United Technologies Corporation (UTX) is aiming for a piece of the action as most Middle Eastern countries strive to modernize their transport and security systems.
The conglomerate’s Sikorsky segment – maker of the iconic Black Hawk and commercial helicopters – plans to open a regional office in Abu Dhabi, the capital of the United Arab Emirates (“UAE”) in the second half of 2015. Sikorsky is also opening a new business unit in Saudi Arabia which will provide support to military and commercial aircraft.
Over the next 5 to 10 years, Sikorsky anticipates that it will sell about 400 helicopters in the region as it expands its footprint in Saudi Arabia and the UAE. Around 400 Sikorsky aircraft are presently in operation in the region, and fleet upgrades are expected to drive demand even further.
Sikorsky already has a presence in the Middle East. In 2010, it set up a joint venture – AMMROC (Advanced Military Maintenance, Repair and Overhaul Centre) – in Abu Dhabi, in collaboration with defense giant Lockheed Martin Corporation (LMT) and Abu Dhabi government-funded Mubadala. AMMROC, set up for aircraft maintenance, has now ventured beyond catering to the UAE air force and has secured contracts with air forces of Morocco, Tunisia and Oman. Sikorsky has plans to complement and further expand AMMROC’s operations as well.
In addition to upgrading its transport systems, UAE is also revamping its budding defense industry to reduce the country’s reliance on foreign ammunition makers. However, a major part of that spending is still benefiting foreign defense firms. From Lockheed Martin to Europe’s BAE Systems plc, defense giants are betting big on UAE’s increased defense funding, optimistic that it will somewhat temper the impact of constricted budgets of U.S. and Europe.
United Technologies stands to gain from UAE’s rising defense spending as it means higher demand for helicopters as well as aircraft maintenance. The conglomerate’s initiatives to strengthen its foothold in the region will make it uniquely positioned to understand the security needs and culture of the Middle East, and cater to its commercial as well as military aircraft requirements.
United Technologies currently has a Zacks Rank #4 (Sell). Some better-ranked conglomerates include Federal Signal Corp. (FSS) and Danaher Corp. (DHR), both carrying a Zacks Rank #2 (Buy).
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