United Technologies: The Year In Review

by Trefis Team
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United Technologies (NYSE: UTX) has had quite a mixed year this time around. The slowing GDP and low oil prices have had many adverse effects on certain divisions. In particular, the slowdown in China has affected business at Otis, and the Climate, Controls and Security segment. Similarly, Pratt & Whitney had quite a tumultuous year, with technical issues that caused significant delays in production. However, this issue was resolved in the first half of the year and production was ramped up significantly in the latter half of the year. Here are a few key takeaways:

Geared Turbofan Engine Drove Pratt & Whitney’s Top-Line

The latest innovation by UTC stole the show this year. The company’s GTF (Geared Turbofam) engines crossed over the 30,000 revenue hours mark and powered in more than 20,000 takeoff and landings. The engine is also experienced a 99.9% dispatch reliability on the Airbus A-320 neo. This is testament to the fact that the new technology has met, and in some cases, exceeded its key performance targets in the year.

Most recently, VivaAerobus, a low-cost operator from Mexico, took delivery of its first GTF-powered aircraft. The final leg on the delivery flight was over 9.5 hours, which is a record flight time for an A-320. This was only made possible by the engine’s ability to reduce fuel burn in the aircraft by a hefty 18%. This news has been received very well by customers. The company’s order book now stands at a significant 8,400 engines, positioning the company for long-term top- and bottom-line growth.

As of the latest quarter, the company had delivered about 80 engines year to date. It intends to ship an additional 70 in Q4. That said, the ramp up in production is still significant. In 2015, UTC delivered only 14 engines. Going forward, it expects to ship around 350-400 GTF engines per year.

Otis Shines In North America And Asia; China Business Still Suffers:

As mentioned previously,  slowing GDP rates across the world, especially in China, have led to low sales at Otis. Sales were flat at the division year over year as positive effects of a higher service volume, improved productivity and lower commodity costs were more than offset by continuing pricing pressures in China and EMEA. Profits were affected by additional E&D investments and the absence of prior-year favorable, mark-to-market foreign exchange adjustments.

In the latest quarter, new equipment sales in China were down 2%, driven by an overall decline of about 13%. That said, North America displayed good demand throughout the year with corporate sales up by almost 21% in Q3. Overall, service sales were up, with continued solid growth in modernization and repair, while maintenance sales were up slightly.

Additionally, in Q3, Otis nabbed the single largest private real estate deal from Hudson Yards. Due to these developments, the company has raised the bottom end of the segment’s profit guidance and now expect profit to be down $150 to $175 million.

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