Lockheed Martin to buy Sikorsky

Lockheed Martin Corp. agreed Monday to buy helicopter maker Sikorsky Aircraft Corp. for $9 billion, and Lockheed's CEO said she sees "a real opportunity for growth" in Sikorsky's commercial division, which is based in Coatesville.

"Sikorsky's footprint in the commercial aviation segment is well-established," Lockheed CEO Marillyn Hewson said Monday on a conference call with analysts.

While the commercial business "has been under recent pressure due to low oil prices, it is expected to recover and add value," Hewson said. "We believe these current pressures enabled us to make this acquisition at a low point in the economic cycle."

After profit and sales fell in the first quarter, Sikorsky announced plans in June to cut 1,400 jobs out of 15,000 companywide, in reaction to U.S. defense budget cuts and a drop in civil helicopter orders from the oil and gas industry because of plummeting oil prices.

Sikorsky "is a natural fit," and will enable Lockheed Martin to expand its "core business" into the $30 billion annual military and commercial rotary wing industry, Hewson said.

About 75 percent of Sikorsky's business is military, and 25 percent commercial. About half of Sikorsky's annual revenue comes from international customers in more than 40 countries.

The deal, expected to close by early next year, will be Lockheed's biggest acquisition since the merger in 1995 of Lockheed Corp. and Martin Marietta in a transaction valued at $10 billion.

Sikorsky, a unit of United Technologies Corp., announced last month that 160 full-time workers and 560 contractors would be laid off in Coatesville over the next 12 months. Low oil prices had driven down demand for its helicopters from oil and gas exploration companies.

"We've been moving ahead with the restructuring plan, but that's completely independent of the announcement" by Lockheed that it's acquiring Sikorsky, said Paul Jackson, a Sikorsky spokesman.

The Coatesville plant builds the S-92 and S-76D helicopters used for off-shore oil, emergency medical, search and rescue, and executive and VIP transport, Jackson said.

Sikorsky's military choppers, the Black Hawk and Seahawk, are manufactured mainly in Stratford, Conn., with some assembly work in West Palm Beach, Fla.

The Coatesville facility will have 900 full-time employees after the job cuts, Jackson said.

Lockheed, a Bethesda, Md., defense contractor, said the net cost of the Sikorsky deal was about $7.1 billion, taking into account tax benefits from the purchase.

Lockheed plans to add Sikorsky to its mission systems and training unit. Sikorsky will retain its headquarters in Stratford, Conn.

The two companies already collaborate on programs including the VH-92 Presidential Helicopter, the Combat Rescue Helicopter, and MH-60 Naval Hawk.

Sikorsky will face some revenue and earnings pressures for several years, but should see improved market conditions in the commercial sector and growth in new military production around late 2018 or 2019, Lockheed chief financial officer Bruce Tanner told analysts in Monday's call.

"We think this deal has pretty low execution risk for us," Tanner said. "I think there are areas where we can improve the business," particularly the contracting practices and cash flow, he said. "They do a lot of things well already. We are happy to have this business."

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