United Technologies‘s (NYSE:UTX) helicopter production and services segment, Sikorsky, faced a very challenging last couple of years due to declining U.S. government defense spending. As the segment generates more than half of its sales from the government, largely through sale and service of military helicopters such as the UH-60 Back Hawk, its revenues over the past two years fell by nearly 15% to $6.3 billion in 2013. 
To aid its growth in such a challenging macro environment, Sikorsky has transformed its internal structure with an eye on growth segments like the international military and global commercial helicopter markets. The company has replaced its old structure, which consisted of three different companies: Sikorsky Global Helicopters, Sikorsky Military Systems and Sikorsky Aerospace Services, with two new segments: Sikorsky Commercial Systems & Services and Sikorsky Defense Systems & Services. In our view, this reorganization will enable Sikorsky to better serve its customers, particularly those from international military and commercial segments. In turn, this will likely aid growth in its results.
Sikorsky constituted around 10% of United Technologies’s (UTC) $62.6 billion revenues in 2013.  We currently have a stock price estimate of $121 for UTC, around 5% ahead of its current market price.
Mapped To Suit Customer, The New Sikorsky Structure Will Aid Growth
Sikorsky’s old structure served it well for around a decade. It was built primarily to help the company diversify into the global helicopter aftermarket and commercial original equipment sales from its U.S. military focus. However, in today’s environment, the company was finding itself inappropriately structured with customers having to essentially deal with three different companies responsible for development, production and after sales service and support. For example, an international buyer of a Sikorsky commercial helicopter would purchase from Sikorsky Global Helicopters, but would depend on Sikorsky Aerospace Services for its after sales support.
The new structure, which divides Sikorsky’s business along commercial and defense lines, will help it serve one customer with one company. Across a helicopter’s entire life cycle from development, production and after sales service, a Sikorsky customer will need to interact with a single interface, either its commercial (Sikorsky Commercial Systems & Services) or defense (Sikorsky Defense Systems & Services) segment. In our view, this internal mapping according to customer will help Sikorsky better realize the global helicopter industry’s growth potential which lies primarily in commercial and international military helicopter markets. On its part, Sikorsky figures that this internal transformation will also help improve its process efficiency, which in a company of UTC’s size, is very important.
Sikorsky’s Transformation Is Very Similar To The Creation Of UTC’s Building & Industrial Systems Unit
We figure that this reorganization at Sikorsky is very similar to one that UTC implemented recently to its commercial businesses, which include Otis elevators & escalators, carrier heating, ventilation and air-conditioning (HVAC) systems, and Kidde/Chubb fire prevention and security systems. At these businesses, UTC created an umbrella commercial unit called, Building & Industrial Systems, which consists of all its existing commercial businesses. This new division helps the company better serve those customers who uptil now had to deal separately with Otis, Carrier, Kidde and Chubb for their various building system requirements.
As more large scale residential, commercial and industrial projects are coming into existence, especially in the emerging countries, demand for integrated building systems is growing, which consist of fire prevention solutions, security systems, elevators, air conditioning and ventilation systems. In this context, the creation of an umbrella Building & Industrial Systems unit helped UTC address the growing demand for integrated building solutions, while allowing customers the convenience of requiring to interact with a single unit for their various building system requirements.Notes: