Varied portfolio keeps UTC strong

Diversification helps company weather current economic turbulence

Businesswise, United Technologies Corp. is all over the map. The Hartford, Conn., company’s subsidiaries include Carrier heating and air conditioning, Hamilton Sundstrand aerospace systems and industrial products, Otis elevators and escalators, Pratt and Whitney aircraft engines, Sikorsky helicopters, fire and security systems, and power cells.

Despite UTC’s hands-in-many-pies approach, the company’s diversity appears to be working to its advantage during a time of economic turbulence in public and private sectors.

“UTC is a very broad industrial conglomerate, with different end markets across their various businesses,” said Anita Antenucci, managing director of investment banking firm Houlihan Lokey. “Their overall exposure to the government market is significant and highly diversified. That provides stability to mitigate the impact of the downturn.”

It’s not that the company hasn’t seen declines. In particular, its Carrier and Otis businesses units have taken hits, and the commercial aircraft market is growing more anemic, said David Manke, UTC vice president of government and international affairs. Still, sizable past wins have provided a healthy stockpile of close to $60 billion in ongoing deals.

At the end of 2008, for example, UTC’s Sikorsky raked in the largest backlog in company history of more than $13 billion and delivered 204 rotorcraft to the military, up from 174 in 2007.

Pratt and Whitney continues to work on a $1.2 billion NASA contract awarded to the company in 2007 to design, develop and test the J-2X engine that will power the upper stages of the Ares I and Ares V launch vehicles. The Ares line is part of a new generation of rockets that will take astronauts and cargo to the International Space Station and perhaps to the moon.

In February, Pratt and Whitney received a $521.2 million Air Force award to maintain F119 engines for the F-22 Raptor. Sustainment activities will include spare parts and labor services, fleet management and technical support.

“Our government business remains one of our bright spots, frankly,” Manke said. “Good technology contracts keep us hanging in there.”

Eleven acquisition and joint venture investments were completed by UTC in 2008. Large contract wins and business combinations in China were also noteworthy. The company’s Hamilton Sundstrand unit continues to be a major supplier to Boeing’s 787 Dreamliner launch, slated for later this year, providing nine major 787 systems and 600 components and subsystems.

UTC’s primary challenge, Antenucci said, is to sustain reasonable growth for its subsidiaries so each will be able to retain their status in their respective fields.

“If you boil it down to their individual business units, Otis and Carrier had fairly substantial order declines,” she said. “They’re managing through downturns in some of their core businesses. [But] if you look at their overall earnings, they were fairly even compared to some of their competitors.”

No matter the enterprise, Manke said the company is focusing on performance first. Contracts come and go, but a company’s ultimate success rests on effective execution of existing agreements.

“Performance is even more important because there’s a competition for resources,” Manke said. “That’s the best strategy for us right now. Everything is being looked at; there aren’t any safe programs.”

Later this year, UTC might be forced to further trim its workforce. UTC president and CEO Louis Chênevert said in early March that the economic recovery anticipated for the second half of 2009 now appears unlikely and that the outlook for commercial aerospace and global construction markets had continued to deteriorate since UTC’s December 2008 investor meeting.

The company anticipates 2009 global employment reductions of 11,600, and additional hourly workforce cutbacks are possible.

More stats on UTC.

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