Sikorsky spinoff?

[IFMU]

Interesting article:
UTC Weighs Sikorsky's Future | Defense News | defensenews.com (http://www.defensenews.com/article/20140127/DEFREG02/301270021/UTC-Weighs-Sikorsky-s-Future)
Bryan

[SansAnhedral]

What a difference a few years makes; back in 2007 UTC was (rumored to be) on the verge of buying Bell when the tables were essentially reversed.

[Ian Corrigible]

United Technologies to explore strategic alternatives for its Sikorsky Aircraft business (http://www.utc.com/News/Pages/United-Technologies-To-Explore-Strategic-Alternatives-For-Its-Sikorsky-Aircraft-Business.aspx)
United Technologies Corp. has authorized a review of strategic alternatives for Sikorsky, including a potential tax-free spinoff.

"As part of the portfolio review announced last December, we are exploring strategic options for Sikorsky to determine the best way to enhance its long-term success and create improved long-term value for UTC's customers and shareholders," said UTC President & CEO Gregory Hayes.

"We are evaluating whether Sikorsky's unique business as a rotorcraft OEM with a predominately military customer base is best positioned as a stand-alone company, and whether a separation would allow United Technologies to better focus on providing high-technology systems and services to the aerospace and building industries."

UTC expects to conclude its strategic review before the end of the year. However, no specific timetable has been set, and there can be no assurance that a spinoff or any other transaction will take place.

I/C

[Lonewolf_50]

The long rumored "consolidation of the rotary wing industry" seems to have grown fresh legs.

[The Sultan]

Interesting. I guess all of those Canadian S-92 Cyclone development cost overruns and penalty payments did hurt.

The Sutlan

[IFMU]

That probably hurt, but a precedent was a series of presidents that came from other companies. Something changed!

[riff_raff]

Sikorsky is currently profitable with EBITDA margins around 6%, but this is well below other divisions of UTC. Approximately 72% of Sikorsky's current revenues come from defense/government sales. Defense spending will likely continue its downward trend for the foreseeable future, which will make it hard for Sikorsky to remain profitable.

It appears UTC management sees this situation the same way. So UTC is looking to "spin off" (ie. dump) Sikorsky while they can get max value from it. I suspect UTC will probably saddle Sikorsky with some new debt before the "spin off" so they can pull cash out of the company.

[heli1]

Riff Raff is absolutely right but what changed was the departure of UTC President Louis Cheveneut,who refused to countenance a sell off. His replacement is not so nostalgic.

[espresso drinker]

UTC's Sikorsky Spinoff: Good For UTC, Good For Sikorsky...Two Out Of Three Ain't Bad - Forbes (http://www.forbes.com/sites/richardaboulafia/2015/03/13/utcs-sikorsky-spinoff-good-for-utc-good-for-sikorsky-two-out-of-three-aint-bad/)

A very informative article. No cross Atlantic mergers and the only 'natural' merger in the States (Boeing & Sikorsky) would be blocked, most probably by Governments on both sides of the Atlantic.

[Sir Korsky]

So it's confirmed. UT is divorcing Sikorsky. Once the smoke clears, I think things will turn out ok! :ok:

[TrakBall]

News today that Sikorsky will be sold or spun off from United Technologies in the near future.

United Technologies to separate Sikorsky via sale or spinoff - MarketWatch (http://www.marketwatch.com/story/united-technologies-to-separate-sikorsky-via-sale-or-spinoff-2015-06-15)

[espresso drinker]

Dear Mr Moderator, you might want to merge this thread with the thread entitled "Sikorsky Spinoff". Interesting to see Bell named as the likely buyer.

[Bravo73]

Interesting to see Bell named as the likely buyer.

I couldn't find any reference to Bell in that article. Only Boeing, Airbus and Lockheed Martin!

[The Sultan]

All articles reference Textron. Bell is part of Textron.

The Sultan

[Bravo73]

All articles reference Textron. Bell is part of Textron.

The Sultan

Not the article in question:

News today that Sikorsky will be sold or spun off from United Technologies in the near future.

United Technologies to separate Sikorsky via sale or spinoff - MarketWatch (http://www.marketwatch.com/story/united-technologies-to-separate-sikorsky-via-sale-or-spinoff-2015-06-15)

:rolleyes:

[IFMU]

Will be interesting to see if Textron is the buyer- do Bell and Sikorsky stay separate, does Bell take over Sikorsky, or Sikorsky take over Bell?

[riff_raff]

Sikorsky seems to be in good shape financially for the near future, so they should do nicely on their own. But since much of their revenues are from military sales, they would also make a nice acquisition for a large defense business. Of the US companies mentioned LM might be a possibility. I doubt Textron(Bell) or Boeing would work out, primarily because the US DoD has been making a big push to expand the domestic rotorcraft industrial base, and not consolidate it. Maybe L-3 or Raytheon might have an interest.

I still don't accept UTC's (claimed) reason for selling off a fairly profitable division like Sikorsky. Less than a decade ago their Pratt & Whitney division was in far worse shape. P&W had few new orders for commercial engines and much of their revenues came from selling replacement parts. Then P&W decided to take a bold leap and bring their geared turbofan engine to market. Now P&W has orders for over 6,000 GTF engines. Sikorsky appeared to be doing the same thing with their internally funded X2 & S-97 programs. And if the Army continues with FVL, I think Sikorsky/LM have the best odds of winning the first contract.

[HeliTester]

I still don't accept UTC's (claimed) reason for selling off a fairly profitable division like Sikorsky.

I don't buy it either. UTC CEO Gregory Hayes said the "separation of Sikorsky from the portfolio will allow both United Technologies and Sikorsky to better focus on their core businesses." United Technologies Corporation used to be United Aircraft Corporation. Sikorsky Aircraft sounds like a core business to me...much more so than an elevator company or an air conditioner company.

[Jack Carson]

It wasn't that many years ago that few new who or what United Technologies was but they did know who Hamilton Standard, Pratt and Whitney, Otis, Carrier and Sikorsky were.

[The Sultan]

Looks like a done deal:

Exclusive: Lockheed to buy United Tech's Sikorsky for over $8 billion | Reuters (http://www.reuters.com/article/2015/07/19/us-sikorsky-m-a-lockheed-idUSKCN0PT0MM20150719)

At $8B plus it is does not look like a good deal (UTC surprised anyone would offer that as they wanted to get rid of it at any cost). As Lockheed aviation is exclusively military this does not bode well for Sikorsky's commercial customers. Maybe Tilton will accept them and lead to the shining experience the MD homeys enjoy.

The Sultan

[CAR42ZE]

It will certainly be interesting, but the civilian side of Sikorsky was always a poor relation to the military side! The military was where the money is made.

[Evil Twin]

Probably a very bad time to be buying or selling a 300CBi

[busdriver02]

Wouldn't that make Lockheed a player in both FVL entries?

[IFMU]

Evil Twin,
Maybe Lockheed will sell the 300 to Piper or somebody that can build them. Thanks for the link Sultan! Seems like Lockheed does not share your view of Sikorsky. Oh well, what do they know anyway?

[Ian Corrigible]

Official announcement now made:

Lockheed Martin to acquire Sikorsky Aircraft and conduct strategic review of IT and Technical Services businesses (http://www.lockheedmartin.com/us/news/press-releases/2015/july/sikorsky-acquisition-strategic-review.html)

Plus dedicated micro-site: Lockheed Martin to acquire Sikorsky Aircraft (http://www.lockheedmartin.com/us/news/features/2015/sikorsky-acquisition.html)

I/C

[Lonewolf_50]

Ian, this makes some sense. As I recall, when the Seahawk LAMPS Mk III program was awarded, IBM federal systems division was the prime and Sikorsky the sub who provided the airframe. In due time, Federal Systems (or part of it) was sold to Loral who ended up being assimilated into the LM borg.

One can see that Sikorsky and LM have had a long relationship in systems development, which suggests to me that LM has a good idea of Sikorsky's strengths and weaknesses. Of all the buyers, this is probably a best fit.

Lockheed Martin Systems Integration – Owego (LMSI) Originally
founded as IBM Federal Systems (https://en.wikipedia.org/wiki/IBM) in 1957, it was sold to Loral Corporation (https://en.wikipedia.org/wiki/Loral_Corporation) in 1994. Subsequently, Lockheed Martin acquired Loral's electronic systems and systems integration business in 1996. In 2010, Systems Integration was dissolved and merged with Lockheed Martin Mission Systems and Sensors (https://en.wikipedia.org/wiki/Lockheed_Martin_Mission_Systems_and_Sensors) and Lockheed Martin Missiles and Fire Control (https://en.wikipedia.org/wiki/Lockheed_Martin_Missiles_and_Fire_Control).

IFMU: (just in case your post was not tongue in cheek ... ) :}

I'd say LM knows Sikorsky pretty well, having worked a lot of systems integration with them on various helicopter programs for about 20 years.

[IFMU]

LW50,
That was totally tounge in cheek, primarily for the sultan's benefit. Interesting watching the market this AM. LMT is up 2%, UTX down 0.65% when I last looked. It would seem the market approves of Lockheed's purchase.

[riff_raff]

Wouldn't that make Lockheed a player in both FVL entries?Bell Helicopter and Lockheed Martin Team on V-280 Valor · Lockheed Martin (http://www.lockheedmartin.com/us/news/press-releases/2013/september/0909-bell.html)

Wouldn't be the first time for LM. Remember the predecessor to JMR/FVL, the JHL program.

Lockheed Martin and Karem Aircraft Team to Support Department of Defense Joint... -- re> PALMDALE, Calif., Feb. 29 /PRNewswire/ -- (http://www.prnewswire.com/news-releases/lockheed-martin-and-karem-aircraft-team-to-support-department-of-defense-joint-heavy-lift-program-57385322.html)

[The Sultan]

IMFU

I always need something to laugh at. From AvWeek:

Furthermore, Lockheed does not expect Sikorsky to be accretive, or profitable, to its bottom line until 2017, with net proceeds eventually reaching about $150 million per year coming from the addition of the company. Tanner said Lockheed looks to integrate Sikorsky quickly, and cost savings will be found in streamlining supply chains, along with cutting some workforce and facilities.

This does not bode well for the commercial side. The whole article has more details such as LM is only coughing up $1B and assuming $6B of debt and the US taxpayers paying another $2B in tax breaks. $1B is nothing to LM as they have gotten away with charging $150M for a fighter that was suppose to cost no more than $60M and have been in service years ago. Nice business if you can get it.

The Sultan

[The Sultan]

IMFU

Interesting watching the market this AM. LMT is up 2%, UTX down 0.65% when I last looked. It would seem the market approves of Lockheed's purchase.

looks like UTC is down nearly 8% today so someones not happy.

The Sultan

[IFMU]

Sultan,
If course they are not happy! They just sold Sikorsky!
Actually I think that has little to do with it. Their profits are down, they are missing projected earnings and so on. Soft aftermarket sales for UTAS and less elevator business for Otis in China, I believe they said.
Interesting times any way you look at it.

[Ian Corrigible]

The market never responds well to profit warnings. Not that Monday's stock performance was a ringing endorsement of the Sikorsky disposal.

Probably a very bad time to be buying or selling a 300CBi
Given that the head of the Light Helicopter range now *also* has the S-92 Program to Direct, you're probably right.

I/C

[riff_raff]

I don't see how the commercial helo market would be attractive. How would you expect much profit from selling just 90 S-92s?

On the other hand, the military market has potential. 53Ks and H60s will provide billions in cash flow for the next decade. A guaranteed 8-10% profit margin on $2B in annual revenues for the next 10 years is probably acceptable for LM shareholders, but apparently not enough for UTC shareholders.