QUOTE AND NEWS
Flightglobal  Jul 9  Comment 
Go back in time to March 2008. What if Bombardier never launched the CSeries aircraft family with Pratt & Whitney s geared turbofan engines? What if Airbus never responded two years later by deciding to re-engine the A320? And what if Boeing wasn...
Flightglobal  Jul 8  Comment 
It has been a pivotal 12 months for the new wave of sub-100-seat jets. Two types powered by Pratt & Whitney s geared turbofan PW1000G family the Mitsubishi Regional Jet and the Embraer E2 have embarked on flight test campaigns. In the last few...
Flightglobal  Jun 30  Comment 
Pratt & Whitney will invest $65 million in a maintenance site near Columbus, Georgia where the company maintains and overhauls PW1000G geared turbofans (GTFs), the Connecticut-based manufacturer announces.
Flightglobal  Jun 20  Comment 
In the late-1980s, Pratt & Whitney had a flash of inspiration. Reduction gears for gas turbines already existed, but the only reliable gearboxes for airliner-sized engines were the size of houses. If P&W could scale down the gearbox into a package...
Flightglobal  Jun 9  Comment 
Though many of Pratt & Whitney s geared turbofan (GTF) suppliers continue to miss production targets, company executives remain confident the engine maker will meet the targets of a massive planned ramp up in production.
Clusterstock  Jun 8  Comment 
By Alwyn Scott MIDDLETOWN, Conn. (Reuters) - The head of aircraft engine maker Pratt & Whitney countered criticism on Tuesday from Qatar Airways and Lufthansa about Pratt’s new Geared Turbofan engine, saying early teething issues that have...
Reuters  Jun 6  Comment 
United Technologies Aerospace Systems expects compound annual revenue growth to average 6 percent over the next five years, and is looking for acquisitions in...
The Times of India  Jun 4  Comment 
Lockheed Martin Corp, the largest US arms maker and parent of Sikorsky, has begun to study the possibility of selling commercial helicopters to Iran, but said the market may be small and the company still needed guidance from the US government.




 

United Technologies (NYSE: UTX) is a conglomerate that makes products for a number of different industries. It makes most of its money, however, by selling helicopters, aircraft parts, elevators and escalators, and heating and air conditioning systems for buildings. The company earned $53 billion in revenue and $4.2 billion in net income in 2009.[1]

With around two-thirds of its revenues coming from abroad, UTX is a truly international company. UTX is especially focused on emerging markets. It the dominant player in the Chinese elevator market with an impressive three-quarters share of the market. China has about one third of the world's elevators, a number that is increasing and will help UTX's revenue grow.

About the remaining third off UTX's revenues come from the sale of aircraft, aircraft parts, and aircraft maintenance. As a result, the company is subject to the cyclical trends of the aerospace market. In general, increased military aircraft demand by the US government since 2001, as well as increased demand for commercial aircraft, has pushed revenues higher. Specifically, the company has benefited from the ongoing war in Iraq. The company signed a contract in 2007 to deliver 537 helicopters over the next five years.[2]

Although trends in recent years have been mostly positive, the company faces headwinds in the form of rising commodity prices. Its products use large amounts of metals such as titanium, steel and copper. Time table for the war in Iraq is also uncertain, and an early withdrawal would also adversely affect the company's prospects.

Company Overview

The company has 6 business segments:[3][4]

  • Carrier (21% of net sales) - heating and air conditioning systems
  • Pratt & Whitney (24% of net sales) - aircraft engines and space propulsion
  • Otis (22% of net sales) - elevators and escalators
  • UTC Fire & Security (10% of net sales) - fire and security systems for buildings
  • Hamilton Sundstrand (11% of net sales) - aerospace and industrial systems
  • Sikorsky (12% of net sales) - helicopters

Business Growth

FY 2009 (ended December 31, 2009)[1]

  • Net revenue decreased 11% to $53 billion.
  • Net income decreased 17% to $4.2 billion.

Trends and Forces

Increasing demand due to surge in offshore drilling

As oil prices have risen during the last decade, offshore drilling has become more popular. This trend has led to greater demand for helicopters, particularly the The Sikorsky S92 and S76 , to transport personnel to and from oil rigs.

Changes in Military Conflicts Abroad Affect Military Contracts for Sikorsky, Pratt & Whitney, and Hamilton Sundstrand

The war in Iraq and continued engagement in Afghanistan have created an increased demand for military aviation. Products such as the UH-60 Black Hawk have seen heavy use, and the US government contracts with United Technologies directly for its military products. The company's sales of military equipment have helped revenues since 2001 due to increased US military activity. However, if the war in Iraq changes course or ends, it might lead to a loss of revenue for United Technologies. As a military contractor, United Technologies also runs the risk of losing large contracts to competitors as the military upgrades and changes equipment. Sikorsky signed a contract with the US military in December 2007 for 537 helicopters to be delivered over the next five years.[5]

Large Amounts of International Business Expose the Company to Political and Currency Risks

Approximately two-thirds of United Technologies' revenue was from international sources, with about 30% of those coming from Europe and another 20% from the Asia Pacific region. Furthermore, business is conducted in a variety of global currencies, and changes in currency values are a risk to revenue. The devaluation of the US dollar versus other currencies makes doing business in other countries more expensive in US dollars, but also made revenue abroad worth more in US dollars. Because UTX makes the majority of its revenues outside the US, a decrease in the value of the dollar raises revenues.

Fluctuations in Housing and Commercial Real Estate Markets Affect New Construction Revenues for Otis, Carrier, and UTC Fire & Security

With business units Otis, Carrier, and UTC Fire & Security relying on construction of new buildings for revenues, changes in the commerical and residential real estate markets can have a significant impact on revenues. The downturn in the real estate market has presented a risk for United Technologies, but the company has continued to increase revenues through first quarter 2008 despite the unfavorable market.[6]. About 25% of the company's revenue comes from residential housing.

2010 Layoff Announcements

In July 2010, UTX announced it would be cutting 2,100 employees by the end of 2011. The announcement was made in concert with an increase in the firm’s profit projections, and is interpreted by many as an effort to control inefficiencies, rather than a move of financial necessity.

Commodity Price Fluctuations drive down Profit Margins

As a manufacturing company, raw materials are a primary expense in creating salable products. Increasing commodity prices, especially for steel, copper, aluminum, titanium and nickel have limited profit margins. The company deals with this issue through conservation, scrap reclamation, consolidating purchases, and limiting the number of different suppliers.

Exposure to Emerging Markets Drives UTX's Growth

United Technologies is invested in emerging markets, such as China and India, which are growing much faster than U.S. domestic markets. The Chinese elevator market, which Otis controls a 75% of, is growing at a rate of 15-20% per year. In addition to new construction, emerging markets have had increased demand for commercial aircraft.

Competition

With business units in a number of different fields, United Technologies has numerous competitors, though most competitors are specialized to only one business field. Notable competitors include Rolls-Royce and GE Aviation, which compete with Pratt & Whitney in producing airplane engines; SPX Corporation, which competes with UTX in the HVAC market; and Honeywell, a large conglomerate that competes with United Technologies in both the aerospace and building supply markets.

References

  1. 1.0 1.1 UTX 2009 10-K Exhibit 13 pg. 1
  2. United Technologies gets $1.5 B US Army contract, Reuters
  3. UTX 2009 10-K Exhibit 13 "Segment Review" pg. 8
  4. UTX 2009 10-K "Description of Business Segments" pg. 3-7
  5. United Technologies gets $1.5B US Army contract, Reuters
  6. United Technologies Posts Solid Quarter Despite Housing Weakness, Seeking Alpha
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