United Technologies Explores Spinning Off Sikorsky Helicopters

Back in March, United Technologies (UTX) announced that it was exploring its strategic options for its Sikorsky aircraft business. Naturally, a tax free spinoff is one of the options currently under consideration and was the only one called out by name in the press release.

The company is famous for its helicopters and is one of the largest ‘primes’ in the rotorcraft space. Its Black Hawk chopper is well known and the company also manufactures the helicopters used by the President, which I am sure are stocked with cool features. While the military (and related entities) are its biggest customers, it does also serve companies in the oil & gas space. Unfortunately, military spending is an unknown and the oil & gas space is currently cutting rig count meaning there is less demand for helicopters. After showing solid growth during the last decade, sales have started to level off for the unit, although adjusted operating margins have remained fairly steady. Expectations for 2015 are fairly modest, showing low to mid single digit sales growth. For a better feel on the helicopter market serving the oil & gas industry, there are a few public companies out there including 2013 spinoff Era Group (ERA).

Unloading Sikorsky is a bold move by the company’s relatively new President & CEO, Gregory Hayes. While it’s a great company, Mr. Hayes just doesn’t feel like the famed helicopter unit ‘fits’ within UTX’s portfolio of businesses. That meant it needed to go and according to Mr. Hayes, ‘we are evaluating whether Sikorsky’s unique business as a rotorcraft OEM with a predominately military customer base is best positioned as a stand-alone company, and whether a separation would allow United Technologies to better focus on providing high-technology systems and services to the aerospace and building industries.”

A spinoff isn’t the only possible exit for Sikorsky though as the company could also find a buyer. Jefferies analyst Howard Rubel thinks ‘the major defense contractors will consider the transactions, regardless of their current participation in the helicopter business, including international buyers’. He also noted that private equity could also be a player for the company, although it’s hard to think of any situation in which P/E isn’t tossed out as a possible option.

Initially, the timetable for the review was for it to be complete by the end of the year, but Mr. Hayes mentioned during the most recent quarterly conference call, that it would be now be completed mid-year. That means it won’t be long now…

Disclosure: Author holds no position in any stock mentioned.