Friday, December 15, 2017

In Delta Deal, United Tech Gets a Boost for Troubled Jet Engine Program: Airline picks Pratt & Whitney rather than rival engine maker CFM

The Pratt & Whitney geared-turbofan engine, as seen on display in July on Capitol Hill in Washington, D.C.

The Wall Street Journal
By Thomas Gryta
Dec. 15, 2017 3:33 p.m. ET

Delta Air Lines Inc.’s jet deal with Airbus SE is also a win for United Technologies Corp., which is supplying the engines through its Pratt & Whitney unit and is trying to put production problems behind it.

The Farmington, Conn.-based conglomerate has struggled with the reliability of its geared-turbofan engine that powers Airbus’s single-aisle airplanes, and the jet supplier has complained in the past that Pratt engine shortages were delaying its deliveries.

Delta’s decision to go with Airbus and Pratt is a sign of confidence in the Pratt geared-turbofan, or GTF, engine as well as “UTC’s ability to meet its aggressive targets to increase production over the rest of this decade,” said Nicholas Heymann, an analyst with William Blair & Co. The engine portion of the deal could be worth up to $1.5 billion to $1.6 billion for Pratt, though that figure could be lower after discounts, he said.

The GTF engine is a big bet for United Technologies, which spent $10 billion over 10 years developing it. Unlike traditional turbofan engines, the GTF uses a system in which the front and back end of the engine spin at different rates, allowing it to run more efficiently. It has helped Pratt compete with aviation rival General Electric Co. in a way that it hasn’t for decades.

Pratt has a backlog of more than 8,000 orders for the GTF engine, but there are only 120 aircraft currently powered by it, spread over 18 different operators. The company has said it is on track to ship 350 to 400 engines this year.

Its ability to ramp up production to 750 to 800 engines in 2018 is being closely watched by investors, Mr. Heymann said. The Pratt business accounted for about a quarter of United Technologies’ $57.24 billion in revenue last year.

“I think the industrial issues are largely behind us,” said Chris Calio, president of commercial engines for Pratt & Whitney. “It is a further endorsement of our technology.”

The company declined to comment on how much the company stands to make on the Delta deal.

CFM International, a joint venture between GE and France’s Safran SA that also supplies engines to Airbus, played down the deal, saying it “made a highly competitive offer” to win but that it wasn’t willing to undercut Pratt.

“The financial terms reached a level that simply were not in the best interest of our shareholders,” a spokesman said. CFM has orders for more than 14,000 of its Leap engines.

The Delta deal also makes the Atlanta-based airline a maintenance provider for the Pratt engines, bringing more work for Delta’s in-house servicing arm. United Technologies, like other aerospace companies, is looking to grow the lucrative service business and has warned plane makers not to attempt to steal it away.  

Mr. Calio said Pratt has had success in reaching such service agreements, but it needs additional providers in its network to help do the work as thousands of engines are expected to go into use in the coming years. It has similar agreements with engine maker MTU Aero Engines AG and Deutsche Lufthansa AG.

—Doug Cameron contributed to this article.

Original article can be found here ➤

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