If there's one thing surprising about the Pentagon's decision to spend $1.24 billion on a new helicopter for the president, it's that it took them so long.
The Pentagon has been talking about the need to develop a next-generation version of "Marine One" for more than five years now. A few times it came close to making a decision -- then backed away. But by last July, the process appeared to be finally winding down, when potential helo-builders Boeing and then, Northrop Grumman as well, confirmed that they would not be bidding on the contract. This left United Technologies' (NYSE:UTX) Sikorsky unit, working in cooperation with Lockheed Martin (NYSE:LMT), as the winners by default of the $1.24 billion Marine One presidential helicopter contract.
Mind you, this was 10 months ago, yet it took the Pentagon until last week to make up its mind to give the Marine One contract to the only company that wanted it.
The Marine One contract: What it is
United Technologies' win, announced as the lead item in the Pentagon's daily announcements of contract awards on May 7, awards it the right to begin "engineering and manufacturing development" work on Marine One. Six specially outfitted S-92 helicopters will be built in this initial phase of the contract, with two to be delivered by 2018, and the rest subsequently. "Associated support equipment, integration of mature government-defined mission systems, a training system including a flight training device and a maintenance training device, logistics, engineering, and test and evaluation support" will also be provided.
All of this is provided for in the contract award, which covers work to be performed by United Tech through October 2020.
The Marine One contract: What it is worth
Ultimately, United Technologies is expected to build a total of 21 Marine One helicopters for use by the President, Vice President, and senior executive personnel over the course of the next nine years. As such, United Technologies will retain a half-century-old franchise that Sikorsky has controlled since building the first presidential helicopter back in 1957.
How much will it be worth to United Tech? According to military aircraft data clearinghouse Deagel.com, the list cost on a standard S-92 helicopter is $17 million. Times the 15 helos to be built after the initial development contract wraps up, that works out to $255 million -- on top of the initial $1.24 billion United Technologies will get for designing a specialty S-92 fit for a president-hauling duties.
So at the very least, we're talking about a $1.5 billion contract for United Technologies. At 2.4% of annual revenues -- and spread out over nine years to boot -- that's not going to move the needle much for United Tech. Indeed, even if you assume that Marine One variants include additional bells and whistles not found on an ordinary S-92, and push the cost up a bit, this still isn't a huge deal for United Technologies, from a financial perspective.
What it is is a huge PR coup for the company. With this win under its belt, United Technologies can continue to boast that it is "the company that builds helicopters for the President of the United States of America" -- pretty exclusive bragging rights. If you ask me, this win by the S-92 should probably "86" talk of United Technologies spinning off or selling Sikorsky (even if it's not the company's most profitable unit). Or at the very least, if United Tech does decide to sell, I'd say the value of the Sikorsky unit just went up by a quite a bit.
Long story short, United Technologies shareholders have had to wait longer than they probably ought to have for this news. But at least the wait was worth it.
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Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.