By Richard Pettibone, Aerospace & Defense Companies Analyst, Forecast International.
With a protracted downturn anticipated in defense, Sikorsky was put on the block in early 2015 as its parent company, United Technologies, looked to focus on higher-margin commercial markets. After several months of negotiations with various suitors, Lockheed Martin emerged as the victor with a $9 billion offer.
The purchase is an interesting counterpoint to UTC’s strategy; whereas that company is shifting toward commercial markets, Lockheed Martin is sharpening its focus on defense. In tandem with the Sikorsky acquisition, Lockheed Martin announced plans to divest a large chunk of its federal information technology business – a business that the company had spent several years investing in as it sought to diversify. With Sikorsky, Lockheed Martin is doubling down on defense, further expanding its platform and systems integration capabilities as it dives into the $30 billion military and commercial helicopter market.
While Sikorsky has had its share of difficulties, the company at present is a very good business. The firm has a solid backlog thanks to robust U.S. Army procurement of Black Hawk helicopters, as well as key wins in the U.S. Air Force Combat Rescue Helicopter (CRH) and U.S. Navy VXX Presidential Helicopter programs. Added to this are Sikorsky’s smaller but growing presence in the civil rotorcraft market and the bright outlook for the firm in the increasingly important helicopter aftermarket.
Sikorsky has been quick to respond to slowing markets as well, trimming its operations to match. Most recently, the company announced some 1,500 layoffs coupled with plant consolidations. This latest effort was the result of reduced demand due to declining oil prices, which in turn reduced capital investments by oil companies in offshore oil exploration.
Despite the slowdown, the company has been able to claim victory in two major procurements: the CRH and VXX programs. Under the U.S. Air Force’s Combat Rescue Helicopter program, Sikorsky and teammate Lockheed Martin were the sole bidders for the effort. (In late 2012, the other principal contenders for the contract decided not to bid on the program.) This situation repeated itself in mid-2013 with the U.S. Navy’s VXX program to replace the Marine One presidential helicopter. Sikorsky was again the last one standing after competitors opted out of the competition following a review of the Request for Proposals. The DoD did not restructure the procurements, and in May 2014 Sikorsky was awarded an initial $1.24 billion contract to build its S-92 for the VXX Presidential Helicopter program. This was followed in June by an initial $1.28 billion contract to develop the new Combat Rescue Helicopter.
According to Forecast International’s Rotorcraft Forecast, a return to significant and consistent growth in the market may not occur until sometime after 2030. One program that could help spur this growth in the very long term is the U.S. military’s Future Vertical Lift project. FVL rotorcraft are slated to replace various attack and utility helicopter types across U.S. military fleets. Service entry is planned for around 2030. Technology intended for use in FVL rotorcraft is currently being developed under the Pentagon’s Joint Multi-Role (JMR) program. The Sikorsky-Boeing team moved up in this competition when it was selected (along with a rival offering from Bell Helicopter) to move forward with a prototype development contract awarded in August 2014.
Despite the current downturn in the helicopter market, Sikorsky’s long-term potential in the world rotorcraft industry is substantial. With a solid business foundation based on production of H-60 Black Hawks and Seahawks for the U.S. armed forces and foreign customers, Sikorsky is the leading Western manufacturer of military rotorcraft and is expected to remain so for at least the next 15 years, and likely beyond. Overall, Lockheed Martin should be quite pleased with its latest addition.
For 50 years, Forecast International intelligence reports have been the aerospace and defense industry standard for accurate research, analysis, and projections. Our experienced analysts compile, evaluate, and present accurate data for decision makers. FI's market research reports offer concise analysis of individual programs and identify market opportunities. Each report includes a program overview, detailed statistics, recent developments and a competitive analysis, culminating in production forecasts spanning 10 or 15 years. Let our market intelligence reports be a key part of reducing uncertainties and mastering your specific market and its growth potential. Find out more at www.forecastinternational.com
