Summary: Lockheed is looking to break into the helicopter division with the purchase of Sikorsky Aircraft from United Technologies for almost $9 billion.
Lockheed Martin is the leader in aerospace, defense, advanced, and security technologies but with the acquisition of United Technologies Sikorsky Aircraft, they will dominate the market. The next biggest competitors to Lockheed are Boeing Inc and Northrop Grumman Corp.
Lockheed is to buy the makers of the Black Hawk helicopters for over $8 billion. They report an annual revenue of around $45 billion. Lockheed currently makes the F-35 fighter jet, which brings in $391 billion a year.
Lockheed acquired Martin Marietta Corp twenty years ago for $10 billion, making this deal with Sikorsky their biggest since then. The Pentagon will evaluate the sale in order to prevent market distortions and keep competition in the market. The U.S. Defense Department can oppose the deal under an antitrust review since Sikorsky is a main supplier to the Department. They don’t expect the Department to make an antitrust objection because Lockheed does not currently make helicopters.
After the Cold War in the 1990’s, the defense market shrank considerably except for helicopter production. The helicopter section of UTC accounts for only $7.5 billion of their $65 billion revenue. They have been looking to sell off the helicopter business and exit that market since it is has lower profit margins and revenue growth than their other divisions.
Sikorsky has seen a large decline in profits, announcing they were cutting 1,400 jobs and consolidating facilities in June. With such poor prospects, the price of the deal was inflated to cover UTC’s tax bill for the appreciated value of Sikorsky since it became part of UTC in 1929.
Lockheed believes the benefits of acquiring the company will offset the high purchase price. Sikorsky has a better international presence which will help Lockheed produce more foreign sales.
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