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By New York Times | 21 Jul, 2015, 03.29PM IST
Purchase of Sikorsky Aircraft to further bolster Lockheed's status as world's biggest military contractor - The Economic Times
Lockheed Martin's $9 billion purchase of Sikorsky Aircraft, the helicopter manufacturer, is part of a larger effort at Lockheed to focus more intently on military hardware than on less profitable government services.
At the same time that it announced on Monday that it would buy Sikorsky from the United Technologies Corp., Lockheed also said that it would consider spinning off or selling much of its business that provides information technology services to government agencies.
Lockheed said those parts of its business employ 17,000 people and earn roughly $6 billion in annual sales - much of it coming from federal agencies outside the military and intelligence communities.
That business generally has lower profit margins than Lockheed's more traditional work of building satellites, warplanes and missiles, and its sales have dropped in recent years as the government has cut spending on information technology and encouraged more competition from smaller firms. Lockheed said it would continue to supply technical services to military and intelligence customers.
The deal for Sikorsky, which makes the popular Black Hawk helicopters and is based in Stratford, Connecticut, would further bolster Lockheed's status as the world's biggest military contractor by adding another major business line to its varied lines of military equipment, including the F-35 fighter jet.
The transaction will be structured in a way that generates a tax benefit of about $1.9 billion for Lockheed Martin and its shareholders, effectively reducing the purchase price to $7.1 billion, Lockheed says.
The Sikorsky business, which had been part of United Technologies for decades, recorded net sales of $7.5 billion in 2014 and employed more than 15,000 people.
Marillyn Hewson, chairwoman, president and chief executive of Lockheed Martin, said in a news release that Sikorsky was "a natural fit" for Lockheed Martin, which had worked on helicopter projects with Sikorsky but did not build helicopters on its own. She added that Lockheed's reconsideration of its technology services businesses stemmed from the "recent shifts in market dynamics."
The Sikorsky deal is subject to regulatory approval and is expected to close by late fourth quarter 2015 or early first quarter 2016.
The combination of Lockheed and Sikorsky will most likely be scrutinized by the U.S. Defense Department, which has indicated that it wants to preserve competition among military contractors. Hewson told analysts on Monday that the company did not expect to run into government opposition since the deal would not reduce the number of companies that make military helicopters.
Boeing, Bell Helicopter and AgustaWestland, which is headquartered in Italy, also build helicopters for the Pentagon.
Lockheed says it expects to add Sikorsky to its Mission Systems and Training business segment after the deal. Sikorsky's commercial helicopter business has suffered recently, as the drop in oil prices has cut into its business with oil and gas companies.
Bruce Tanner, Lockheed's chief financial officer, told analysts on Monday that he expected Sikorsky's business to turn around over the next several years.
The sale came after a review of strategic alternatives for the 90-year-old Sikorsky business that United Technologies conducted this year.
In June, United Technologies said that it was considering selling or spinning off the business this year. That same month, Sikorsky said that it planned to cut up to 1,400 jobs, or about 9 percent of its workforce.
Divesting itself of Sikorsky would help simplify the business mix of United Technologies, whose products include Otis elevators, Carrier air-conditioners and Pratt & Whitney jet engines.
Based in Hartford, Connecticut, United Technologies posted net sales of $65.1 billion as of Dec. 31, 2014.
Founded on Long Island in 1925, Sikorsky manufactures and services military and commercial helicopters and fixed-wing aircraft. In 1929, it was acquired by the predecessor of United Technologies, United Aircraft and Transport Corp.
In addition to Black Hawks, Sikorsky makes a range of commercial and military helicopters, including the S-76 and the S-92 commercial helicopters and the Seahawk military helicopter. It is also developing the CH-53K heavy-lift helicopter for the Marine Corps and the HH-60W combat rescue helicopter for the Air Force.
Last year, Sikorsky won the contract to build the next generation of Marine One helicopters, which are used to transport the president.
Lockheed Martin, based in Bethesda, Maryland, produces a wide variety of military and aerospace equipment. It posted net sales of $45.6 billion in 2014.
Purchase of Sikorsky Aircraft to further bolster Lockheed's status as world's biggest military contractor - The Economic Times
Lockheed Martin's $9 billion purchase of Sikorsky Aircraft, the helicopter manufacturer, is part of a larger effort at Lockheed to focus more intently on military hardware than on less profitable government services.
At the same time that it announced on Monday that it would buy Sikorsky from the United Technologies Corp., Lockheed also said that it would consider spinning off or selling much of its business that provides information technology services to government agencies.
Lockheed said those parts of its business employ 17,000 people and earn roughly $6 billion in annual sales - much of it coming from federal agencies outside the military and intelligence communities.
That business generally has lower profit margins than Lockheed's more traditional work of building satellites, warplanes and missiles, and its sales have dropped in recent years as the government has cut spending on information technology and encouraged more competition from smaller firms. Lockheed said it would continue to supply technical services to military and intelligence customers.
The deal for Sikorsky, which makes the popular Black Hawk helicopters and is based in Stratford, Connecticut, would further bolster Lockheed's status as the world's biggest military contractor by adding another major business line to its varied lines of military equipment, including the F-35 fighter jet.
The transaction will be structured in a way that generates a tax benefit of about $1.9 billion for Lockheed Martin and its shareholders, effectively reducing the purchase price to $7.1 billion, Lockheed says.
The Sikorsky business, which had been part of United Technologies for decades, recorded net sales of $7.5 billion in 2014 and employed more than 15,000 people.
Marillyn Hewson, chairwoman, president and chief executive of Lockheed Martin, said in a news release that Sikorsky was "a natural fit" for Lockheed Martin, which had worked on helicopter projects with Sikorsky but did not build helicopters on its own. She added that Lockheed's reconsideration of its technology services businesses stemmed from the "recent shifts in market dynamics."
The Sikorsky deal is subject to regulatory approval and is expected to close by late fourth quarter 2015 or early first quarter 2016.
The combination of Lockheed and Sikorsky will most likely be scrutinized by the U.S. Defense Department, which has indicated that it wants to preserve competition among military contractors. Hewson told analysts on Monday that the company did not expect to run into government opposition since the deal would not reduce the number of companies that make military helicopters.
Boeing, Bell Helicopter and AgustaWestland, which is headquartered in Italy, also build helicopters for the Pentagon.
Lockheed says it expects to add Sikorsky to its Mission Systems and Training business segment after the deal. Sikorsky's commercial helicopter business has suffered recently, as the drop in oil prices has cut into its business with oil and gas companies.
Bruce Tanner, Lockheed's chief financial officer, told analysts on Monday that he expected Sikorsky's business to turn around over the next several years.
The sale came after a review of strategic alternatives for the 90-year-old Sikorsky business that United Technologies conducted this year.
In June, United Technologies said that it was considering selling or spinning off the business this year. That same month, Sikorsky said that it planned to cut up to 1,400 jobs, or about 9 percent of its workforce.
Divesting itself of Sikorsky would help simplify the business mix of United Technologies, whose products include Otis elevators, Carrier air-conditioners and Pratt & Whitney jet engines.
Based in Hartford, Connecticut, United Technologies posted net sales of $65.1 billion as of Dec. 31, 2014.
Founded on Long Island in 1925, Sikorsky manufactures and services military and commercial helicopters and fixed-wing aircraft. In 1929, it was acquired by the predecessor of United Technologies, United Aircraft and Transport Corp.
In addition to Black Hawks, Sikorsky makes a range of commercial and military helicopters, including the S-76 and the S-92 commercial helicopters and the Seahawk military helicopter. It is also developing the CH-53K heavy-lift helicopter for the Marine Corps and the HH-60W combat rescue helicopter for the Air Force.
Last year, Sikorsky won the contract to build the next generation of Marine One helicopters, which are used to transport the president.
Lockheed Martin, based in Bethesda, Maryland, produces a wide variety of military and aerospace equipment. It posted net sales of $45.6 billion in 2014.
