Lockheed-Sikorsky deal: Lockheed Martin Sikorsky
Published: July 21, 2015
Lockheed-Sikorsky deal: Lockheed Martin Sikorsky, Lockheed Martin Corp.’s $9 billion acquisition of United Technologies Corp.’s Sikorsky Aircraft would bring together two companies that are heading in the same direction.
Lockheed Martin, the largest U.S. defense contractor, maker of warplanes, aviation electronics and other weapons systems, wanted to push deeper into the military helicopter business.
Sikorsky, the largest helicopter maker in the world, provided a rare opportunity. With its emphasis on primary contracts with the Pentagon, the Stratford company no longer fit well with Hartford-based UTC’s focus on systems and services for the aerospace and building industries.
And Lockheed Martin already was integrating operating systems on helicopters for Sikorsky and other companies.
“They make some of the parts, put them together, but don’t sell the whole package,” said Mike Blades, a senior defense analyst at Frost & Sullivan in San Antonio, Texas. “Now they will.”
The acquisition, announced Monday, culminates a strategic repositioning at UTC that started even before November, when Gregory Hayes took over as the UTC chief executive from Louis Chênevert, who retired suddenly. Hayes has been clear in his view that Sikorsky’s growth prospects are limited.
“The decision to sell Sikorsky was not an easy one, but it is the right one for both Sikorsky and UTC,” Hayes wrote in an email to UTC employees Monday. “By focusing on our core businesses, UTC is better positioned to deliver value to customers, growth for shareowners and opportunities for employees.”
Sikorsky employs 8,000 in Connecticut and 15,000 worldwide, with its head office and largest plant in Stratford and satellite locations in Bridgeport, Trumbull and Shelton. The engineering office in Bridgeport is scheduled to close late next year, and its 450 workers will go to Stratford.
The sale, if approved by regulators, would remove Sikorsky from Connecticut-based ownership for the first time since 1929, four years after it was founded on Long Island by Russian immigrant Igor Sikorsky.
Sikorsky builds the Black Hawk and the presidential Marine One helicopters, the Stallion family of U.S. Marine Corps helicopters as well as rotorcraft used to ferry workers to offshore oil platforms.
UTC, which bought Goodrich Corp. for $16 billion in 2012, authorized a buyback of up to 75 million shares, worth $8.3 billion — indicating that the company is satisfied shrinking its asset size and does not intend to use the Sikorsky proceeds for acquisitions.
On Monday, analysts said that they don’t expect any immediate threat to Connecticut employment, but that they do expect an intensive review by Lockheed on how Sikorsky is managed, all with an eye toward improving profit margins.
There was a general sense of optimism among employees and public officials that Lockheed as a buyer is better than, say, Boeing or Textron, because Lockeed doesn’t make helicopters, at least not the complete aircraft.
But Lockheed said it has identified $150 million in savings as a result of the merger, either from squeezing costs out of the supply chain or, eventually, through “consolidation of footprint and headcount,” said Dan Nelson, a spokesman for Lockheed.
He said he didn’t know the deadline for achieving those savings.
“They are not going to force Sikorsky into any preconceived mold,” said Loren Thompson, a defense analyst with the Lexington Institute, a think tank in Arlington, Va. “It will be gradual over time increasing the margins, between now and the end of the decade.”
The helicopter maker’s sales of $7.4 billion in 2014 amounted to about 11 percent of UTC’s $66 billion in revenue. But Sikorsky’s operating profit margin was the lowest of any UTC division in 2014 at 2.9 percent.
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