After sweeping consolidation, where does UTC go next?
Kevin O'Toole/LONDON
George David shows a near faultless eye for detail as he skips between the United Technologies (UTC) business units summoning up market statistics and programme information. As president of a group, which spreads from aircraft engines to elevators, he needs to be nimble.
It was not always so. David admits that, 20 years ago, the group was a "classic" US defence contractor based almost exclusively around Pratt & Whitney, Sikorsky and Hamilton Standard. Less than one- quarter of sales went to commercial markets and the Pentagon accounted for most of the rest.
Since then the group has undergone a transformation. Carrier air-conditioning systems and Otis elevators, together with a growing automotive-parts business, now make up more than half of UTC's sales and, perhaps more tellingly, have buoyed up group profits over a difficult past few years in aerospace. David's own background is commercial, having worked his way up through Otis before taking over as UTC president in 1992.
The aerospace businesses are now back, pulling their weight within the group, but only after a dramatic pruning. David admits that P&W still UTC's single largest operating unit, was a "high-cost competitor" during the 1980s. Given the company's massive installed engine base, it has also suffered more than most from the drying up of the lucrative spare-parts business during the 1990s. Over the past five years, P&W sales have slumped, by around $2 billion to end 1994 at less than $6 billion.
Cost cutting has been equally dramatic. The workforce is down by nearly 40%, since 1990 and more than a quarter of floor space will have been axed, by the end of this year. Hamilton and Sikorsky have seen similar falls.
Now that the slimmed-down aerospace companies are back in shape and making profits, the question remains as to where the group goes from here.
To date, UTC's only major participation in the wave of US consolidation has been the sale of the Norden radar unit to Westinghouse. David points out that UTC had no hope of achieving sufficient scale to compete in the sector.
He suggests that UTC will play its part in restructuring, however. "We're a willing buyer, but it takes a willing buyer and a willing seller to make a deal," he says.
David is in no doubt that the large-turbofan market is one of the sectors ripe for consolidation, with General Electric, Rolls-Royce and P&W locked in a cut-throat three-cornered fight. "I don't see room for three engine companies on one wing," he says.
He adds that the issue is not one of strategy, but of simple arithmetic. The limited number of engine orders in prospect simply cannot support three separate research budgets, he argues. "I don't suggest that someone will drop out, but a $5 billion bill for 2,500 engines does not compute," he says.
David refuses to add to the speculation over whether Rolls-Royce may ultimately find itself flung together with P&W, although he concedes that there is "consolidation pressure everywhere".
In the smaller-engine market, David insists that P&W's "binding contractual" alliance with Germany's MTU will continue, despite the disintegration of the broader Project Blue consortium with Snecma and GE. An equity exchange, which would have given P&W a 25% stake in the German company, has also failed to materialise, but David still believes that it is "...something we would do in the long term".
David is also adamant that UTC will emerge as a "survivor" in the overcrowded helicopter market. He says that the Sikorsky UH-60 Black Hawk programme has got a "fairly interesting" volume of US Government business scheduled over the next few years, given the underlying fact that "...this is not exactly a robustly growing market". Future orders from Brazil, Kuwait, Emirates and Saudi Arabia are still in the frame he adds.
Although Sikorsky has had to fight off congressional pressure, for outright cancellation of the Comanche RAH-66 programme, David seems genuinely confident that the advanced technology on offer, will eventually win through. The acid test will come with the first flight, now slated for November. "Once it flies, we think that this aircraft will be built," he says. There are no further clues as to a launch decision on the proposed S-92, however.
Further afield, UTC is forging on with its projects in Russia, including P&W Canada's 51% share in a turboprop joint venture with Klimov and P&W's collaboration with Perm on upgraded PS-90s.
David points out that there are around 1,500 CIS-built passenger jet-aircraft operating in the region, all of which will soon have to come out of the sky "by force of gravity, if by nothing else".
The new generation of Russian-built engines will also be at a fraction of the cost of their Western counterparts. David says that the PS-90A is a $1-1.5 million engine compared with nearer to $7 million for an equivalent P&W type. The upgraded PS-90P will also take the Perm engine closer to Western performance.
Sikorsky, too, has taken its first steps into Russia through its 2% stake in Mil. That holding, which was picked up for a "nominal sum", could be raised "a little", as the alliance progresses says David.
UTC is taking a refreshingly realistic view of its Russian operations, however, with David confirming that the group is not looking for a return "this century".
The group can afford to take a longer view than most. Thanks largely to its network of Otis and Carrier outlets, UTC is the largest Western employer in Russia and Ukraine, with a workforce of some 15,000, giving it an enviable scale.
David adds that there are few places on earth where UTC does not have an office, thanks to these global service operations. There is even an office on the edge of the Gobi desert. Aerospace operations have followed.
In China, P&W has a Beijing overhaul operation, a long running JT8D components tie up in Chengdu and a potential parts manufacturing deal in Xian. Local assembly and test ventures are also in the process of being formed by P&WC for the PT6 and for the first time by Sikorsky.
If and when such deals begin to mature, UTC's aerospace units may begin to look as global as their commercial counterparts.
Source: Flight International
