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Lockheed’s acquisition of Sikorsky – Implications and Prospects

 

locklogoHighlights:

  • The announced price of the Lockheed Martin purchase of Sikorsky is USD9bn
  • The deal is slated for formal confirmation by early 2016
  • Sikorsky is to be part of Lockheed’s Mission Systems and Training (MST) division rather than the aeronautics division
  • Despite concerns about the global rotorcraft market, Sikorsky’s potential remains strong

In what came as big news for the defence industry, Lockheed Martin announced on 21 July that it was to acquire Sikorsky Aircraft from United Technologies Corp for about USD9bn. The acquisition is subject to customary conditions, including securing regulatory approvals. Once complete, this would be Lockheed’s largest acquisition since it bought Martin Marietta Corp for about USD10bn in the 1990s.

Acquiring Sikorsky will give Lockheed greater access to next-generation rotary wing technology and provide an enormous presence in the global helicopter market. More importantly, this acquisition would help Lockheed reduce its overall dependence on military fast jet programmes such as the F-35 Joint Strike Fighter. Acquisition and Integration Lockheed Martin and United Technologies Corporation 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. This kind of transaction would lead to Lockheed receiving tax benefits of USD1.9bn, making the actual value of the acquisition USD7.1bn.

Details about how Sikorsky would be incorporated into Lockheed’s businesses are not yet clear. The current plan as it appears is for Sikorsky to become part of Lockheed’s Mission Systems and Training (MST) division rather than the aeronautics division. The justification is that Lockheed Martin’s MST division and Sikorsky are currently working together in a number of critical programmes, including the VH-92 Presidential Helicopter, Combat Rescue Helicopter and the Naval MH-60

Helicopter. For example, Lockheed Martin is a systems integrator for

Sikorsky MH-60R Anti-Surface Warfare (ASuW) multi-mission helicopters for Australia. How Sikorsky adds to Lockheed Martin The emergence of fixed-wing sensor technology and UAVs has led to some concerns about the future of the global rotorcraft market. However, empirical data from Forecast International show that Sikorsky’s potential remains strong at least for the next decade given that it is a major international player. It is also currently engaged with Boeing in developing a next-generation helicopter for the US military.

Sikorsky has a solid foundation in the international market based on the H-60 Black Hawks and Seahawks. According to data from Forecast International’s Platinum Forecast System, Sikorsky is projected to build 1,658 military helicopters during the 2015-2029 timeframe – a market share of 19.3 percent. This is second only to Russian Helicopters among the world’s rotorcraft manufacturers. Currently, more than 4,000 Sikorsky helicopters operate in a military capacity worldwide. The average age of these aircraft is 20 years old. The United States military has the largest share of Sikorsky helicopters, numbering 3,073 with an average age of 20 years. Other large inventories include South Korea (133), Turkey (100), Colombia (75), and Saudi Arabia (68).

Doubtful future for Lockheed’s Information Systems Business In a press release announcing the Sikorsky buy, Lockheed Martin confirmed that it will conduct a strategic review of alternatives for its government IT and technical services businesses, primarily in the Information Systems & Global Solutions business segment and a portion of the Missiles and Fire

Control business segment. Following recent shifts in market dynamics, Lockheed Martin intends to assess whether the division can achieve greater growth. The strategic review is expected to result in a spin-off to Lockheed Martin shareholders or the sale of these components.

 

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