In a deal that will give it an organic small jet engine capability with affordable, leading edge capabilities, Kratos Defense & Security Solutions [KTOS] has acquired a majority stake in Florida Turbine Technologies, Inc. (FTT) for $60 million.
Kratos sees FTT’s design, development and manufacturing capabilities in small turbofan and turbojet engines as a market disruptor and plans to grow and expand the business onto a range of platforms that include tactical missiles and tactical unmanned aircraft systems (UAS).
FTT will provide leading edge capabilities at affordable levels, which means the end customer will be able to buy more missiles and drones, Eric DeMarco, president and CEO of Kratos, told Defense Daily in a brief telephone interview. Their engines “will dramatically drop the cost” of the products they go into, he said.
“Quantities have a quality all of their own,” DeMarco said.
Kratos paid $33 million in cash and $27 million in stock for an 80.1 percent stake in FTT, and has the option to acquire the rest at a future date. FTT is expected to have about $45 million in sales and $4.5 million in operating income for the last 10 months of 2019.
The acquisition also positions Kratos as a direct competitor to Williams International, which also makes small jet engines.
DeMarco said that with investments by Kratos that company will take its new operating division to “the next level.” Going forward, FTT will Kratos Turbine Technologies and operate within the Government Solutions segment.
Kratos plans to expand the manufacturing capabilities of KTT, DeMarco said.
For the most part, Kratos is vertically integrated, but it doesn’t make its own engines, and, in the case of its drones, it doesn’t make the parachutes used to land them.
“Now we have our own engines for drones and missiles,” DeMarco said, which he added will help Kratos meet its customers’ demands for lighter, faster, smaller, more affordable systems. Currently, engines are the highest cost item for the company’s drones, he said.
“Our customers encouraged us to partner with another affordable technology company like FTT,” DeMarco said in the interview.
Steve Fendley, president of Kratos Unmanned Systems Division (KUSD), said in a statement the FTT deal provides “leap frog” opportunities for Kratos and its UAS systems, saying their “engine systems offer thrust and specific fuel consumption performance improvements that have historically been ‘unobtanium’ in the low-cost jet engine market.”
The last acquisition Kratos made was of Composite Engineering, Inc., in 2012 for $155 million. CEI at the time had sales of $94 million and created Kratos’ Unmanned Systems Division, which posted $132.9 million in sales in 2018.
DeMarco said the CEI deal “transformed” Kratos and he expects the FTT deal to do the same again for the company given the “disruptive” engine technology they add.
Stacey Rock, who most recently was senior vice president of the Weapons & Defense Solutions business within the company’s Defense Rocket Support Services Division, will lead KTT.
“Our strategy is to expedite the flight testing of our engines through collaboration with our KUSD group and our company-owned unmanned aircraft,” Rock said in a statement. “In addition, we plan to build on our existing relationships with the major weapons primes to position our aircraft and engines for future tactical systems,” mentioning that Kratos is now positioned “to compete for and participate in both new and upgraded weapons programs as an integral supplier of the airframe and propulsion systems.”
In a statement, DeMarco said the market for the small turbojet and turbofan engines is in the “many thousands over the next five years.” He added that Kratos is also focused on developing high-end, affordable engines for hypersonic systems.
Kratos’ financial adviser on the deal was Canaccord Genuity.
For 2018, Kratos posted sales of $618 million, up 2 percent from $603.3 million a year ago. The company narrowed its losses to $3.5 million from $42.7 million a year ago.