Defense contractor Lockheed Martin has reached a deal to purchase Sikorsky Aircraft, the company that manufactures the Black Hawk helicopter. The deal is worth $9 billion.
If this deal goes through, the world’s largest defense contractor will likely gain even more influence in negotiations with the Pentagon.
For the past few years, revenue has been fairly flat for Lockheed Martin. Richard Aboulafia, an analyst with the Teal Group, says this deal suggests a shifting strategy for the contractor.
“Broadly speaking, there’s two types of defense contracting,” he says. “One is building stuff, whether it’s tanks, ships or aircraft. And the other is providing services, whether it’s network solutions of systems integration.”
Aboulafia says when it comes to profitability, nothing is quite as lucrative as building stuff. To that end, Lockheed this morning also announced that it could sell or spin off its government information technology and technical services.
Still, this deal leaves Lockheed in a strong position, says American University professor Gordon Adams.
“There is no question in my mind the upper hand is with the industry,” he says. “Because the industry is so concentrated, the Pentagon needs to, has to have this equipment. They don’t have a lot of options of where to turn,” he says.
Adams says given consolidation in this sector, contractors have the ability to hold the government hostage in negotiations.