru; Editing by Richard Chang and Rosalba O’Brien)
