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Is United Technologies Planning to Sell Sikorsky?

Zacks Equity Research

According to market rumors, diversified business conglomerate United Technologies Corp. (UTX) is considering the strategic sale of its wholly-owned subsidiary Sikorsky Aircraft Corp. Although the company’s spokesperson declined to comment on this, share prices seemed to react positively on the news as the stock was up 1.8% to close the trading session on Jan 27 at $113.79.

Sikorsky is one of the world’s largest manufacturers of military and commercial helicopters. It also provides aftermarket helicopter and aircraft parts and services for its parent company United Technologies. Major production programs at Sikorsky include the UH-60M Black Hawk medium-transport helicopters and HH-60M Medevac helicopters for the U.S. and foreign governments, the S-70 Black Hawk for foreign governments, the MH-60S and MH-60R helicopters for the U.S. Navy, the International Naval Hawk for multiple naval missions, and the S-76 and S-92 helicopters for commercial operations.

Speculations are rife that United Technologies is planning to divest the loss-making Sikorsky to improve its overall profitability. In the just-reported fourth quarter 2013, Sikorsky sales were down 12.8% year over year to $1897 million. For full year 2013, Sikorsky sales declined 7.9% to $6,253 million, while operating profit decreased 16.6% year over year to $594 million.

European companies seeking to enter the U.S. helicopter manufacturing market could be potential candidates for the bid. However, a report claimed that discussions (if at all) are in a nascent stage and may not actually culminate in actual sale. A transaction of this nature, with the potential of reshaping industry dynamics, runs the risk of many ifs and buts. Such a divestment might not at all get through. But what it has surely done is set the ball rolling for diversified conglomerates like United Technologies to consider restructuring their operating segments to revive their sagging bottom lines.

Based in Hartford, Conn., United Technologies provides high-end technology products and services to the building systems and aerospace industries worldwide. The company is a diversified business conglomerate serving various end markets, such as, aerospace, defense and commercial construction. The business diversification allows the company to remain profitable even in a tough economic climate.

The operations of the company are primarily classified into two principal businesses: commercial and aerospace. Under its commercial business, the company has Otis and the UTC Climate, Controls & Security division, which combined the former Carrier and UTC Fire & Security divisions. The aerospace business of the company consists of Sikorsky aircraft and the UTC Propulsion & Aerospace Systems, which includes UTC Aerospace Systems and Pratt & Whitney divisions.

United Technologies presently has a Zacks Rank #3 (Hold). Other companies in the industry that are worth mentioning include Crane Co. (CR), Carlisle Companies Inc. (CSL) and Icahn Enterprises, L.P. (IEP), each carrying a Zacks Rank #2 (Buy).

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