Aviation Week & Space Technology - 30 March-12 April 2015

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ike any business that has survived for 90 years, Sikorsky has
weathered a lot of ups and downs since it was acquired by
United Technologies Corp. (UTC) three months before the
great stock market crash of 1929. So the recent decision by UTC to
spin of the storied helicopter manufacturer says less about Sikor-
sky than it does about its parent company.
The Pentagon’s leading rotorcraft supplier certainly is in better
shape than it was a decade ago, when as a somewhat dysfunctional
operation it lost a contract to build a new fleet of presidential heli-
copters. Now, with a backlog valued at $49 billion, the company has
more business lined up than any other military helicopter manufac-
turer. The big CH-53K is the Pentagon’s largest rotorcraft program,
at almost $25 billion, and last year Sikorsky won both the $8 bil-
lion U.S. Air Force Combat Rescue Helicopter pact and a re-scoped
presidential rotorcraft contract worth $3.2 billion.
Sikorsky also is on the cutting edge of rotorcraft technologies,
investing in advanced vehicle autonomy—a top Pentagon priority—
and prototypes such as the high-speed X2 technology demonstrator,
the S-97 Raider light tactical helicopter and (with Boeing) the SB-1
joint multirole technology demonstrator for the U.S. Army. Market
research firm Forecast International projects Sikorsky will remain a
leading manufacturer of helicopters for at least 15 years “and likely
beyond.”
And Sikorsky is profitable. But with the military market in a down-
turn and its margins capped by the Defense Department, the problem
is that it is not making enough money to keep Wall Street happy. It can-
not keep up with its two larger sister UTC units, Pratt & Whitney and
United Technologies Aerospace Systems, which are suppliers rather
than platform builders and have much more exposure to commercial
markets. Gregory Hayes, UTC’s new shareholder-focused CEO, notes

T

here is an adage about asking a surgeon for
advice, and getting an answer that has to do
with cutting—even if a better health care op-
tion exists.
Now that the Pentagon is ramping up its com-
munication and coordination with industry, the
same caution may be in order. Yet a solution may
already be at hand.
Recently, U.S. Air Force leaders launched their
so-called Bending the Cost Curve program aimed
at driving down the cost of weapons and other
systems. At the heart of the efort is a new prom-
ise to engage industry earlier and more openly in
the requirements-setting process, including dis-
cussion of the tradeofs between costs and capa-
bilities.
Government should listen to industry more,
but how will citizens and elected ofcials know
they are getting the best advice? Interestingly,
one idea—bring in an honest broker—was prof-
fered by industry itself via an Aviation Week Ex-
ecutive Roundtable.
In the meeting of invited A&D executives,

Spinning Sikorsky,

Bowing to Wall Street

Let the Labs Lead

that Sikorsky’s operating margins of about 10% and

projected sales growth are significantly lower than

for the company’s other businesses.

Still, UTC stood by Sikorsky in much more dif-

ficult times, and we find management’s decision to

jettison a perfectly good business troubling. Dur-

ing the global economic downturn, Sikorsky’s ro-

bust gains in sales and profits helped ofset, to a

which was cosponsored by Siemens, the idea was raised that fed-

erally funded research centers, and service branch and national

laboratories, could all help mold the government-industry conver-

sation. Several executives marveled at the work underway at Oak

Ridge National Laboratory on advanced manufacturing, precision

targeting at Sandia or nuclear weaponry at Los Alamos.

While each lab has a distinct role now, what appears to be lack-

ing is a portfolio approach of how the institutions—as a whole—

can address the science and innovation needs associated with U.S.

defense and security. The group also recommended standing up

centers of excellence associated with each lab that dovetail with

stated security/defense priorities.

Not only does tapping these reservoirs of deep and blue-sky

thinking make better use of current resources, it also helps make

sure the government writ-large steers the agenda. The Pentagon is

struggling to gain the attention and interest of more non-tradition-

al companies. That’s great, but many of them are wary of bureau-

cracy and red tape. What is more, they know that the traditional

primes long ago mastered the so-called Iron Triangle of decision-

making in U.S. defense contracting.

Simply giving same old the primes more influence, earlier in the

process, will result in more of the same. Yes, industry has ideas and

abilities the government does not, so let them in. But if you want

new thinking, you need new players. Let the federal labs lead the

conversation. c

Editorials

Pleasing shareholders has

become paramount, even at the

expense of funding R&D to ensure

long-term competitiveness.

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74 AVIATION WEEK & SPACE TECHNOLOGY/MARCH 30-APRIL 12, 2015 AviationWeek.com/awst

degree, large declines at the company’s non-aero-

space businesses.

The move is emblematic of a shift in the aero-

space and defense industry where pleasing share-

holders has become paramount, even at the ex-

pense of funding research in new technologies

and products to ensure long-term competitive-

ness. Frank Kendall, the U.S. undersecretary of

defense for acquisition, has worried aloud that

some contractors are mainly interested in gener-

ating returns in as little as one or two years.

UTC has not been a shortsighted company—

witness Pratt’s $10 billion investment in the

PW1000G geared turbofan engine. But giving up

Sikorsky is a shortsighted move that could prove

to be more of a disservice than a boon to investors

in the long run. c