Defense is an industry with a rich history of consolidation. And we may be looking at yet another blockbuster acquisition with Lockheed Martin Corp. (NYSE: LMT) prepared to fork over $8 billion for United Technologies Corp.'s (NYSE: UTX) Sikorsky Aircraft.
But will Lockheed Martin buy Sikorsky Aircraft?
It's certainly an intriguing purchase - as is LMT stock.
The consolidation of the defense industry in the 1980s and 1990s has helped to draw the current battle lines for the sector's top players.
Raytheon Co. (NYSE: RTN) has missiles. Northrop Grumman Corp. (NYSE: NOC) has radar. General Dynamics Corp. (NYSE: GD) has gun boats.
And ever since Lockheed Martin got the contract to lead the Joint Strike Fighter (JFS) program - an ambitious project to create the next generation of fighter jets, the F-35, for the Air Force, Navy, and Marine Corps - it looks like Lockheed Martin has a firm grip on the fighter jet market.
It's certainly been the primary Lockheed Martin stock price driver for the year - and will continue to be for years to come.
With this 56-year, $1.4 trillion program, it's estimated that when the F-35 goes operational in 2018, it will capture 50% of the jet fighter market globally, according to Teal Group analyst Richard Aboulafia, as reported by National Defense in September 2014.
So what will Sikorsky bring to Lockheed? And ultimately, will Lockheed really buy Sikorsky Aircraft?
Here's what you need to know about this potential marriage.
Why Will Lockheed Martin Buy Sikorsky Aircraft?
Sikorsky is perhaps most well-known for its Black Hawk line of helicopters. Additionally, from former President Dwight Eisenhower to former President George W. Bush, Sikorsky had also built every presidential helicopter.
It was around 2004 that Sikorsky and Lockheed became bitter rivals. Lockheed teamed up with the Anglo-Italian AgustaWestland to battle for a presidential helicopter contract.
The Lockheed-Agusta partnership ultimately beat out Sikorsky with its VH-71, a project that was scuttled by delays and ultimately canceled in 2009 by the Obama administration at the behest of cost-cutting Defense Secretary Robert Gates.
That's where this story gets a little more fascinating...
Interestingly enough, Lockheed Martin announced that it was going to team up with Sikorsky in April 2010 to once again bid for the presidential helicopter contract. By May 2014, the Lockheed-Sikorsky team landed the $1.2 billion contract to build the next generation of presidential helicopters for the Presidential Helicopter Replacement Program.
Lockheed moved in on what had been a signature Sikorsky-led program for 50 years, first as a rival and then as a partner. And with UTC looking to shed what has been a slow-growing, low-margin business, Sikorsky may very well soon be a part of Lockheed.
Sikorsky is an intriguing buy for Lockheed. Lockheed is already squeezing many of the other big players out of the jet fighter market with the F-35 and could also dominate the military helicopter space with this purchase.
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According to Forecast International, Sikorsky will build 1,658 military helicopters between 2015 and 2029. AINonline reported Sikorsky's military helicopters represent 19.3% of the market, second only to Russian Helicopters.
Lockheed can certainly afford it. It's the largest defense company in the world and is poised to stay that way with the JSF program. Rates are still low. It's the U.S. government's largest vendor - a highly complicated market that is not easy to excel in. And it has $3.5 billion in cash.
In the current environment, Money Morning Chief Investment Strategist Keith Fitz-Gerald said, "corporations have got an incentive to buy growth rather than grow it themselves."
And this bodes well for Lockheed Martin stock as a long-term buy-and-hold.
"I think it would be very hard for that company to go wrong right now," Fitz-Gerald said.
Jim Bach is an Associate Editor at Money Morning. You can follow him on Twitter @JimBach22.
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