A week in defense & aerospace Friday, May 13 h, 2016 315315315 dito & ontents “The Bulletin ” is a weekly newsletter published by ADIT, focusing on global A&D markets. Program Hearing secrets ISRAEL: Alpha Design to Assemble Hermes UAVs in India "Talking In Your Sleep" was a new-wave hit released in the mid-80’s by The Romantics, a pop band from Detroit. And it was starting like this: Industry FRANCE: Airbus Safran Launchers: Europe closing ranks ♫ When you close your eyes and you go to sleep And it's down to the sound of a heartbeat against the SpaceX threat I can hear the things that you're dreaming about Valuation ♫ When you open up your heart and the truth comes out USA: FMS Remains Strong for First Half of FY16; Four Strange as it may seems, many Defense & aerospace companies seem still half-asleep Issues to Watch for Rest of Year (Guggenheim when it comes to hacking and corporate espionage. Let’s take just a few very recent Securities LLC, May. 2, 2016) examples. Earlier this month Swiss defense authorities acknowledged that A&D Publication company RUAG has suffering a major breach since 2014, through a Russian-origin USA: Legal sidebar - Delivery Drones: Coming To The malware. The company is minimizing the damage, and insists no secret data was stolen or compromised… Meanwhile, KBS radio reported on Wednesday that South Korean Sky Near You? (Congressional Research Service, MAY 6, defense shipbuilder Hanjin Heavy Industries & Construction was hit by a major cyber 2016) attack aiming at stealing military secrets. Last November, South Korean authorities also suspected a hacking attempt, at LIG Nex1, which was developing the AESA (Active Unlikely Link Electronically Scanned Array) radar for the KF-X project. Andn 2014, some computers MEXICO / AUSTRIA: To Anschluss …and beyond! at the Korean Agency for Defense Development were infected with a new type of malicious code. According to a recent report of the Financial Times, Airbus discovered napshots last year spyware within its IT system “programmed to intercept emails about the delivery of 50 helicopters to Poland” Indeed, the company suffers thousands of attacks each year, but among them, a mere dozen are judged really critical , Airbus IT security manager Stéphane Lenco told La Dépêche du Midi. However, according to a recent study by Mandiant, an IT security consultancy, the Aerospace & Defense industry only accounted for 5% or all attacks detected in 2016 , meaning in fact that other apparently less sensitive and less protected sectors like intellectual services, retail and energy are becoming more attractive to hackers and spies… ♫ When I hold you in my arms at night Don't you know you're sleeping in the spotlight And all your dreams that you keep inside You're telling me the secrets that you just can't hide ♫ Apart from specific threats, the Aerospace and defense industry, just like everyone else, is vulnerable to global cyber-security challenges. Once again, two very recent examples. First: the U.S. Department of Homeland Security has alerted the public last week to a security gap in certain outdated SAP business software platforms, a vulnerability that has apparently been targeted by cyberattackers attempting to penetrate three dozen companies worldwide, the DHS adds. No reason why other ERP and widely used production software would not be also vulnerable…Indeed, with a major impact on production, this is a tempting entry point for ransomewares….. Second: following a spectacular on-line theft from the Bangladesh's Central Bank, Reuters reveal that preliminary investigations point not only at cheap networking and insider complicity, but also at potential loopholes inside the well-known international financial transactions system SWIFT. Interestingly, as Reuters adds, this loophole was revealed earlier by experts from BAE Systems. A team from the British Defense giant had published some of its findings, saying that it found malware that was designed to intercept and silently rewrite certain transactions sent via the SWIFT system. How this malware was introduced remains unknown. Or, as the Romantics used to repeat in their chorus : ♫ I hear the secrets that you keep When you're talking in your sleep ♫ Friday, May13, 20 15 2 Newsletter No. 315 G rom the brokers Valuation FMS Remains Strong for First Half of FY16; Four Issues to The weather of the stocks this week Watch for Rest of Year GUGGENHEIM SECURITIES LLC. Apr. 25, 2016 Companies Apr. 28 May. 12 Δ 2 week s Airbus Group 54,44 55,23 q 1,45% In a note released to clients last week, Financial analyst Roman Schweizer gives BAE Systems 6,13 6,2 q 1,14% an interesting overview of US foreign military sales, more than halfway through Boeing 133,71 134,28 p 0,43% the U.S. government’s fiscal year 2016, which appear “on track to equal or top Bombardier 2,04 2,01 p -1,47% Dassault Aviation 1 0 23,55 1005 p -1,81% last year’s $43 bn”, since they have already reached about $29bn through the Elbit Systems 99,38 97,16 p -2,23% end of April .” And there are a number of pending U.S. fighter aircraft orders that Emb raer 21,4 18,76 q -12,34% could bump that number up significantly if they are approved by the White Finmeccanica 11,37 10,78 p -5,19% General Dynamics 141,16 145,4 p 3,00% House ” Schweizer adds; In terms of companies, “ Lockheed Martin leads the pack of defense primes, with $17.6B (which includes the $11.25B Saudi ship package). Huntington Ingalls 145,16 153,64 p 5,84% Irkut 9,56 9,9 q 3,56% Raytheon (RTN, BUY, $126.35) is second with $8.2B, and Northrop Grumman L-3 Communication 130,17 135, 12 p 3,80% (NOC, BUY, $206.26) is third with $4.6B ” Schweizer writes. Regionally speaking, Lockheed Martin 232,72 224,36 p -3,59% Northrop Grumman 205,61 216,35 p 5,22% “Middle East is tops with $17.6B in pending orders, followed by Asia with $5.6B Oshkosh Corp. 47,16 45,43 p -3,67% and Europe with $5.3B.”. As for the future, Schweizer sees four main issues Rheinmetall AG 68,82 61,25 p -11,00% which may have a major impact on FMS this year, namely: 1) How the new 10- Rolls Royce 694 643,5 q -7,28% year foreign military financing package will be renegociated with Israel 2) How Raytheon 127,51 131,54 p 3,16% Saab AB 276 276,9 p 0,33% the sale of 73 F-15Es to Qatar and 40 F/A-18E/Fs to Kuwait will be eventually Safran 62,31 59,2 p -4,99% unlocked. 3) How Australia’s Future Submarine program will move forward with Thales 76,73 76,7 q -0,04% ThyssenKrupp AG 20,7 18,64 q -9,95% Lockheed Martin and Raytheon competing to supply the new combat systems Textron 39,3 37,86 q -3,66% and, 4) How. Saudi Arabia will succeed or not in developing its own domestic United Technologies 104,23 101,53 q -2,59% defense industrial base under its Vision 2030 long-term economic program. capabilities. The Company has already strong leadership position in the Indian i oints of view established alliances with some leading market in each of its core businesses. Indian companies, including Hindustan Hermes 900 and Hermes 450 share many Aircraft, Bharat Electronics and Bharat Program common attributes, both on the platform Forge. and ground operations & support ISRAEL: Alpha Design to Assemble The two companies have a long record of infrastructure. The fleet of Hermes drones Hermes UAVs in India successful projects in India, some are has a track record of over 500,000 Late last month, Israeli reporter Tamir Eshel displayed this week at Defexpo, including an accumulated flight hours. Among the key broke an exclusive story on one interesting upgrading project for T-72 tanks and BMP-2 capabilities offered by the Hermes 900 are UAV deal in India. armored fighting vehicles, that includes a longer endurance, flight altitude of 30,000 ft Elbit Systems and Alpha Design and Adani number of vectronic and electro-optical and a large payload capacity (up to 350kg ). Aero Defense companies of India systems, as well as subcontracting work for A unique 2.5-meter long internal payload bay announced today (March 30, 2016) they are Lizard guided weapons, both processed is provided, capable of accommodating up to working towards an agreement to build under the Indian offset program. 250 kg and allowing quick modular payload Hermes 900 and Hermes 450 unmanned Following the changes in policy that the installation and replacement, as well as aerial vehicles (UAVs) in India, for domestic Indian market is undergoing due to the additional payload installation capacity customers, and export. ‘The companies “Make in India” program, the regulatory including four hard points under the wings. intend to create a tiered vendor base for environment is now more open to The UAS includes innovative avionics and supporting, indigenization and localisation cooperation, and cooperation is part of Elbit electronic systems, a low noise engine, as requirements and seek to set up a final Systems’ DNA. “As a high technology well as solutions that can be offered for assembly and integration line including company Elbit Systems’ vision is to achieve sense and avoid capabilities and safe maintenance, repair, and overhaul (MRO) operational excellence in its target markets, integration of the UAS into the relevant facilities ” the announcement said. India being one of them,” said Bezhalel airspace.