United Technologies Corporation

 

Introduction

 

United Technologies Corporation is one of the largest companies in the United States. The Fortune Magazine ranked it the 59^th largest corporation in the US in 2002; and 149^th in the world in its Global 500 issue, also in 2002. Moreover, in the same year, Fortune also named it as the most admired aerospace company. With this magnitude of success, one might be led to a conjecture on the company’s formula that drives it towards achieving so much.

This report will look into the various facets of the United Technologies Corporation and will seek to explore its organizational operations, and analyze some of the company’s strengths and areas for improvement.

Nature of the company

            Company documents state that United Technologies was incorporated in Delaware in 1934. George David is at the helm of the company, serving as its chairman and chief executive officer of the board of directors. Its corporate core values states that the company is committed “to performance and improving shareowner value…; communicate honestly to deliver what was promised…; conduct business in accordance with the Corporation’s Code of Ethics, to employees across the Corporation and is published in 16 languages….; identify situations that may be in violation of the Code of Ethics.”

The company holds office in Hartford, Connecticut and holds presence in 2,000 locations in 180 countries. Table 1 enumerates the various subsidiaries of the Corporation from all over the world.

            The company is divided into four business units: Otis, Carrier, Pratt and Whitney, and flight systems. In sum, these four segments of the United Technologies Corporation employed 155,000 individuals last year, approximately 79,000 of these were based outside the US.

Table 1. Subsidiaries of United Technologies Corporation, as of December 31, 2002.

Entity Name	State/Country of Incorporation
Britannia Lift Services (UK) Ltd.	United Kingdom
Cade Industries, Inc	Wisconsin
Caricor Ltd	Delaware
Carlyle Scroll Holdings	Delaware
Carmel Forge Limited (The)	Israel
Carrier Air Conditioning Philippines, Inc.	Philippines
Carrier Air Conditioning Pty Ltd (CPL)	Australia
Carrier Corporation	Delaware
Carrier HVACR Investments B.V	Netherlands
Carrier LG Limited	South Korea
Carrier Limited Korea	South Korea
Carrier Mexico S.A. de C.V.	Mexico
Carrier Commercial Refrigeration, Inc.	Delaware
Carrier Refrigeration AB	Sweden
Carrier S.A.	Argentina
Carrier S.A.	France
Carrier S.P.A.	Italy
Carrier Singapore PTE Limited	Singapore
Carrier Transicold Europe S.A.	France
Carrier Transicold Industries S.A.	France
CEAM Srl	Italy
China Tianjin Otis Elevator Company, Ltd.	China
Claverham Group Limited	United Kingdom
Eagle Services Asia Private Limited	Singapore
Elevadores Otis Ltda.	Brazil
Empresas Carrier S.A. De C.V.	Mexico
Guangzhou Otis Elevator Company, Ltd.	China
Hamilton Sundstrand Corporation	Delaware
Hamilton Sundstrand Holdings EURL	France
Hamilton Sundstrand Holdings, Inc	Delaware
Hamilton Sundstrand International Holdings Ltd.	Cayman Islands
Hamilton Sundstrand Power Systems, Inc.	Delaware
Hamilton Sundstrand UK Holdings Limited	United Kingdom
Helicopter Support, Inc.	Connecticut
Homogeneous Metals, Inc.	New York
HWH of Delaware, Inc.	Delaware
International Comfort Products Corporation (USA)	Delaware
Johns Perry Lifts Holdings	Cayman Islands
Latin American Holding, Inc.	Delaware
LG Otis Elevator Company	South Korea
Milton Roy Company	Pennsylvania
Misr Refrigeration And Air Conditioning Manufacturing Company S.A.E.	Egypt
NAES Acquisition Corporation	Delaware
Nevada Bond Investment Corp. II	Nevada
Nippon Otis Elevator Company	Japan
Otis [France]	France
Otis Building Technologies Pty	Australia
Otis Canada, Inc.	Canada
Otis Elevator (China) Investment Company Limited	China
Otis Elevator Company (H.K.) Limited	Hong Kong
Otis Elevator Company (India) Limited	India
Otis Elevator Company (New Jersey)	New Jersey
Otis Elevator Company Pty. Ltd	Australia
Otis Far East Holdings Limited	Hong Kong
Otis GmbH & Co. OHG	Germany
Otis Holdings GmbH & Co. OHG	Germany
Otis Investments Plc	United Kingdom
Otis Lifts Holding Company	Cayman Islands
Otis Limited	United Kingdom
Otis S.p.A	Italy
Otis Servizi S.r.L.	Italy
Pratt & Whitney Auto Air, Inc.	Michigan
Pratt & Whitney Canada Leasing Inc.	Canada
Pratt & Whitney Component Solutions, Inc.	Michigan
Pratt & Whitney Engine Services, Inc.	Delaware
Pratt & Whitney Holdings LLC	Cayman Islands
Pratt & Whitney Power Systems, Inc.	Delaware
Pratt & Whitney Services, Inc.	Singapore
Ratier-Figeac S.A.	France
Sikorsky Aircraft Corporation	Delaware
Sikorsky Export Corporation	Delaware
Sikorsky International Operations, Inc.	Delaware
Sirius (Korea) Ltd.	United Kingdom
Springer Carrier Ltda.	Brazil
Sullair Corporation	Indiana
Sundyne Corporation	Delaware
Tadiran Ampa Ltd.	Israel
The Falk Corporation	Delaware
Toshiba Carrier (Thailand) Corporation	Thailand
Toshiba Carrier UK Limited	United Kingdom
United Technologies Canada, Limited	Canada
United Technologies Electronic Controls, Inc.	Delaware
United Technologies Far East Limited	Hong Kong
United Technologies Finance Corporation	Delaware
United Technologies Holding GmbH	Germany
United Technologies Holdings B.V.	Netherlands
United Technologies Holdings Limited	United Kingdom
United Technologies Holdings S.A.	France
United Technologies Intercompany Lending Ireland Limited	Ireland
United Technologies International Corporation- Asia Private Ltd	Singapore
United Technologies International Operations, Inc.	Delaware
United Technologies International SAS	France
UT Insurance (Vermont), Inc.	Vermont
UT Park View, Inc.	Delaware
UTC Canada Corporation	Canada
UTCL Investments BV	Netherlands
Xizi Otis Elevator Company (Hangzhou) Limited	China
Zardoya Otis, S.A.	Spain

The four business units of United Technologies[1]

Otis

            Otis is the largest manufacturer, installer, and service provider for elevators and escalators. Specifically, Otis designs, manufactures, sells and installs a wide range of passenger and freight elevators, including hydraulic and traction elevators for low- and medium-speed applications and gearless elevators for high-speed passenger operations in high-rise buildings. Otis also produces a broad line of escalators and, for horizontal transportation, moving walkways and shuttles. In addition to new equipment, Otis provides modernization products and services to upgrade elevators and escalators as well as maintenance services for a substantial portion of the elevators and escalators that it sells, as well as those of other manufacturers. Otis serves an international customer base, principally in the commercial and residential property industries (United Technologies, 2003).

Carrier

        Carrier, on the other hand, is the world's largest manufacturer of commercial and residential HVAC systems and equipment. Carrier is also a leading producer of commercial and transport refrigeration equipment, and provides aftermarket service and components for its products and those of other manufacturers in both the HVAC and refrigeration industries. The products manufactured by Carrier include chillers and air handling equipment, commercial unitary systems, residential split systems, residential furnaces, duct-free split systems and window air conditioners, as well as transport refrigeration, commercial refrigeration and food service equipment. Carrier's products and services are sold under Carrier and other brand names to building contractors and building owners, homeowners, shipping and trucking companies, supermarkets and food service companies. Sales are made both directly to the customer and through manufacturers' representatives, distributors, dealers, individual wholesalers and retail outlets (United Technologies, 2003).

Pratt & Whitney

        The third segment of the United Technologies company is Pratt & Whitney, considered as among the world's leading suppliers of commercial, general aviation and military aircraft engines. Pratt & Whitney provides overhaul and repair services, spare parts, and fleet management services for the engines it produces and other commercial and military jet and gas turbine engines. Pratt & Whitney products are sold principally to aircraft manufacturers, airlines and other aircraft operators, aircraft leasing companies and the U.S. and foreign governments.

        Pratt & Whitney currently produces two families of large commercial jet engines: the PW4000 engine series (powering the Airbus A310-300, A300-600 and A330-200/300 series of aircraft; the Boeing 747-400, 767-200/300 and 777-200/300 series of aircraft; and the out-of-production Boeing MD-11 aircraft) and the PW2000 engine series (powering the Boeing 757-200/PF/300 aircraft). Also, Pratt & Whitney has entered into a Memorandum of Understanding with Airbus to develop, market and sell PW6000 series engines for installation on Airbus A318 aircraft, expected to enter service during 2005. The PW6000 was certified by U.S. airworthiness authorities in January 2002.

        Pratt & Whitney currently produces three military aircraft engines: the F119 (powering the two-engine F/A-22 fighter aircraft), the F100 (powering two-engine F-15 and single-engine F-16 fighter aircraft) and the F117 (powering four-engine C-17 transport aircraft). The F119 and F117 are currently the only sources of propulsion for the F/A-22 fighter aircraft and C-17 transport aircraft, respectively. Pratt & Whitney is under contract with the U.S. Air Force ("USAF") to complete flight-testing and initial production of F119 engines through 2003. All of Pratt & Whitney's F100 sales contracts are with the USAF or with foreign governments. All of Pratt & Whitney's F117 sales contracts are with either the USAF or Boeing. Pratt & Whitney is also under contract with the USAF to develop the F135 engine, a derivative of Pratt & Whitney's F119 engine, to power the single-engine F-35 Joint Strike Fighter aircraft being developed by Lockheed Martin. Management cannot predict with certainty whether, when, and in what quantities Pratt & Whitney will produce F135 engines.

        Pratt & Whitney Canada ("P&WC") is a world leader in aviation engines powering business, regional, utility and military aircraft and helicopters. P&WC also designs and manufactures engines for auxiliary power units and industrial applications. Its operations and service network span the globe.

        Pratt & Whitney Space Propulsion ("SP") produces hydrogen fueled rocket engines for commercial and U.S. Government space applications, advanced turbo pumps for NASA's Space Shuttle program and solid fuel propulsion systems for civil and military applications.  SP also has a 50 percent interest in a joint venture with NPO Energomash that provides kerosene fueled RD-180 rocket engines for satellite launch applications.

        Pratt & Whitney Power Systems ("PWPS") supplies industrial power generation and mechanical drive equipment in the one megawatt to 50 megawatts range. PWPS also provides gas turbines for marine propulsion applications.

       Pratt & Whitney experiences intense competition for new commercial airframe/engine combinations, both from domestic and international manufacturers. In particular, Pratt & Whitney's major competitors in the sale of engines are General Electric Company and Rolls Royce (United Technologies, 2003).

Flight systems

            The fourth segment of the Corporation, the Flight Systems, provides global products and services through Hamilton Sundstrand and Sikorsky Aircraft. The Corporation acquired Sundstrand Corporation in 1999 and combined it with the operations of the former Hamilton Standard.

        Hamilton Sundstrand provides aerospace and industrial products and aftermarket services for diversified industries worldwide. Hamilton Sundstrand's principal aerospace products include aircraft power generation management and distribution systems; environmental, flight, fuel and engine control systems; fuel and special fluid pumps; auxiliary power units; propeller systems; electronic controls and components; and specialized instruments and chemical detection and monitoring equipment. Hamilton Sundstrand is also the prime contractor for NASA's space suit/life support system and produces environmental control, life support, mechanical systems and thermal control systems for international space programs. Hamilton Sundstrand's principal industrial products include air compressors, metering devices, fluid handling equipment and gear drives.

        Hamilton Sundstrand's aerospace businesses serve commercial, military, regional, business and general aviation, as well as space and undersea applications. Aftermarket services include spare parts, overhaul and repair, engineering and technical support and fleet maintenance programs. Hamilton Sundstrand aerospace products are sold directly to airframe manufacturers, the U.S. Government, aircraft operators and independent distributors. Hamilton Sundstrand sales of aerospace products to Boeing, Pratt & Whitney and Airbus, collectively, including sales where the U.S. Government was the ultimate customer, were 12.1 percent of Flight Systems segment sales in 2002.

        Hamilton Sundstrand's industrial products serve industries involved with raw material processing, bulk material handling and construction (including mining; metal and other material processing; hydrocarbon and chemical processing; and water and waste water treatment). These industrial products are sold directly to end-users, through manufacturer representatives and distributors and through engineering contractors. Demand for Hamilton Sundstrand's industrial products is tied closely to the level of general economic activity. Hamilton Sundstrand believes that its research and development, proprietary technology, and product and service reputations have been significant in maintaining its competitive standing.

        Sikorsky is one of the world's largest manufacturers of military and commercial helicopters and is the primary supplier of transport helicopters to the U.S. Army and Navy. Sikorsky also supplies helicopters to foreign governments and the worldwide commercial market. Sikorsky's aftermarket business, which includes spare parts sales, overhaul and repair and service contracts for helicopters and other aircraft, has become a more significant part of Sikorsky's business in recent years. During 2002, Sikorsky acquired Derco Holding, a supplier of military aircraft logistics and component distribution, component repairs, and aftermarket program management.

        Current production programs at Sikorsky include the Black Hawk medium-transport helicopter for the U.S. and foreign governments; the MH-60 Fleet Combat Support helicopter for the U.S. Navy; the International Naval Hawk for multiple naval missions; and the S-76 intermediate-sized helicopter for commercial operations. Under a multi-year contract with the U.S. Government, Sikorsky has delivered 249 Black Hawk helicopters, with the remaining three helicopters scheduled for delivery this year. A new multi-year contract was signed in 2002 that provides for additional deliveries of 80 Army and 82 Navy helicopters over the next five years. Under a $238 million research, development and test contract, Sikorsky is performing work to evaluate the potential for upgrading the U.S. Army fleet of Black Hawks.

Part 2

Overview of United Technologies’ financial condition

            In brief, the Corporation earned a total of $28.2 billion in revenues in 2002. Pratt & Whitney, Hamilton Standard, and Sikorsky accounted for 46 percent of these revenues, while Otis and Carrier contributed 54 percent.  Of the total revenues, 56 percent was derived from international transactions. Moreover, $4.6 billion in revenue was achieved through sales to the US Government. (United Technologies, 2003).

Further, the Corporation reported a net income of $2.236 billion in 2002. It likewise declared its assets as amounting to $29 billion by the end of last year, while capital expenditures were at $586 million.

Specifically, the Otis business unit reported total revenues worth $473 million in 2002, largely due to the increase in sales of new equipment and services. It earned 77 percent of its revenues from its international transactions in 200;and  declared a backlog of $4,177 million last year.

Carrier, on the other hand, achieved $122 million in revenues in 2002, a 1 percent drop from their 2001 figures. This, according to management, was due to the continued weakness in the North American and European commercial HVAC markets. Consequently, international operation revenues were only 48 percent of total revenues during the same year. Carrier likewise reported a $1,028 million backlog during this year.

Further, Pratt & Whitney total revenues were at $34 million in 2002, a less than 1 percent drop from their 2001 figures, largely due to decreased sales in power systems and spare parts. International operation revenues were declared at 54 percent in 2002, with business backlog amounting to $13,030 million that same year.

In addition, flight systems reported a $279-million revenue in 2002, 5 percent better than their figures in 2001. Higher value helicopter shipments accounted for this improvement in business unit revenue. International operations accounted for 25 percent of its revenues in 2002. Business backlog was at $3,642 million during that same year.

Table 2 provides a more elaborate illustration of the Corporation’s financial status during the last five years.

Table 2. Five-Year Financial Summary of United Technologies Corporation (Annual Report,  2002).

 

 

 

 

 

 

 

Part 3

 

Analysis

 

It has always been the belief that organizations should maintain high levels of integrity, credibility, transparency, and accountability for them to rise to the level of a well-respected global brand. Just as in individuals, appropriate core values play a significant role in forming successful personalities. With United Technologies, its set of core values was perhaps the cornerstone of its success. Performance, keeping promises, transparency in its transactions with clients and employees, and open communication lines with its stakeholders are explicitly encouraged by the company.

Moreover, for a huge conglomerate involved in high technology products and services, United Technologies’ massive budget for research and development served as integral component of its success. In 2002 alone, the company allocated $2.38 billion in R&D funds, thus allowing it to discover new mechanisms to improve their products and services, thereby maintaining its competitive advantage over its competitors.

Its globalization strategy likewise served as one of the factors that contributed to the company’s success. Investing in countries such as Argentina, Brazil, China, Russia, and South Korea which have higher currency levels served as potent challenge to the strength of the Company.

However, an imminent threat from other manufacturers on the level of the company’s technologies is on the rise. While the company has allotted massive funds to support research and development activities, there might still be a need to enter into joint funding agreements with its partners to pursue further technological developments at lesser costs.

Moreover, highly advanced and massive companies such as United Technologies are not without environmental threats. With this, there might be a need to discover new mechanisms to prevent environmental damages in the course of the company’s operations, as much as possible. While the company enforces stringent policies and environmental standards in its worldwide operations, and allotted a huge financial allocation of $439 million in 2002 as reserve for environmental remediation, environmental damages by heavy industries such as United Technologies often take long periods of counteractive measures (if not irreversible).  There is a great need to come up with more environment-friendly technologies, not just to minimize the environmental threats but also to allow for the channeling of a greater part of the company’s environmental remediation funds to more productive endeavors.

 

 

 

 

Part 4

 

Conclusion

 

 

            These are difficult times for any other business. And while United Technologies reap considerable profits, chances are these will not be as significant as it was in earlier years. Company management likewise views financial matters rather bleakly. With the after-effects of the September 11 attacks still distressing commercial airline clients, the US-Iraq war still in the air, and the SAR outbreak in Asia, United Technologies can only brace for what is still ahead and look beyond these challenges and see opportunities for further improvement.

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[1] Based on United Technologies Corporation’s Annual Report on Form 10-K for the Year Ended December 31, 2002, submitted to the US Securities and Exchange Commission