As expected, United Technologies Corp. [UTX] on June 15 said that following a review of strategic alternatives for its helicopter business, the company has decided it will either sell or spin-off Sikorsky with a decision on the path for divestiture expected by the end of September.
The multi-industrial company also said that without Sikorsky, it will achieve higher organic sales, improved operating margin, better cash flow generation, lower exposure to defense markets, and higher aftermarket content.
UTC officials made the announcement during the opening of the Paris Air Show where they hosted an analyst presentation. UTC announced the strategic review for Sikorsky in March, saying the helicopter platform business doesn’t fit with megatrends such as increasing global urbanization and related increasing demand for global air travel that favor its commercial businesses.
“Sikorsky is the world’s premier helicopter company and through a series of strategic wins is well positioned for long-term growth,” Greg Hayes, UTC’s president and CEO, said in a statement. “However, separation of Sikorsky from the portfolio will allow both United Technologies and Sikorsky to better focus on their core businesses.”
Excluding Sikorsky, UTC said it expects sales this year to be between $58 billion and $59 billion, with organic sales growth of 3 to 5 percent and free cash flow in the range of 90 to 100 percent of net income. Per share earnings are expected to be between $6.35 and $6.55.
UTC revised downward its financial forecast for Sikorsky this year. Previously, sales for the helicopter business were pegged at around $7 billion and earnings around 50 cents per share (EPS). Now sales are expected to be around $6.5 billion and earnings 40 cents EPS. One time costs associated with the divestiture are expected to clop between 10 and 20 cents EPS from UTC’s bottom line.
The drop in expected sales and earnings this year at Sikorsky is being driven by declines in exploration activities related to oil and gas, which led the company to lower its forecast for related civil helicopter deliveries. As for Sikorsky’s military business in the United States, the company said it has 65 percent of the planned spending on rotorcraft programs, primarily through the UH-60 Black Hawk helicopter, Air Force rescue helicopter, and Presidential helicopter programs.
Sikorsky President Bob Leduc said that by 2025 Sikorsky expect to have more than $10 billion in annual sales.
Rep. Rose DeLauro (D-Conn.), said in a statement that the decision to separate Sikorsky from UTC isn’t a surprise, adding she expects that the future leadership of the Connecticut-based helicopter company keep the business in the state.
“Whether it is Marine One, the Combat Rescue program, or ending a no-bid contract with a Russian state-owned arms dealer, I have fought for a steady supply of Sikorsky helicopters because they are the best made in the world and create good-paying jobs throughout the state,” DeLauro said.
To trim its operating costs, Sikorsky is planning to reduce its headcount by 1,400 individuals and cuts one million square feet of its facilities footprint.