INSIDE THE DEAL
L3Harris to sell military training business to CAE for $1.05bn
1 March 2021
L3Harris Technologies has signed a definitive agreement to divest its military training business to CAE for a cash consideration of $1.05bn.
The military training business generates annual revenue of approximately $500m. It includes the Link simulation solutions and training provider Doss Aviation, and provides a wide range of training systems, simulations and associated services to the US and other international military customers.
CAE president and CEO Marc Parent said: “The proposed acquisition represents a significant value creation opportunity for all CAE stakeholders. It accelerates our growth strategy in defence and security and is highly complementary to our core military training business, broadening our position in the United States.
“We are adding new customers, experience on new platforms and building our depth of expertise to address all domains, air, land, sea, space and cyber, as well as expanding into adjacent markets such as mission and operations support.”
L3Harris has also announced the sale of its combat propulsion systems and related businesses to RENK for $400m in cash. The combat propulsion systems business has an annual revenue of approximately $230m. It manufactures military engines and transmissions.
Both deals are jointly valued at $1.45bn. L3Harris expects to use proceeds from the divestitures towards share repurchases.
L3Harris chairman and CEO William M Brown said: “With today’s announcement, we have now completed or announced divestitures of businesses with a combined $1.4bn of revenue for $2.5bn in expected proceeds, and our portfolio shaping process is ongoing.
“These agreements place our military training and combat propulsion systems and related businesses with well-suited buyers while positioning L3Harris to further focus on its core technologies and execute its strategic priorities.”
Following completion, the L3Harris military training business would operate under CAE USA.
The transactions are expected to be closed in the second half of this year. They are subject to approval from regulatory authorities and other customary closing conditions.
// Image: L3Harris is selling its military training business. Credit: L3Harris
Controversy remains over the deal
When the State Department gave Congress informal notice of the potential deal last month, Chairman of the House Committee on Foreign Affairs Representative Eliot L. Engel said that the sale “would significantly change the military balance in the Gulf and affect Israel’s military edge” adding that rushing approval of the deal was “not in anyone’s interest”.
Engel added: “My consideration of this sale will include several factors. First, we must maintain Israel’s qualitative military edge, as provided in US law, and ensure Israel’s military superiority in the region, as Israel remains our most crucial ally there. Israel currently has exclusive access in the region to the F-35, which has guaranteed its military edge over the last several years. As Congress reviews this sale, it must be clear that changes to the status quo will not put Israel’s military advantage at risk.”
The lawmaker said that increased activity from Russia and China in the Middle East meant that Congress would need ‘unimpeachable assurances’ that the fighter’s advanced technologies would be safeguarded. He added that a sale to the UAE would ‘inevitably’ generate demand for the jet from other neighbouring countries. In October, Qatar made a formal request to purchase the F-35.
Senate Foreign Relations Committee Ranking Member Senator Bob Menendez said: “As feared, the details of this proposed sale suggest President Trump is seeking to rush through an increase of complex weapons systems into a volatile region seemingly without serious consideration of US interests or the legal parameters of Israel’s qualitative military edge.
“Claiming Israel will maintain its edge while offering Abu Dhabi the same number of these sophisticated stealth warplanes as Israel simply does not add up. Recklessly accelerating the timeline around a reportedly artificial deadline precludes sufficient consideration of these issues by the national security professionals in the Departments of State and Defense.”
Menendez added: “Congress has statutory authority over foreign arms sales and our responsibilities will not be relinquished. The American public has a right to insist that the sales of US weapons to foreign governments – especially those of this magnitude and lethality – are consistent with US values, our national security objectives, and the safety of our closest allies.
“The Trump administration’s refusal to answer our questions about how the national security interests of both the US and Israel will be served, or undermined, by such a sale is a sure-fire way not to get Congressional support to move forward with this sale.”
Will President-elect Biden change course?
After the potential F-35 sale became public in October, Anthony Blinken, a Foreign Policy Advisor to Biden and former Obama-era official, was reported by the Jerusalem Post as saying that he had ‘concerns’ about what commitments the US Government may have made to the UAE.
Since then, US President Donald Trump lost his re-election bid, with President-elect Joe Biden set to take office in January. Democrat Senator Chris Murphy said that the Trump administration approving the sale after losing the election was “completely inappropriate”, adding: “It's a transparent attempt to narrow options in the Middle East for President-elect Biden when he takes office.”