Analysts: Lockheed Martin purchase fortunate break for Sikorsky, Connecticut

Marine One, the presidential helicopter, manufactured by Sikorsky.

White House photo

Marine One, the presidential helicopter, manufactured by Sikorsky.

Washington — Some may lose jobs and a few Connecticut companies may lose contracts, but Lockheed Martin’s purchase of Sikorsky Aircraft is likely to anchor the helicopter maker in Stratford and increase it’s share of Pentagon business and the overseas market, analysts say.

“This is probably the best outcome that Sikorsky could have expected,” said Loren Thompson, a defense analyst with the Lexington Institute.

The company was established in 1925 by aircraft engineer Igor Sikorsky and moved to Stratford and was acquired by United Aircraft, predecessor of United Technologies, about four years later.

Lockheed Martin announced it would purchase Sikorsky for about $9 billion on Monday.

Unlike other contenders for Sikorsky, such as Textron and Eurocopter, Lockheed Martin does not make helicopters, so there’s no need for it to move any manufacturing out of Stratford to another facility, Thompson said.

“It is out of the question that Lockheed Martin would consider moving or making substantial change to (Sikorsky’s) Stratford location,” Thompson said.

Catherine Smith,  head of the Connecticut Department of Economic and Community Development, said that under a $400 million tax-credit agreement with the state, UTC  would face penalties if it – or any subsequent owner – were to move the Sikorsky headquarters or other key Sikorsky facilities out of Connecticut in the five years after the agreement was reached.

That means if Lockheed were to move Sikorsky operations out of state, UTC could face retraction of already awarded state tax credits and a $25 million fine, Smith said.

Unlike United Technologies, a conglomerate that also makes air conditioners and elevators, Bethesda, Md.-based Lockheed Martin is solely a defense contractor – with one of the strongest lobbying teams in Washington, D.C. It spent about $14.5 million on federal lobbyists last year. United Technologies spent about $4.3 million.

In an earnings call to investors Monday, Lockheed Martin CEO Marillyn Hewson said “one of the key elements of our strategic planning is to secure and extend our core defense business, and we feel confident that the addition of Sikorsky will contribute significantly to the growth objective.”

But there are likely to be some changes.

Lockheed Martin Chief Financial Officer Bruce Tanner said his company hoped to improve Sikorsky’s performance, particularly on contracting and cash flow.

He said he hoped to find “long-term synergies in the supply chain,” which could endanger some of the business Connecticut companies have with Sikorsky. He estimated the company would save about $150 million a year related to duplication of jobs, suppliers and facilities.

Those consolidations could include some facilities in Connecticut, Thompson said. Last month, Sikorsky announced it was closing a facility in Bridgeport.

Lockheed Martin spokeswoman Larisa Cioaca said “during the due diligence review, Lockheed Martin identified approximately $150 million in cost synergies annually.”

“Upon closing of the Sikorsky acquisition, Lockheed Martin will review all operations to identify ways to improve efficiency and affordability, including supply chain savings, as well as potential future consolidations in footprint and headcount,” Cioaca said.

Nevertheless, Michael Blades, a senior aerospace and defense analyst at Frost & Sullivan, said “more people are going to keep their jobs at Sikorsky because UTC has shed itself of the company.”

While UTC viewed Sikorsky as an underperforming piece of its portfolio, stymied by a drop in sales to the oil industry and by flat defense budgets, Lockheed Martin views Sikorsky as an opportunity for growth.

Lockheed Martin and Sikorsky already partner on several large military helicopter contracts — the Marine One presidential helicopter, a new search and rescue helicopter for the Air Force and a lucrative, $2 billion contract to repair, overhaul and modify more than 1,700 Navy Black Hawk helicopters.

But now Lockheed Martin, not Sikorsky, will be the prime contractor, making key  decisions about subcontractors and suppliers.

Steve Dumont, a managing partner at the Mentor Partnership, a consulting group, said he expects the sale to result in some duplication of services and “trimming at the edges.”

But like other analysts Dumont said he doesn’t expect “any radical changes” at Sikorsky, especially since their engineers and other employees are needed to continue work on existing contracts.

Sikorsky’s name and brand

Hewson told investors “we need to maintain (Sikorsky’s) name and its brand.”

News of the company’s sale prompted comment from the Connecticut congressional delegations, which birddogs its interests in Washington, D.C.

Rep. Rosa DeLauro, D-3rd District, said she spoke with Sikorsky President Bob Leduc on Monday and was “pleased to hear that existing collective bargaining agreements between Sikorsky and its unions will remain intact, and that all its existing contractual obligations will be honored. “

Sen. Richard Blumenthal, D-Conn., said “this combination seems the most effective of available options.”

But Blumenthal also said “as a member of the Senate Armed Services Committee” that he urged the Pentagon “to swiftly assure that the Stratford plant will continue in full capacity to manufacture the world’s best helicopters in the number our nation needs.”

Sen. Chris Murphy, D-Conn., said “as the sale of Sikorsky becomes final, I will work closely with Sikorsky leadership to protect those jobs and ensure that Sikorsky helicopters continue to be made right here in Connecticut by our skilled and talented workforce.”

The sale of Sikorsky will need federal approval, which analyst say is likely. Lockheed Martin said the sale is expected to close by the end of 2015 or early in 2016.

Connecticut Mirror reporter Keith Phaneuf contributed to this story.

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