The plunging price of oil may be welcome relief for customers at the gas pump, but it”™s had the opposite effect at companies that service the industry such as Sikorsky, purchased last year by Lockheed Martin for $9.1 billion.
After commercial helicopter sales reached about $1.5 billion in 2014, a trend toward lower crude oil prices had Lockheed executives at the time of Sikorsky”™s acquisition expecting revenue to be about half of that in 2016. But the continued decline in the oil markets has forced the new parent to further lower its expectations.
“As it turns out, our current outlook is probably half of that number,” said Chief Financial Officer Bruce Tanner said on a conference call discussing Lockheed”™s earnings this week. “So think of that as roughly $375 million or so of commercial helo sales in the year 2016.”
With Sikorsky”™s helicopters used frequently to service offshore oil and gas facilities, a drop in oil prices means less need for that kind of service, cutting into demand for the helicopters.
According to filings with the Securities and Exchange Commission, Lockheed reported profit of $52 million for Sikorsky in the first nine months of 2015, down from $167 million in 2014.
Sikorsky, since 1929 part of United Technologies Corp., was handed over to Bethesda, Md.-based Lockheed Martin when with the deal closed in November. The largest manufacturer in Connecticut, Sikorsky employs about 7,000 people in the state, mostly at its Stratford headquarters.
Lockheed and Sikorsky were jointly chosen by the Pentagon in 2014 for a $1.24 billion contract to begin building a new presidential helicopter. Sikorsky also won a series of other contracts from the U.S. military for a variety of helicopters, but with the payoff seemingly years away, the company was put up for sale.
Since then, cheaper oil has been consistently cited as problematic.
“Sustained decreases in oil prices continue to drive significant declines in capital investments by oil companies in offshore oil exploration projects, impacting Sikorsky and resulting in reduced production levels,” a Sikorsky spokesman said last year in a statement announcing the closure of its Bridgeport production facility. Those jobs were moved to Stratford.
Oil prices last week dropped below $30 a barrel for the first time in more than a decade before recovering somewhat this week.
“The biggest change that we are seeing from when we announced this deal is the changes in sort of the OEM helicopter sales in the commercial marketplace, obviously driven by the oil and gas marketplace as we sit here today,” Tanner said on the earnings call.
But Lockheed CEO Marillyn Hewson said the effects are limited.
“I know that there is a lot of interest in terms of oil prices,” she said on the conference call. “Certainly oil prices affect our sale of commercial rotary wing, but in the balance of our business, while it does put some pressure on budgets in the countries that are buying natural security assets and things that they need to protect their citizens, the choices that they are making are cutting in other areas so that they can protect their citizens.”
— Hugh Bailey, Connecticut Post, Hearst Connecticut Media
