The chief executive of United Technologies on Thursday showed his determination to drive up the conglomerate’s returns when he said capital expenditure at Pratt & Whitney, the aero engine maker, would “have to come down”.
Pratt is in the course of investing $10bn to introduce the new Geared Turbofan (GTF) engine for narrow-body jets and will make $2.6bn capital investments this year, mainly on machinery and other items to bring the new engine into full production.
“The commercial aerospace investment levels have to come down,” Mr Hayes said of coming years. “It has to come down to a more sustainable level so that, when we do have the opportunity for the next innovative investment, we’ll be able to afford it.”
Pratt has sold 6,300 GTFs — which are expected to cut aircraft fuel consumption by about 15 per cent compared with existing engines — for use in aircraft including Bombardier’s C Series and Airbus’s A320neo. Paul Adams, Pratt’s chief executive, told the investor meeting that production engines would be delivered to customers and enter service later this year.
The engine would not be profitable for UTC until 2020 or 2021 when the first engine had an overhaul, Mr Hayes said. Maintenance work is often far more profitable for aero engine makers than producing them.
Speaking to reporters afterwards, Mr Hayes stressed that the company was still investing significant amounts. But he added: “We’re going to cut back and push some things back.”
He also stood by his insistence that Pratt would not invest to develop a version of the GTF for widebody aircraft such as Boeing’s 787, a step that was originally assumed when the design was developed. Boeing, Airbus and other manufacturers build far more narrow-body aircraft such as the A320 and Boeing 737 than other, longer-range aircraft. Narrow-body aircraft engines also require more lucrative maintenance work.
“If someone can come back to me in five years and show me a great business case for a widebody aircraft, I might consider it,” he said. “But, for the moment, I would decide no.”
Mr Hayes also stressed that it was unlikely UTC would succeed in selling Sikorsky, which it has owned since 1929, to another company. UTC is likely to face substantial taxes for its capital gains on any sale and would want a premium price to reflect that, Mr Hayes said. The company is consequently likely to become independent.
Akhil Johri, UTC’s chief financial officer, confirmed it expected this year to realise earnings per share of between $6.85 and $7.05. But he warned that dollar strength could push the figure towards the range’s lower end.
UTC’s shares rose 2.45 per cent in New York to $121.24.