Lockheed Martin is making a pivot in its future,  buying Sikorsky Aircraft for $9 billion, but spinning off its IT business. And in doing so, the defense contractor is hoping to compete more directly with Boeing and other aerospace companies.

It’s a head-scratcher for some, as the conventional wisdom as of a few years ago would be for platform-based companies to buy into the burgeoning IT market instead of leave it. But Jesse Holler, a quantitative analyst at Bloomberg Government, told Tom Temin on the Federal Drive how the tech divestiture might be a good move for Lockheed.

“The IT services have become crazy commoditized, and so the margins in them are not what they used to be. A lot of these platform businesses are used to healthier margins …  now that’s not saying that there aren’t good opportunities, and that’s mainly in mobility, cloud, and what Lockheed is actually keeping is their cybersecurity business, which they see as a possible huge growth area for them in a place where they can actually add value and keep a substantial amount of their margin,” Holler said.

And what’s more, the timing seems right for this major acquisition of Sikorsky, said Richard Aboulafia, vice president for analysis at the Teal Group Corporation, on In Depth with Francis Rose.

“A couple of years ago, we had panic about sequestration, we had uncertainty about big program decisions. Now it’s more of a steady state. So if you’re going to make money as an aerospace company, you have to actually pick what’s our strategy … the commercial jetliner market is really good, but it’s pretty obvious that growth is kind of slowing. The defense market, it is what it is.  It’s not falling, but it’s not going to see the growth we had in the last decade. So, if you’re looking to be attractive to investors and you’re a prime [contractor], the one way you can do it is operational efficiencies and squeezing your supply chain — and your workforce, quite frankly,” Aboulafia said.

Sikorsky, the namesake of helicopter inventor Igor Sikorsky, primarily manufactures military-grade aircraft like the Black Hawk transport helicopter and the Seahawk series of maritime aircraft. Aboulafia estimates that about 85 percent of its revenue comes from the military.

Lockheed manufactures the F-35 Lightning II stealth fighter, but has not made a major presence in the rotary-wing aircraft market until now.

“That’s kind of why this Sikorsky thing makes such great sense to them. They have the F-35, they have the C-130s, which are being somewhat phased out, and they do a lot of space vehicles. Now they have this helicopter platform that they can integrate into the wider set,” Holler said. “It actually makes sense from the broader standpoint of is there going to be any type of anti-trust problems, or anything like that. [Marillyn Hewson] is a pretty savvy CEO, and so she, I’m guessing, the whole has been talking with the leaders within DoD, the Department of Justice, just making sure that this is vetted … them buying Sikorsky doesn’t merge it with another helicopter provider like it would with Boeing … so they’re just creating a more integrated company, not necessarily taking a competitor off the marketplace.”

Holler went on to say that the Sikorsky acquisition will mean more business across all of Lockheed’s holdings.

“Before this, they were the system integrators, so they would put all of those fancy gizmos on the helicopter that they would purchase of the government would purchase from one of these platform providers. Now it’s all integrated, so Lockheed will produce the helicopter, they’re produce the gadgets that go on the helicopter, integrate it altogether and sell it to the end customer,” Holler said.

Copyright © 2024 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.