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Lockheed Martin's Sikorsky Buy Is Starting to Pay Off

By Rich Smith – Oct 17, 2015 at 12:13PM

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Billions of dollars of helicopter sales are in the offing -- and as Sikorsky's new owner, Lockheed Martin stands to win them all.

The Persian Gulf is a funny place.

In April, the destroyer USS Farragut (shown here in 2012) was dispatched to investigate reports of Iranian gunboats attacking the MV Maersk Tigris -- the first in a string of such attacks in the Persian Gulf. Image source: U.S. Navy.

Five months ago, in the run-up to signing the Iran nuclear weapons treaty, Iranian Revolutionary Guard forces embarked upon a series of high-profile raids upon commercial shipping in the Gulf, attacking first a Marshall Islands-flagged cargo ship operated by Denmark's Maersk Group, then a U.S.-flagged vessel also operated by Maersk, and finally chasing the Singapore-flagged Alpine Eternity into Emirati waters.

These attacks almost seemed calculated to derail the nuclear negotiations (but didn't). One thing they did accomplish was to push Saudi Arabia to seal a deal to buy 10 new MH-60R Seahawk maritime helicopters from U.S. defense contractor Sikorsky. Those helicopters will give the Saudis extra ability to monitor Iranian ship movements in the Gulf. Incidentally, the sale will also bring about $1.9 billion in new revenues for the U.S. defense contractors, including United Technologies (RTX -0.23%), which owns Sikorsky.

Shifting tides
Or not. Last month, we learned that U.S. regulators have given the green light for defense giant Lockheed Martin (LMT 0.28%) to buy Sikorsky from United Technologies in a $9 billion deal slated to close either late this year or early next. Depending on when the Seahawk sale actually closes, these revenues could accrue to the benefit of Lockheed Martin rather than United Technologies.

What's more, these won't be the only revenues Lockheed can count on getting out of the Sikorsky deal. Because on Tuesday, Saudi Arabia requested permission to make another purchase of helicopters from Sikorsky.

Black Hawks for Saudi Arabia -- and more on the way. Image source: Sikorsky.

Once more, with feeling
This time, Saudi Arabia will be buying nine UH-60M Black Hawk helicopters -- a close cousin to the Seahawk, but apparently cheaper, at a stated value of just $495 million. Like the Seahawk deal, the Black Hawk purchase was notified to Congress by the U.S. Defense Security Cooperation Agency, the arm of the Pentagon responsible for coordinating foreign military sales contracts between U.S. defense contractors and foreign buyers.

According to DSCA, Saudi Arabia hopes to buy nine Black Hawks from Sikorsky, 18 General Electric T700-GE-701D helicopter engines to power them, three spare engines, and a whole slew of electronic equipment to be built into the helicopters.

On the other hand, missing from the Black Hawk sale, but present in the Seahawk sale, will be orders for 380 Advanced Precision Kill Weapons System rockets and 38 Hellfire missiles (also built by Lockheed). These extra weapons systems may help to explain why the Seahawk deal was so much more expensive than the Black Hawk deal.

One single Hellfire missile can ruin a bad guy's day. And Saudi Arabia's buying 38 of them. Image source: Wikimedia Commons.

What it means to investors
With $1.9 billion here, $495 million there -- pretty soon, Saudi Arabia will be forking over "real money" to beef up its military. What's more, this is only the beginning of the loot that Lockheed Martin can expect to collect from its Sikorsky purchase. Reportedly, Saudi Arabia's ultimate plan is to double the size of its Black Hawk fleet. And since that fleet currently numbers "only" 80 Black Hawks, that means there are probably a good six dozen more Black Hawk sales in Lockheed Martin's immediate future.

At roughly $55 million apiece, that means roughly $3.9 billion in revenue on top of what the Seahawks and Black Hawks, already on order, will bring. All together, this adds up to about $6.3 billion in helicopter sales for Lockheed Martin -- or more than two-thirds of the price Lockheed Martin has agreed to pay United Technologies to acquire Sikorsky.

It's starting to look like this deal will very soon pay for itself.

Turkey is another big prospective buyer of Sikorsky's helicopters -- as much as $20 billion worth. Image source: Wikimedia Commons.

Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 305 out of more than 75,000 rated members.

The Motley Fool owns shares of General Electric Company. 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.

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