United Technologies Corporation Business Information, Profile, and History

Company Perspectives:

United Technologies provides high technology products to the aerospace and building systems industries throughout the world. UTC's companies are industry leaders and include Pratt & Whitney, Carrier, Otis, International Fuel Cells, Hamilton Sundstrand, Sikorsky and our world-class Research Center.

History of United Technologies Corporation

United Technologies Corporation (UTC) is one of the largest conglomerates in the United States and a major military contractor. Although it keeps a low profile, UTC's holdings (Carrier, Hamilton Sundstrand, Otis, Pratt & Whitney, and Sikorsky) are among the leading companies in their respective fields. Stung by global recession in the 1990s, UTC has embarked upon a never-ending quest to cut costs, and jobs, much to the displeasure of its unions.

Origins

United traces its origins to Fred Rentschler, who founded the Pratt & Whitney Aircraft Company in 1925 as one of the first companies to specialize in the manufacture of engines, or 'power plants,' for airframe builders. Pratt & Whitney's primary customers were Bill Boeing and Chance Vought. Interested in securing a market for his company's engines, Rentschler convinced Boeing and Vought to join him in forming a new company called the United Aircraft and Transportation Company. The company was formed in 1929, and thereafter Pratt & Whitney, Boeing, and Vought gave exclusive priority to each other's business.

Early in its history, United Aircraft became so successful that it was soon able to purchase other important suppliers and competitors, establishing a strong monopoly. The group grew to include Boeing, Pratt & Whitney, and Vought, as well as Sikorsky, Stearman, and Northrop (airframes); Hamilton Aero Manufacturing and Standard Steel Prop (propellers); and Stout Airlines, in addition to Boeing's airline companies.

The men who led these individual divisions of United Aircraft exchanged stock in their original companies for stock in United. The strong public interest in the larger company drove the value of United Aircraft's stock up in subsequent flotations. The original shareholders quickly became very wealthy; Rentschler himself had turned a meager $253 cash investment into $35.5 million by 1929.

During this time, U.S. Postmaster William Folger Brown cited United Aircraft as the largest airline network and the most stable equipment supplier in the country. Thus, the company was assured of winning the postal service's lucrative airmail contracts before it applied for them. The company's airmail business required the manufacturing division to devote all of its resources to expansion of the airline division. Soon United Aircraft controlled nearly half of the nation's airline and aircraft business, becoming a classic example of an aeronautic monopoly.

Breaking Up in the 1930s

In 1934, Senator Hugo Black initiated an investigation of fraud and improprieties in the aeronautics business. Bill Boeing was called to the witness stand, and subsequent interrogation exposed United Aircraft's monopolistic business practices, eventually leading to the break-up of the huge aeronautic combine. Thereafter, Boeing sold all of his stock in his company and retired. In the reorganization of the corporation, all manufacturing interests west of the Mississippi went to Boeing Airplane in Seattle, everything east of the river went to Rentschler's United Aircraft in Hartford, and the transport services became a third independent company under the name of United Air Lines which was based in Chicago.

Chance Vought died in 1930, and his company, along with Pratt & Whitney, Sikorsky, Ham Standard and Northrop, became part of the new United Aircraft Company. Sikorsky became a principal manufacturer of helicopters, Pratt & Whitney continued to build engines, and Vought later produced a line of airplanes including the Corsair and the Cutlass.

At the onset of World War II, business increased dramatically at United's Pratt & Whitney division. The company produced several hundred thousand engines for airplanes built by Boeing, Lockheed, McDonnell Douglas, Grumman, and Vought. Over half the engines in American planes were built by Pratt & Whitney. After the war, United Aircraft turned its attention to producing jet engines. The Pratt & Whitney subsidiary's entrance into the jet engine industry was hindered, however, as customers were constantly demanding improvements in the company's piston-driven Wasp engine. In the meantime, Pratt & Whitney's competitors, General Electric and Westinghouse, were free to devote more of their capital to the research and development of jet engines. Thus, when airframe builders started looking for jet engine suppliers, Pratt & Whitney was unprepared. Even United Aircraft's Vought division had to purchase turbo jets for its Cutlass model from Westinghouse.

Postwar Jets

Recognizing the gravity of the situation, United Aircraft began an ambitious program to develop a line of advanced jet engines. When the Korean War began in 1950, Pratt & Whitney was again deluged with orders. The mobilization of forces gave the company the opportunity to reestablish its strong relationship with the Navy and conduct business with its newly created Air Force.

In the early 1950s, United Aircraft experienced a conflict of interest between its airframe and engine manufacturing subsidiaries, as Vought's alternate engine suppliers--Westinghouse and General Motors' Allison division--were reluctant to do business with a company so closely associated with their competitor, Pratt & Whitney. On the other hand, Pratt & Whitney's other customers, Grumman, McDonnell, and Douglas, were concerned that their airframe technology would find its way to Vought. As a result, both of United Aircraft's divisions were suffering, and, in 1954, the board of directors voted to dissolve Vought.

In 1959, Fred Rentschler died, following a long illness, at the age of 68. Commenting on Rentschler's role in developing engine technology to keep pace with that of the Soviet Union, a reporter in the New York Times stated: 'This nation's air superiority is due in no small measure to Mr. Rentschler's vision and talents.' Rentschler was succeeded as president of United Aircraft by W.P. Gwinn, while Jack Horner became chairman of the company's subsidiary Pratt & Whitney.

United Aircraft continued to manufacture engines and a variety of other aircraft accessories into the 1960s. Much of its business came from Boeing, which had several Pentagon contracts and whose 700-series jets were capturing 60 percent of the commercial airliner market. When Horner retired in 1968, he was succeeded by Gwinn. While this change in leadership was of little consequence to United Aircraft, which was running smoothly, Pratt & Whitney was about to enter a period of crisis.

First, there was considerable trouble with Pratt & Whitney's engines for Boeing's 747 jumbo jet. The problem, traced to a design flaw, cost Pratt & Whitney millions of dollars in research and redevelopment. Moreover, it also cost millions of dollars for Boeing in service calls and lost sales. Commercial airline companies suffered lost revenue from canceled flights and reduced passenger capacity.

A Change of Vision in the 1970s

By 1971, the performance of the Pratt & Whitney division had begun to depress company profits. The directors of United Aircraft acted quickly by hiring a new president, Harry Gray, who was drafted away from Litton Industries. Harry Gray was born Harry Jack Grusin in 1919. He suffered the loss of his mother at age six and was entrusted to the care of his sister in Chicago, when his father's business was ruined in the Depression. In 1936, he entered the University of Illinois at Urbana, earning a degree in journalism before serving in Europe with General Patton's Third Army infantry and artillery during World War II. After the war, he returned to Urbana, where he received a Master's degree in journalism. In Chicago, Grusin went through a succession of jobs, working as a truck salesperson and as a manager of a transport company. In 1951, he changed his name to Harry Gray, according to the court record, for 'no reason.' He moved to California in 1954 to work for the Litton Industries conglomerate, and he spent the next 17 years at Litton working his way up the corporate ladder.

Hindered in promotion at Litton by superiors who were not due to retire for several years, Gray accepted an offer from United Aircraft. While at Litton, Gray had been invited to tour General Electric's facility in Evandale, Ohio. Litton was a trusted customer of General Electric, and consequently Gray was warmly welcomed. He was made privy to rather detailed information on GE's long-range plans. A few weeks later, officials at GE read that Gray had accepted the presidency at their competitor United Aircraft. The officials protested Gray's actions but were casually reminded that Gray had asked not to be informed of any plans of a 'proprietary' nature during his visit to the GE plant.

One of Gray's first acts at United Aircraft was to order an investigation into and reengineering of the Pratt & Whitney engines for Boeing's 747. He then sought to reduce United Aircraft's dependence on the Pentagon and began a purchasing program in an effort to diversify the business. In 1974, United Aircraft acquired Essex International, a manufacturer of wire and cables. One year later, the company purchased a majority interest in Otis Elevator for $276 million, and, in 1978, Dynell Electronics, a builder of radar systems, was added to the company's holdings. Next came Ambac Industries, which made diesel power systems and fuel injection devices.

United Aircraft changed its name to United Technologies (UTC) in 1975 in order to emphasize the diversification of the company's business. Acquisitions continued, as UTC purchased Mostek, a maker of semiconductors, for $345 million in 1981. Two years later, the company acquired the Carrier Corporation, a manufacturer of air conditioning systems. In addition, UTC purchased several smaller electronics, software, and computer firms.

Gray was reportedly known to maintain a portfolio of the 50 companies he most wanted to purchase; virtually all of his targets, including the ones he later acquired, viewed Gray's takeovers as hostile. Some of the companies which successfully resisted Gray's takeover attempts were ESB Ray-O-Vac (the battery maker), Signal (which built Mack Trucks), and Babcock and Wilcox (a manufacturer of power generating equipment).

During the 1980s, UTC operated four principal divisions: Power Products, including aircraft engines and spare parts; Flight Systems, which manufactured helicopters, electronics, propellers, instruments and space-related products; Building Systems, encompassing the businesses of Otis and Carrier; and Industrial Products, which produced various automotive parts, electric sensors and motors, and wire and printing products. The company, through its divisions, built aircraft engines for General Dynamic's YF-16 and F-111 bomber, Grumman's F-14 Tomcat, and McDonnell Douglas' F-15 Eagle. In addition, it supplied Boeing with engines for its 700-series jetliners, AWACs, B-52 bombers, and other airplanes. McDonnell Douglas and Airbus also purchased Pratt & Whitney engines.

Gray, who aimed to provide a new direction for UTC away from aerospace and defense, proved to be one of the company's most successful presidents. He learned the business of the company's principal product, jet engines, in a very short time; upon his appointment as president of United Aircraft, sales for the year amounted to $2 billion, and, by 1986, the company was recording $16 billion in sales. A year after he joined the company, Gray was named CEO, and soon thereafter he became chairman as well. In his 15 years at UTC, Gray completely refashioned the company. As Gray's retirement drew near, however, UTC's directors had a difficult time convincing him to relinquish power and name a successor. When a potential new leader appeared to be preparing for the role, Gray would allegedly subvert that person's power. One former UTC executive commented, 'Harry equates his corporate position with his own mortality.'

One welcome candidate to succeed Gray was Alexander Haig, who had served on UTC's board. However, Haig left the company after being appointed secretary of state in the Reagan administration. The members of the UTC board then created a special committee to persuade Gray to name a successor. Finally, in September 1985, Robert Daniell (formerly head of the Sikorsky division) was appointed to take over Gray's responsibilities as CEO of UTC. Nevertheless, Gray remained chairman.

Getting Rid of Gray in 1986

In light of the poor performances posted by the company's various divisions, some industry analysts were beginning to question Gray's leadership. His refusal to step aside threatened the stability of UTC. With the $424 million write-off of the failed Mostek unit, many analysts began talking of a general dissolution of UTC; the divisions were worth more individually than together. But these critics were silenced when Gray announced in September 1986 that he would retire and that Daniell would take his place.

Even before the official departure of Gray, Daniell had moved quickly to dismantle the company's philosophy of 'growth through acquisition.' Hundreds of middle-management positions were eliminated, and there was speculation that some of the less promising divisions would be sold. Daniell told the Wall Street Journal, 'This is a new era for United Technologies. Harry Gray was brought here to grow the company. But now the company is built, the blocks are in place and growth will be a secondary objective.' Daniell then had to prove that neither Gray's overstayed welcome nor his departure would affect the company adversely.

Daniell also had more pressing challenges. The U.S.S.R.'s collapse in the late 1980s revealed that it had been a much weaker military foe than previously believed. As a result, the end of the Cold War brought Congressional and public pressure to cut domestic defense budgets. While some other leading defense companies moved to carve out niches in the shrinking market, UTC worked to strengthen its interests in more commercial industries.

UTC's transition was not smooth, and Pratt & Whitney suffered the most. While in 1990 Pratt & Whitney had brought in one-third of UTC's sales and an impressive two-thirds of operating profit, the subsidiary's losses from 1991 to 1993 reached $1.3 billion. Pratt & Whitney was hampered not only by defense cuts, but also by the serious downturn in the commercial airline industry, intense global competition, and a worldwide recession. Moreover, saturation of the commercial real estate market during this time caused declines in demand for elevators and air conditioners, products manufactured by UTC's Otis and Carrier subsidiaries. These companies also recorded losses for 1991. That year, UTC also faced six charges of illegal dumping against its Sikorsky Aircraft division. In the largest penalty levied under the Resource Conservation & Recovery Act up to that time, UTC agreed to pay $3 million in damages.

In 1992, Daniell brought George David, who had been instrumental in the revival of both the Otis and Carrier units, on board as UTC president. David, in turn, tapped Karl Krapek, who was called a 'veteran turnaround artist' by Financial World, to lead the beleaguered Pratt & Whitney subsidiary. Krapek quickly reduced employment at the unit from a high of 50,000 to 40,000 by the beginning of 1993. The divisional reformation also focused on manufacturing, with the goals of shortening lead times, reducing capacity, and expediting processes. Overall employment at UTC was cut by 16,500 from 1991 to 1993.

By the end of 1993, Daniell was able to report positive results; UTC made $487 million on sales of $20.74 billion. In April 1994, after leading the corporation for nearly a decade, Daniell appointed David as the company's CEO, retaining his position as UTC's chairman.

Otis's annual revenues remained in the $4.5 billion range in the early to mid-1990s, while Carrier's rose from $4.3 billion in 1992 to nearly $5 billion in 1994. During the same period, automotive sales rose from $2.4 billion to $2.7 billion. Pratt & Whitney saw commercial engine revenues fall by $800 million, to 2.9 billion. Military and space engine sales fell from $2.5 billion to $1.8 billion while general aviation sales fell by about ten percent to $1.1 billion. During this time, the company paid $180 million for environmental remediation at more than 300 sites. Although cost-cutting improved profits by the mid-1990s, UTC continued cutting jobs.

UTC entered more than a dozen joint ventures overseas while the aerospace industry suffered a recession. The company derived a little over half of its revenues from abroad, and enjoyed strong growth in Asia in the mid-1990s, at least until the Asian financial crisis of 1997. In 1996, UTC had revenues of $1 billion in the People's Republic of China and Hong Kong.

Some technical developments seemed promising. Pratt & Whitney unveiled its most powerful engine ever in 1996. The PW4090 was rated at 90,000 pounds of thrust. (Three years later, the company tested the PW4098, rated at 98,000 pounds.) The new Odyssey system at Otis allowed elevator cars to move both vertically and horizontally.

In January 1997, Sikorsky and Boeing won a $1.7 billion contract to continue developing their RAH-66 Comanche armed reconnaissance helicopter. Sikorsky was able to maintain production levels of its Black Hawk helicopter. Pratt & Whitney engines were chosen for two new military aircraft programs, the F-22 fighter and the C-17 freighter. On the civilian side, Otis Elevator cut 2,000 jobs as sales fell in the wake of the Asian financial crisis. It also closed its Paris headquarters and most of its engineering centers.

UTC was able to save money on commodities by having its thousands of vendors bid online. These types of products accounted for about a quarter of the $14 billion the company spent on outside goods and services, according to the Financial Times. International revenues accounted for about 56 percent of UTC's total in the late 1990s, reaching 60 percent in 1999. Profits were rising in all divisions except UT Automotive.

Reconfiguring for the Future

UTC bought Sundstrand Corp. for about $4 billion in 1999, merging it with Hamilton Standard. Sundstrand derived 60 percent of its $2 billion in annual revenues from aerospace products. On the recommendation of the Goldman, Sachs & Co. investment bank, UTC decided to sell its automotive parts unit in the light of growing price pressure from automakers. Lear Corporation bought the business for $2.3 billion in May 1999. Otis Elevator entered a joint venture with LG Industries in South Korea while Carrier bought out North American competitor International Comfort Products and allied with the Toshiba Corporation.

Layoffs continued at Sikorsky, Carrier, Pratt & Whitney, Hamilton Sundstrand, and Otis--part of a new wave of company-wide restructuring designed to reduce UTC's total workforce by ten percent, or 15,000 jobs. However, in February 2000, a federal judge barred Pratt & Whitney from moving engine repair work out of Connecticut, saying this violated an existing union agreement. Plans to close Hamilton Sundstrand's Connecticut electronics facility also prompted complaints this was aimed at taking away about 400 jobs from the machinists' union.

The company bought Cade Industries, a Michigan aerospace supplier, in February 2000. The next month, UTC announced a new engine overhaul joint venture with KLM, the Dutch airline, which already had a relationship with Hamilton Sundstrand.

Principal Subsidiaries: Carrier Corporation; Hamilton Sundstrand Corporation; Otis Elevator Company; Pratt & Whitney; Sikorsky Aircraft Corporation.

Principal Divisions: Carrier; Otis; Pratt & Whitney; Flight Systems.

Principal Competitors: The Boeing Company; General Electric Company; Textron Inc.

Chronology

• Key Dates:

• 1929: Aircraft makers Bill Boeing and Chance Vought join forces with Pratt & Whitney.
• 1934: United Aircraft officially incorporates from the triumvirate's eastern manufacturing assets.
• 1945: Pratt & Whitney powers half of all U.S. planes built during World War II.
• 1954: Aircraft manufacturer Vought dissolves due to conflicts of interest with P & W.
• 1975: United Aircraft buys majority of Otis Elevator; changes name to United Technologies.
• 1983: UTC buys Carrier Corporation, an air conditioner manufacturer.
• 1991: Amid global recession, P & W, Otis, and Carrier post losses.
• 1992: Major restructuring is launched by new management.
• 1999: UTC sells its auto parts business and buys aerospace supplier Sundstrand Corp.