1

Business Situation
Our client, Milco, is a leading Aerospace & Defense provider
with ~$2B in revenue. The company offers a broad range
of electronic products and systems, largely used on military
platforms. Core products include military ight simulators and
Maintenance, Repair, & Overhaul (MRO) technology systems,
as well as services such as ight simulation instruction and
MRO system diagnostic & repair. Milco also has been growing
its Military Construction offering. Milcos customers include
the United States (U.S.) Department of Defense (DoD) and its
prime contractors, U.S. Government intelligence agencies, the
U.S. Department of Homeland Security (DHS), and select other
U.S. federal, state, and local government agencies.
While revenue in Milcos core segments have remained strong,
the dynamics of the U.S. defense industry are challenging the
way they will need to conduct business going forward, forcing
them to be more agile and cost effective. While traditional
defense contractors used to have a lock on the U.S. market,
new entrants have joined the mix, removing some of the
leverage Milco once had, making the environment much
more competitive. Additionally, in response to U.S. Defense
budget cutbacks, which have been steadily increasing over the
last few years, Milco, and their competitors, have started to
look beyond the U.S. market, exploring opportunities to offer
products and services to customers in emerging geographies.
Milco recognizes the need to change the way they operate
in order to reach their goals. Milcos executive team feels a
review of their current products and services is warranted to
allow them to successfully compete, as well as an exploration
of the potential for acquiring new capabilities to broaden their
portfolio. Additionally, the executive team believes there are
potential growth opportunities in several international markets.
You have been engaged to help assess how Milco should
move forward to strategically drive growth and margin.
The brief for your team involves
Financial Performance
Construct a basic income statement for Milco. How
would you assess the companys overall nancial
performance and health?
Are there any products/service segments that Milco may
want to consider exiting from? Please support with data
points.
Competitive Position
What is Milcos current competitive position? Based on
the data provided, segment and assess each of Milcos
major competitors.
In what existing product/service offerings will Milco
possibly be able to capture additional share?
Recommendations
Based on your understanding of Milcos nancial
performance and competitive positioning, what should
be managements top priorities. Recommend initiatives
or opportunities for Milco to improve its position.
Ground Rules
Feel free to use external research sources and make logical
assumptions where necessary. Please ensure that all external
sources, data, and assumptions are captured explicitly in your
deliverable.
Please make all submissions in PowerPoint format, limiting
the main deliverable to a maximum of eight slides (including
one-slide executive summary). Appendix can be used to
capture external research, assumptions, or any other refer-
ences/analysis in detail.

Business Case Challenge for
The Maverick Season 3
2
Overall
Aerospace & Defense industry is composed of many companies
that manufacture defense products, such as aircraft, weaponry,
and information systems along with supporting products
and services.
Most of these products are purchased by federal governments
for military purposes, with the United States being the worlds
largest Aerospace & Defense market accounting for ~40%
(+$650B) of the global $1.6 trillion market.
The growth of the Aerospace & Defense industry depends
largely on the spending outlook of government departments,
which has been trimming its defense expenditures by reducing
investments on defense programs.
U.S. Market
The industry is very competitive with government contracts
and regulations providing challenges to suppliers.
The industry is led by several leading heavyweights, though
many smaller companies provide niche offerings.
The industry is expected to see continued consolidation, with
larger players plugging gaps through bolt-on acquisitions.
Operators in this industry have been focused on new
technologies as well as making planned divestitures to remain
protable and meet customer demand.
Other Markets
Growing demand in international markets may provide some
relief to U.S.-focused corporations, though complexities with
government regulations on specic products and services
restrict the abilities of some corporations to expand.
Data sheet 1 Key Industry, Market and Competitive Trends
Product /
Service
2014 Average
Units/ Service
Contracts
2019 Projected
Avg. Units/
Service
Contracts
2014 Avg.
Revenue / Unit
or Service
2019 Projected
Revenue/Unit
or Service
2014 Avg.
COGS / Unit or
Service
2019 Projected
COGS / Unit or
Service
Military Flight
Simulator
40 40 $15,000,000 $15,750,000 $9,000,000 $9,900,000
MRO IT System 60 80 $5,000,000 $5,500,000 $3,000,000 $3,300,000
Military Flight
Simulation Instruction
200 200 $1,750,000 $1,837,500 $600,000 $630,000
Military Flight
Simulator Service/
Maintenance
200 200 $2,000,000 $2,100,000 $1,000,000 $1,050,500
MRO IT System
Services
115 150 $2,000,000 $2,200,000 $1,000,000 $1,100,000
Military Facility
Construction
125 150 $1,000,000 $1,800,000 $600,000 $900,000
Flight simulators range in complexity and price from $250K (software-based) to +$15M for Full Flight/Mission simulators
Simulators have on average 10-year lifespan, though regularly scheduled enhancements are required to remain relevant
U.S. military simulator market is dominated by a small number of companies, with Milco holding 20% value share
Simulator instruction is contracted for new and existing units
Milco accounts for 10% of MRO industry revenue, with 15 companies accounting for top 80%
MRO IT systems have ~20-year lifespan before large enhancements are integrated; Service and maintenance is performed on all
MRO IT systems regardless of age to ensure mission critical operations
U.S. Military has 200 domestic facilities with an average of 30 contracts annually with Milco capturing approximately 0.7%
of construction contracts
Data Sheet 2 Select Product & Services Data
Milco Product & Service Data
$560
$580
$600
$620
$640
$660
$680
$700
2010 2011 2012 2013
$614
$646
$687
$691
U.S. Annual Defense Budget ($B)
3
Data sheet 3 Select Financial Data
Assets
2014 Values
($M)
2015 Values
($M)
Liabilities and
Equity
2014 Values
($M)
2015 Values
($M)
Cash $400 $500 A/P $500 $600
A/R $700 $800 Long Term Debt
(Current Portion)
$200 $200
Inventory $500 $400 Long Term Debt $1,600 $1,700
Plant & Equipment
1
$2,000 $2,100 Shareholders Equity $1,300 $1,300
Total Assets $3,600 $3,800 Total Liabilities and
Shareholders Equity
$3,600 $3,800
Revenue ($B) Tax Rate Revenue ($B) Tax Rate
0 to 1 15% 2.5+ to 5 35%
1+ to 1.5 20% 5+ to 10 37.5%
1.5+ to 2 25% 10+ to 50 40%
2+ to 2.5 30% 50+ 42.5%
Metric Detail
SG&A Typically ranges around 20% of revenue
Assets
The Military Facility Construction Service has IP assets valued at $500M
All other products and services are assumed to have an equal asset base
CapEx Plans for $100M of investment in 2016 and another $150M in 2019
D&A
Product assets are depreciated based on useful life
2
Service assets are assumed to be IP and amortized over 25 years
Market Cap Market capitalization is $6.25B
WACC Milcos Weighted Average Cost of Capital (WACC) is 20%
Milco 2014/15 Tear Sheet from Balance Sheet
US Corporate Tax Rate
Other Data for Milco
1 Includes IP assets as well.
2 Useful life for product assets are assumed to be in line with the lifespan of the products they manufacture.
Data sheet 4 Select Competitor Data
U.S. Competitors by 2014 Revenue
2014 U.S. Market by Segment
Product /
Service
Milco Competitor A Competitor B Competitor C Competitor D Competitor E
Co.% Market% Co.% Market % Co.% Market % Co.% Market % Co.% Market % Co.% Market %
Military Flight
Simulator
30% 20.0% 41.0% 15.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
MRO IT System 15% 10.2% 0.0% 0.0% 5.0% 2.0% 30.0% 7.0% 14.0% 1.0% 3.0% 0.2%
Military Flight
Simulation
Instruction
17.5% 20.0% 8.0% 5.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Military Flight
Simulator
Maintenance
20% 35.0% 1.0% 1.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
MRO IT System
Services
11.5% 20.0% 0.0% 0.0% 2.5% 2.0% 7.0% 4.0% 4.5% 1.0% 1.0% 0.2%
Military Facility
Construction
6% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Other 0% - 50% - 93% - 63% - 81% - 98% -
Notes Seeks
international
growth
Expanding
MRO
offerings
Top 3 US
military IT
provider,
seeking to
expand IT
solutions
Considering
close of
MRO line
Civilian
focus
but seeks
military
market
Note: Co. % = Companys specic % of business; Market % = Overall market share
Segment
Military Flight
Simulator
MRO IT System
Military Flight
Simulator Service
Military Flight
Simulation
Instruction
MRO IT Services
Military Facility
Construction
2014 Total Revenue ($B) $3.0 $3.0 $1.12 $1.75 - $1.15 $125.0 -
# Companies / Top 80% 5 15 5 5 15 100
Note: , , - = 20142015 Trend
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