Four-thousand helicopters. $100 billion. Whichever number you focus on, one thing is clear: The business of building America's fleet of next-generation "future vertical lift" helicopters is big business. And big business is putting its best foot forward to win the contract.
A couple months back, we told you about the U.S. Army's Future Vertical Lift program (FVL), in which the Army will pick a new kind of helicopter to replace its Black Hawk transports and Apache attack helicopters. Two rival teams are bidding on the contract, which could ultimately result in as many as 4,000 unit sales -- and as much as $100 billion in revenues over time -- for the winner.
Textron's rivals at United Technologies (NYSE:UTX) and Boeing (NYSE:BA) are taking a more helo-centric approach with their FVL bid, offering the Army a new twist on standard helicopter tech, which they're calling the "SB-1 Defiant."
Old idea, new tech
Designed as a larger version of United Technologies subsidiary Sikorsky's experimental "X-2" helicopter design, "Defiant" will feature two sets of counter-rotating coaxial rotor blades atop the aircraft, where most helicopters have just one set. Defiant will also have a six-blade pusher propeller at rear, giving the aircraft a bit of extra "oomph" toward hitting the Army's targeted cruising speed of 230 mph.
Which design will win the Army's approval remains open to question. But just in case it doesn't win FVL, at the same time as it teams with Boeing on the Defiant, United Technologies is pushing ahead on a project of its own: It's tweaking the X-2 helicopter design even farther, to build a craft it calls the S-97 Raider, and will submit that design for a separate Army project (known as "Armed Aerial Scout") to replace the OH-58D Kiowa Warrior helicopter.
Power in a small package
Powered by a single General Electric (NYSE:GE) YT706 engine, Sikorsky's new Raider is said to be capable of cruising at 220 knots. That's not quite as fast as Textron's Valor tiltrotor, granted. But remember that the Raider isn't competing with Valor -- all it's trying to do is outdo the performance of the Army's existing fleet of OH-58D Kiowa Warriors, which putter along at less than 150 knots. (And to compete with the Valor on the FVL contract, Sikorsky will be putting a Honeywell (NYSE:HON) Lycoming T55 engine in the Raider's big brother, the SB-1 Defiant. That engine is roughly twice as powerful as GE's YT706).
What the Raider is, though, is about 80% as fast as a prop-driven passenger aircraft such as the French-Italian ATR 72. And Raider can maintain this speed while carrying a crew of two, up to six soldiers in full combat gear, and a selection of weapons systems ranging from 50 caliber and 7.62 mm machine guns to 2.75 mm Hydra rockets to full-size Hellfire missiles. That's basically the same weapons package as Kiowa sports -- but on a helo that can run twice as fast, stay aloft 35% longer, and travel twice as far as Kiowa.
Double or nothing
Now for the big question: What does all of this mean to United Technologies? At the most basic level, it means that in addition to potentially sharing a $100 billion FVL contract-win with Boeing, United Tech also has a chance to win the Army's Armed Aerial Scout program -- worth up to $16 billion -- and keep that one all to itself. But there are other implications as well.
If the Army decides it likes United Technologies' X-2 design as represented by the S-97 Raider, then chances are good the Army will also like it in the form of the larger SB-1 Defiant. (And vice versa.) So, in a sense, this may be a double-or-nothing bet for Sikorsky.
On the one hand, if the X-2 design passes muster, the company could both retain its global medium transport helicopter franchise (currently represented by the world-favorite Black Hawk), and also expand into the scout helicopter segment with Raider. (Incidentally, in so doing, it would steal that franchise away from incumbent Textron, whose Bell unit builds the Kiowa). Since United Technologies and its suppliers have reportedly funded 100% of the Raider's development costs, this would represent a nice payoff on the company's investment.
On the other hand, of course, is the less happy alternative that the Army may not pick Defiant. In that case, the Army would probably not pick the Raider either. (Under this scenario, the armed scout helicopter contract might go to Boeing and its Little Bird, or remain with Textron and an upgraded Kiowa.) Such a scenario could hasten United Technologies' plans to exit the helicopters business and sell Sikorsky.
The upshot for investors
Currently the most popular helicopter maker in the world, United Technologies appears to have "bet the farm" on a new helo design that could cement this title for it -- and for decades to come -- or lose it all in one swell foop. These twin contracts could similarly determine the fate of Sikorsky, and whether it remains an integral part of the United Technologies family, or gets sold off as so much spare parts.
Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company and Textron. 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.