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Consolidation Now the Norm for Aerospace and Defense Suppliers

By APICS staff | 14 | 9 | May 06, 2014

The US aerospace and defense industries are seeing greater numbers of mergers and acquisitions, company leaders choosing to combine forces as budgets are cut and tougher times are expected ahead, the Los Angeles Times reports. In the first quarter of 2014 alone, 56 deals were announced, a 14 percent increase from the year before, according to investment firm Janes Capital Partners.

In an era of austerity, declining space exploration, and fewer combat operations, consolidation becomes more common as a way to increase margins and squeeze out extra profits. “As budgets decline, it’s very logical for [aerospace and defense] firms to go out looking for ways to combine businesses,” says Stephen Perry, managing director of Janes Capital. He considers the United States to be on the cusp of a “major merger wave” in these industries.

Consolidation in this era likely will consist of larger midsize suppliers seeking access to newer markets and increased efficiency, says Tom Captain, principal of the aerospace and defense practice at Deloitte. “There are too many companies chasing too few dollars,” he says. “There’s just not enough work to go around.”

SEC to Uphold Conflict Mineral Reporting Deadline

Despite a last-minute push from industry groups, the United States Securities and Exchange Commission (SEC) has upheld its deadline for publicly traded companies to begin reporting on conflict minerals, Reuters reports. A coalition that includes the National Association of Manufacturers, the US Chamber of Commerce, and the Business Roundtable argued that, currently, the rule makes little sense without compelling full disclosure and that the SEC should have taken better precautions before implementing the rule, which is part of the 2010 Dodd-Frank law to reform Wall Street.

In April, a District of Columbia appeals court softened the rule, striking down a provision that requires companies to disclose whether each of its products are “conflict free” on the basis of preserving free speech. However, the rest of the conflict minerals reporting requirements were left intact.

The SEC’s current version of the rule is that publicly traded companies must perform due diligence and report on these processes that determining whether any of their tantalum, tin, tungsten, or gold used in manufacturing originated from areas in or near the war-torn Democratic Republic of the Congo. Industry groups still are expected to push against the deadline as it approaches. 

Speech Highlights State of Indonesian Deforestation

During opening remarks to the Forests Asia Summit in Jakarta, Indonesian president Susilo Bambang Yudhoyono declared that his country’s forests are continuing to become more sustainable, the Wall Street Journal reports. Yudhoyono describes government initiatives for planting trees and banning the destruction of primary forests and swamps that store large amounts of carbon. “Trees are taking root and forests are gaining more footholds,” Yudhoyono says.

However, the Journal reports that Indonesia is home to the third-largest forest area in the world and has one of the highest rates of forest loss. Despite some regeneration, deforestation in 2011–2012 is nearly two times the earlier annual rate. Changes in land use comprise about 80 percent of the nation’s carbon emissions.

Yudhoyono’s speech is criticized for merely recounting past promises. In a statement by Greenpeace, the organization says the Indonesian’s president’s work to protect forests will all go to waste if he does not use the last few months of his presidency to strengthen conservation regulations.

Suit Alleges Australian Grocery Chain Squeezes Suppliers for Payments

The Australian Competition and Consumer Commission (ACCC), a consumer advocacy group, has filed suit against Australian supermarket giant Coles for squeezing small suppliers with what it calls unconscionable and unfair payments, the Australian Associated Press reports. The ACCC claims that Coles abuses its size and power, pressuring about 200 suppliers into paying extra, often in the form of rebates, to improve the company’s bottom line.

“We allege [Coles] used misinformation, used undue influence from their superior bargaining position, gave people only a day or two to pay up, and overall were seeking money they had no legitimate basis to obtain,” says Rod Sims, ACCC chair. According to the suit, Coles receives about $16 million annually in unfair payments. The ACCC has been investigating the supplier practices of Coles for about two-and-a-half years.

Meanwhile, Coles alleges that its supply chain changes benefit both suppliers and customers and vows to fight the legal action. “Over the last five years, Coles has worked to significantly improve relationships with suppliers and to share the benefits of the strong growth in Coles customer numbers during this time,” a company statement reads.

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