Shares of United Technologies Corp (NYSE:UTX) lost some lift today, as the company sold its Sikorsky unit, maker of the famous Black Hawk helicopter for US$9 billion amid, amid a reduced US military budget, to Lockheed Martin (NYSE:LMT).
UTC said it had to sell Sikorsky because of declining profits. For Lockheed Martin, which will take full ownership of the company by the first quarter of 2016 at the latest, the acquisition is the most significant development since taking over Martin Marietta Corporation in 1995.
Sikorsky has faced a difficult situation because of its primary role as defense contractor, which has left it to the whims of the Pentagon. In 2014, 52% of sales came from the Pentagon and only 20% from international military customers.
But the US military has seen its budgets declined in recent years due to US military disengagement on several fronts. Above all, the US Department started to replace the Black Hawk utility helicopter, which was Sikorsky’s main 'breadwinner'.
In 2014, the civilian sales represented only 28% of the US$7.5 billion in sales. Now, UTC has decided to focus on high-tech systems and services to the aerospace and building industry. UTC, which also makes Otis elevators and Pratt & Whitney aircraft engines, also has an important division in Canada: Pratt & Whitney Canada, specialized in engines for private and commuter aircraft.
For Lockheed Martin, the Sikorsky acquisition marks a long awaited return to the world of helicopters after failing to win a market for its AH-56 in the 1960’s.
Prior to the sale, moreover, Lockheed shared a US$1.2 billion contract with Sikorsky to design and build a new combat rescue helicopter for the U.S. Air Force.
Sikorsky also has a lucrative contract from the Pentagon to develop a new heavy-lift helicopter that could compete with Boeing’s Chinook as well as a US$1.24 billion contract to create a new version of the ‘Marine One’ presidential duty helicopter.