Monday, July 20, 2015

Lockheed Martin Buying Sikorsky for $9B in Cash

Lockheed Martin inked an agreement to buy helicopter maker Sikorsky Aircraft from United Technologies. A company spokesman told AIN that "we intend to keep the entire Sikorsky business—military and commercial." Sikorsky civil programs include the S-76D, S-92 (shown here) and former Schweizer helicopters.
(Photo: Sikorsky)

Lockheed Martin announced this morning that it inked an agreement to buy helicopter maker Sikorsky Aircraft from United Technologies (UTC) for $9 billion in cash. The deal is subject to potential vetoes from both the U.S. Defense and Justice departments, but is expected to receive regulatory approval. The parties anticipate closing on the acquisition late in the fourth quarter or early in first quarter next year.

Lockheed Martin has annual revenue of $45 billion, $22 billion of which comes from direct U.S. Department of Defense (DOD) contracts. Its signature military products include the F-35 Lightning II multirole fighter, C-130J transport aircraft, Patriot anti-missile systems and the Navy’s new Littoral Combat Ships.

UTC had been publicly shopping Sikorsky since at least February, and the Lockheed-Sikorsky deal had been telegraphed for weeks. The deal would be Lockheed’s largest acquisition since it merged with Martin Marietta in a $10 billion stock swap in 1995. 

Last year, UTC's revenue was $65 billion, of which Sikorsky accounted for $7.5 billion. However, Sikorsky’s profits and sales had been dropping in recent months and in June the company announced it would eliminate 1,400 jobs and consolidate some facilities.

Sikorsky manufactures the ubiquitous UH-60 line of Black Hawk helicopters and the CH-53 Sea Stallion heavy-lift helicopter for various militaries, as well as the S-92A heavy and S-76D medium twin-engine models for the civilian market. It also owns the Schweizer brand of light helicopters. The company is based in Stratford, Conn., but operates additional production facilities in Pennsylvania and New York.

Sikorsky has been part of UTC since the company was known as United Aircraft in 1929. Although the company was initially known for fixed-wing amphibious aircraft, under Igor Sikorsky’s direction it began work on its first helicopter in the 1930s. The Vought-Sikorsky VS-300 first flew in 1939 and in 1942 Sikorsky’s R-4 became the first mass-produced helicopter. 

The Sikorsky acquisition is seen as positive for Lockheed Martin, whose revenues have been fairly flat over the last five years. Lockheed Martin is initially expected to keep the Sikorsky brand and operate the company independently from Connecticut as opposed to folding it into its existing aerospace portfolio. Lockheed Martin is based in Bethesda, Md., but has aircraft assembly plants in Marietta, Ga., and Fort Worth, Texas.

Sikorsky is a natural fit for Lockheed Martin and complements our broad portfolio of world-class aerospace and defense products and technologies,” said Marillyn Hewson, Lockheed Martin chairman, president and CEO. “I’m confident this acquisition will help us extend our core business into the growing areas of helicopter production and sustainment. Together, we’ll offer a strong portfolio of helicopter solutions to our global customers and accelerate the pace of innovation and new technology development.”

Lockheed Martin and United Technologies have agreed to make a joint election under Section 338(h)(10) of the Internal Revenue Code, which treats the transaction as an asset purchase for tax purposes. The election generates a tax benefit with an estimated present value of $1.9 billion for Lockheed Martin and its shareholders, bringing the after-tax price of the acquisition to $7.1 billion. 

The company plans to align Sikorsky under its Lockheed Martin Mission Systems and Training (MST) division. MST and Sikorsky are currently partnered on a number of critical programs, including the VH-92 Presidential helicopter, combat rescue helicopter and the Naval MH-60.

Lockheed Martin already works with Sikorsky as the system integrator on several helicopter programs, including the MH-60R&S Black Hawk variants for the Navy and Marine Corps and the new VH-92 Marine One presidential helicopter. Lockheed's last solo helicopter program was the AH-56 Cheyenne fast attack helicopter that was canceled in 1972 after only 10 prototypes were produced.

Lockheed Martin is currently partnered with now competitor Bell Helicopter in developing the latter’s V-280 Valor third-generation tiltrotor for the U.S. Army, currently a finalist in the Pentagon’s Joint Multi-Role Technology Demonstrator (JMR-TD) program, a potential precursor for a large aircraft order worth more than $100 billion within the next decade.

Sikorsky is partnered with Boeing for the purpose of fielding a competing aircraft, the S-97 Raider compound helicopter with rigid coaxial contra-rotating rotors. A Bell spokesman said the company had no immediate comment on any potential impact Lockheed Martin's acquisition would have on the V-280 program.

A Lockheed Martin spokesman said that the acquisition would not affect his company's participation with Bell on the V-280. “The transaction will not have an impact on our pursuit of the Future Vertical Lift/Joint Multi-Role program. We will continue working with our current partners and teammates to bring the best technical solutions to our customer,” he told AIN.

(Mark Huber and Thierry Dubois - AINOnline News)

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