By Richard Pettibone, Forecast International
The downturn in military helicopters has begun. A quick look at Sikorsky‘s declining revenues, down 15 percent to $6.35 billion in 2013 from a high of $7.36 billion in 2011, shows that years of increased spending have ended. Now, after some 10 years of strong military procurement, the current downturn is expected to last almost as long.
A number of factors account for this decline. High levels of debt are forcing government officials in the U.S. and many other nations to look for ways to reduce spending, and defense budgets are taking an often disproportionate share of reductions. As it faces this new market, Sikorsky has taken action to deal with the current economic conditions. In early 2014, the company announced that it would cut 600 jobs, roughly 4 percent of its global workforce.
Despite the dour outlook, the company has been able to claim victory in two major procurement programs: the CRH program and the VXX program. For the U.S. Air Force’s Combat Rescue Helicopter (CRH) program, Sikorsky and teammate Lockheed Martin were the sole bidders. 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 Department of Defense did not restructure the procurements, and in May, Sikorsky was awarded an initial $1.24 billion contract to produce the 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 will likely have to wait until the post-2023 or even post-2028 timeframe. 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 Bell Helicopter with a rival offering) to move forward with development of a prototype; a contract was awarded in August 2014.
Another bright spot for Sikorsky is in the commercial sector. Production of Sikorsky’s S-92, which suffered during the recession, is rising due to strong demand from offshore energy support markets. In addition, production of the company’s S-76, which is well known as an executive and offshore oil transport helicopter, is forecast to increase thanks to economic improvements and the introduction of a new model, the S-76D.
Early in 2014, reports circulated that Sikorsky was being considered for divestment by parent UTC. Because Sikorsky is the smallest and most government dependent of UTC’s operations, the consideration of this option is to be expected in the current economic climate. However, a sale is ultimately unlikely, as tax and regulatory issues and market timing could be problematic. The consideration likely arose from the divergence of fortunes between Sikorsky’s downturn and the upswing in UTC’s building and aerospace component business. Overall, the discussion is simply part of UTC’s ongoing strategy in managing a multi-market conglomerate.