This acquisition brings uncertainty and opportunity for aftermarket suppliers of both companies. (Photo courtesy of Sikorsky.)
By John Likakis
When word reached the business press in March 2015 that United Technologies was looking to sell or spin off Sikorsky, the conventional wisdom held that it would be difficult to find a buyer. In fact, it took United Technologies a remarkably short amount of time to find a buyer for the helicopter maker.
The next-nearest fit in the business, Textron, made a bid for Sikorsky, but then declined to outbid Lockheed Martin. This probably was a wise decision, as a Textron purchase of Sikorsky would have faced intense anti-trust scrutiny. A foreign buyer, such as Eurocopter, might have run afoul of technology transfer regulations. And while Sikorsky as a standalone company would be profitable, it would not have the margins that make Wall Street types excited enough to help the company raise substantial capital when needed. So it was a bit of a surprise when, on June 20, 2015, Lockheed Martin announced that it would buy Sikorsky from United Technologies in a deal worth an estimated $9 billion. Considering the size of the entities involved, it seemed unlikely that the deal would close by November. But close it did.
Not Quite Strangers
In the months since, Lockheed Martin and Sikorsky have been busy figuring out how to best work together. However, the two companies have worked together in the past. They teamed up in 2012 to offer a new version of the Sikorsky HH-60 Black Hawk, to serve as a combat rescue helicopter for the U.S. Air Force, and won the contract in 2014. The $1.2 billion project calls for the production of four prototypes for testing and evaluation, with an option for as many as 112 aircraft should serial production get the go-ahead. Dubbed the HH-60W, the new chopper’s first flight was slated for April 2016. However, the schedule has slipped, and the first flight is now expected in 2019. (The 2-year delay prompted one industry observer to wonder if the “W” in HH-60W stands for “wait.”)
In recent years, Lockheed Martin and Sikorsky also have partnered to win contracts for maintenance and upgrades of Sikorsky’s H-60 series helicopters for both the American armed forces and for foreign customers, such as Saudi Arabia. These upgrades include a broad range of components, from software and avionics to subsystems.
All of this was, and is, good news for Sikorsky. But what about Sikorsky’s aftermarket suppliers and vendors? What does this new combination mean for those companies? Will Sikorsky still deal directly with vendors? Or is it contemplated that Lockheed Martin will move this function in-house? At the time of this writing in early 2016, there were no firm answers to these questions — at least, not yet. The deal is still so new that neither Lockheed Martin nor Sikorsky has had enough time to work out the myriad details and make many of the decisions that will impact Sikorsky’s supply chain.
Business as Usual?
In the immediate aftermath of the announcement of the acquisition, Lockheed Martin Chief Financial Officer Bruce Tanner was quoted as saying that the company would be looking for “long-term synergies in the supply chain.” After the deal was announced last summer, Lockheed Martin spokespersons also commented that there could be as much as $150 million in such savings, once the companies had thoroughly analyzed all factors, including suppliers, facilities, and even their own workforces.
Speaking with a local Connecticut newspaper, Lockheed Martin spokeswoman Larisa Cioaca stated, “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.”
For its part, Sikorsky has continued business pretty much as it did before the deal was inked. Sikorsky spokesman Paul Jackson told us: “We’ve made no changes” with regard to Sikorsky’s suppliers, pointing out that “our suppliers are integral to our success.”
At the same time, he also said that “the integration process remains ongoing and, as part of the process, we are looking at every part of the company, including the supply chain, for opportunities to create greater value to ensure we remain competitive and provide affordable solutions to our government and commercial customers.” It is this last part that looms ominously over many of Sikorsky’s legacy vendors.
Aftermarket companies we spoke with expressed various predictions of what all this may mean. One company spokesman (preferring to keep his name off the record) told us that he does not see the acquisition resulting in significant changes to standing business relationships. “However,” he added, “they may see it differently.” And that reaction pretty much sums up what Sikorsky’s existing suppliers are feeling: a mixture of caution and optimism. For example, Hexcel Corporation works with both Sikorsky and Lockheed Martin. According to Hexcel spokesman Charlie Dunbar, “We [Hexcel and Sikorsky] have a long history of working closely together, solving design and engineering challenges with composite solutions. We hope our relationship will only broaden with Lockheed Martin’s acquisition of Sikorsky.” Many suppliers are taking a wait-and-see attitude and remain reluctant to comment on any aspect of either the deal or their view of the future. Most we spoke with offered up some variation of “It’s going to be quite a while before the dust settles, and until it does, nobody knows what to expect.” Despite the trepidation expressed by many Sikorsky suppliers, there apparently is cause for optimism. In our recent conversation, Sikorsky’s Jackson explained, “We anticipate new opportunities for both existing and new suppliers. As we take a disciplined, deliberate approach to the integration process, we are evaluating and will work with our suppliers for new opportunities with our government and commercial programs.”
An Opportunity for Growth
There are some hints as to what lies ahead. The Sikorsky name and brand are recognized worldwide, with the company having built a reputation as a global leader in the helicopter business. It seems likely that Lockheed Martin will be reluctant to tamper with the management strategies that have produced such results and instead will allow Sikorsky to continue to function as a relatively independent business unit. In turn, it seems likely that Sikorsky will continue to manage its own supply chain.
If that is the case, few changes in the supply chain can be expected in the near term, except in the most glaring instances of duplication of effort. At the same time, increased investment by the parent company potentially could mean substantial growth across the board for aftermarket service and parts suppliers.
Meanwhile, Sikorsky forges ahead, moving from success to success. What was an ad hoc relationship with Lockheed Martin is now a permanent partnership. While the sky’s the limit for a single helicopter, there is no limit to how high the combined forces of Sikorsky and Lockheed Martin can go. And that is good news for everyone in the companies’ supply chains.