AIN Blog: Will Sikorsky be sold whole?

 - March 31, 2015, 4:11 PM

United Technologies (UTC) appeared to back away from Sikorsky long before new CEO Greg Hayes began dropping hints earlier this year that the technology conglomerate wanted to shed its underperforming rotorcraft subsidiary. The handwriting has been on the wall for the better part of a decade: the complicated nine-year trek to develop, certify and deliver the S-76D; the relatively slow pace of product improvement on the S-92A; and the virtual orphaning of its acquired Schweizer small helicopter division were all clues that UTC’s romance with rotors was over, despite the high-profile, experimental X2 and its military prototype S-97 descendant.   

When the latter was unveiled in 2010 it should have been a joyous occasion for Sikorsky. Instead, then-president Jeff Pino lamented, “At this point in the development cycle, it appears that our biggest customer [the U.S. Department of Defense] is unwilling to invest major dollars in future technology. That is the real message that is being sent to us.” His pledge to develop the S-97 alone with industry partners rang hollow; U.S. rotorcraft innovation–both military and civil–ultimately requires DoD funding. Almost every significant U.S. civil helicopter program since the late 1950s was spawned from a military requirement and Defense Department dollars. Last summer the Pentagon did direct some new technology funding that could be applied to the S-97 Sikorsky’s way, in the form of selecting it as a finalist in the Joint Multi-Role Technology Demonstrator Project (JMR-TD); but the amount is not enough to cover costs.     

So what happens now? Sikorsky still has a respectable, albeit stale, military business with the time-tested UH-60 Black Hawks and CH-53 Stallions, with the former still winning the occasional foreign military sale. Speculation has abounded that the entire enterprise may be acquired by a solitary buyer from the industry, but that seems unlikely given what will probably be an asking price of nearly $8 billion and the anti-trust phalanx any existing OEM would need to run to get the deal done.

Spinning off Sikorsky as a separate entity also has been mentioned as a possibility, but that likely would produce a tepid response on Wall Street. And Sikorsky will need a steady infusion of funds, either from additional equity or by floating debt, if it wants to remain a player with relevant products in both the military and civil sectors. No, Sikorsky is more likely a “parts and pieces” sale, either indirectly by selling the whole to investment bankers, who would carve it up, or by directly conducting an a la carte bidding war for its separate product lines.

On the civil front Bell seems the logical, and maybe the only, choice to pick up the S-76 and S-92 lines. Doing so would give the Textron unit a larger and more lucrative installed customer base and a complete twin-engine product line that could compete head-to-head with AgustaWestland and Airbus Helicopters, especially for the offshore energy market. Potential suitors for Schweizer seem less apparent, but do not be surprised if the new owners speak Mandarin.

The military side of the house would likely appeal to Boeing, by expanding its offerings beyond the current CH-47 Chinook heavy transport and AH-64 Apache gunship. That is, of course, unless the likes of a Lockheed-Martin gets in the game. For the moment, that appears unlikely, as LMCo seems content with its role as a systems integrator on select rotorcraft projects, including the new Marine One.

Whatever fate awaits Sikorsky, UTC’s signaled divestiture is a powerful reminder of just how difficult the current helicopter market has become for all participants, even those whose parents have deep pockets.