Posts Tagged “UTC”
The ongoing saga between Boeing and Bombardier is a lot more than just about these two companies. If the DOC sides with Boeing (the generally expected political outcome) then who else gets hurt by this? Here is a list of major components making up the aircraft and the vendors that supply them, and how large the US manufacturing impact could be.
The third column lists the companies in the UTC combine. We included Rockwell Collins inputs as part of the UTC column, recognizing the pending merger. There are 28 main items that go into the C Series. Of these, 10 (36%) are from the UTC combine.
Bombardier has said the C Series is made up of 55% components from US suppliers. Another number is that 50% of the value of the C Series is provided by U.S.-based companies. Bombardier won’t provide a breakdown for each vendor, as it changes over time and remains confidential.
The Bottom Line
UTC alone accounts for over one-third of the major components of the aircraft. This is why imposing tariffs on the C Series program will negatively impact over 22,000 high-skill jobs in the USA. Over half of the C Series is produced in the US. The CS100 aircraft doesn’t compete with the 737, so US aerospace supply chain jobs WILL be negatively impacted if the DOC sides with Boeing over Bombardier, as the replacement aircraft would likely come from Brazil rather than the Canada.
Boeing claimed a victory from the latest round of WTO rulings – Airbus, of course, differed in their interpretation. Irrespective, the WTO rulings have no teeth and are largely a game for government officials, bureaucrats, and attorneys. By the time any decision is taken, appealed, and re-appealed, the original topic is usually moot. But it appears that the 777X wing factory, built with the largesse of the State of Washington, is safe, as everyone knew it would be.
Boeing also just doubled down on its position against Bombardier. “In Canada, we face a situation with a competitor, an emerging competitor, that has, yes, long received government support – but that just went beyond the pale in 2016,” said Marc Allen, president of Boeing’s international division. Boeing apparently sees a potential new Airbus in Bombardier. Apparently, only Boeing does not think this case is as ridiculous as nearly everyone else in the industry since they no longer make any aircraft that competes with the CS100 that Delta purchased.
Boeing has a number of fights to contend with. Their drained financial condition and inability to fund a new narrow-body aircraft to “one-up” Bombardier or Airbus mean that Boeing is likely to continue to go to Washington DC to seek economic protectionism and favors. But in Washington, the threat to Boeing has also turned as American as apple pie. Several US lawmakers are already skeptical of Boeing’s claim against Bombardier, particularly the impacts it will have on local congressional districts. Boeing is no longer just tangling with Bombardier, Canada is joining the fight. Should the US Department of Commerce decide to impose tariffs on Bombardier, there is a very good chance Boeing will lose its fighter deal with Canada. This is not a win-win situation for Boeing but could be very good news for another fighter OEM.
But then came the biggest news, and next potential battlefield – UTC’s deal to buy Rockwell Collins. If Boeing fears Bombardier, the UTC deal should absolutely terrify Boeing. The newer, bigger, UTC will be a manifest threat to Boeing. Boeing issued a statement indicating: “We intend to take a hard look at the proposed combination of United Technologies and Rockwell Collins. Until we receive more details, we are skeptical that it would be in the best interest of—or add value to—our customers and industry.” On an order of magnitude impact, the WTO case just disappeared into a puff of smoke, and Bombardier became irrelevant.
This will undoubtedly turn into a fight that Boeing isn’t used to, a fight between US-based relative equals. Boeing needs a number of parts and pieces from the new UTC. No other aerospace company has the same heft, nor as broad a footprint, as the new UTC, except perhaps the new SAFRAN if Thales joins the group as rumored. From engines to avionics, interiors, landing gear, electrical systems and other offerings, UTC could nearly assemble a full aircraft from the parts it provides. UTC now easily represents more than 60% of the content of the Boeing 787 and is unlikely to be pushed around by the Boeing when the next negotiations occur.
Boeing (and Airbus) are rightly nervous about the new UTC. Both OEMs have been moving into the services business, much to the annoyance of the supply chain. As Jim Cramer points out: “Boeing can play off everybody…. but If you own the landing gear, you own the brains, you own the inside, the seating, you can be a player that can say to Boeing ‘we’re not part of your partners’ plan.’ To be able to make you more money, you’re going to make us more money. So it changes the balance of power.”
UTC builds just about everything that goes on an aircraft, with the exception of the fuselage and wings. But if it seeks to return to its origins in manufacturing commercial aircraft, all it would need is another acquisition – someone like Spirit for example, with a majority of the aircraft being from the combined UTC – to fully compete with Boeing or Airbus.
The question that needs to be analyzed is where the innovations in aviation come from – the airframe OEMs or the supply chain. With increasing technological complexity in both airframes and components, the answer is both. Imagine a Boeing without the combination of products from UTC and its Goodrich and Rockwell Collins acquisitions. We couldn’t pull together a list of alternative suppliers with the same capabilities and technologies, and a transition would be exceptionally difficult for Boeing.
Boeing recently changed the balance of power with the supply chain with its Partnering for Success program, which was an effective 10-15% price cut in favor of Boeing. Their second effort resulted in additional marginal gains, and rumors of a PFS III are rampant in the supplier community, wondering when and how hard the next shoe will drop.
When PFS was introduced, UTC balked, and Boeing awarded the 777X landing gear to Heroux-Devtek, a Montréal-based manufacturer that, while capable, has never built a gear quite that large. UTC heard the message loud and clear.
But instead of playing dead and acquiescing to Boeing’s wishes, it decided that the acquisition of Rockwell Collins, and growing the critical mass represented by UTC to become so large that it is unlikely that any aircraft manufacturer could dare attack their margins again. They know it, and so does Boeing. This is a deal that changes supply chain leverage from the OEMs favor towards the supplier, and equalizes the playing field. Meanwhile, other suppliers are hoping that whatever favors UTC can gain will trickle down to keep the playing field level.
Can Boeing shut off UTC if its demands become too great? Of course, it can, but it would be like cutting off its nose to spite its face – an ugly arrangement. The balance of power has shifted, and there is a new 900-pound gorilla in the zoo pounding its chest. It will be interesting to watch this class over the next few years.
In a quick review of the market, we can see how the engine market has grown in sympathy with the demand for commercial aircraft. In the first chart, we show the national origin of the engines. The numbers for Canada jump in 2009 because our data source added turboprops from that period. The overall market grew from nearly 14,000 engines in 2000 to close to 27,000 engines by 2016 – a growth of over 92%.
If we break down the engine data by each engine maker we get the following busy chart. By far the most impressive growth has come from CFM, which went from ~3,600 engines to ~10,750. The chart is busy because many OEMs share projects or have subsidiaries.
Cleaning up and categorizing the data into specific OEMs, we get the following cleaner chart. Here we show market share. The CFM performance now stands out and demonstrates just how big its role in the industry has become. Supplying the A320 family and being exclusive on the 737 has provided tremendous benefits. Compared to this, look at UTC which had well over a third of the market in 2000 and now has shrunk to just over a quarter. This offers a guide as to how crucial the GTF is to the future of the company. It is no wonder that UTC is deploying so much of its aero engine capital to ensure the success of that program. Fortunately, it has some superb products, like the PT-6 and PW800, to provide such support.
Rolls-Royce also saw a market share shrink, but a much smaller one. Tying itself to the A330 and A350 program should ensure growth again. But with a focus on widebody aircraft, Rolls-Royce missed out on the explosive growth in the single-aisle segment. On the other hand, GE focused on Boeing’s 777 and 787 programs, which saw high growth over the period. Being a partner in CFM has obviously helped, too. It will be interesting to see if the 777X sells anything like the earlier models. If it does not, GE will need to revisit its strategy. But with a pending 797 to come, GE does have an advantage of being selected as an engine option given its close relationship with Boeing. P&W and Rolls-Royce will likely battle to be the other option.
On Tuesday we had an opportunity to speak with John Saabas, President of Pratt & Whitney Canada. While our discussion was wide ranging, we focused on four major thrusts for the company — the ground breaking PW800, the forthcoming advanced turboprop for regional aircraft, future plans for the venerable PT6, and the APU market.
The PW800 engine is a new technology engine for large business jets. It combined the core of the new geared turbofan engine with a smaller fan to accommodate the dimensions and fuselage mounting of engines on business jet aircraft. The engine has been selected for the Gulfstream 500 and 600, and has been well received by the marketplace.
Currently P&WC has 17% of the heavy jet (5000+ miles range) market. With Gulfstream deliveries, this going to jump to 50%. Things are looking good for other programs, as well, and the engine is currently under consideration by Cessna for their new Hemisphere aircraft. In addition to new aircraft, an opportunity will exist to re-engine older Challenger 600, 601, and 603 series aircraft, adding more power and speed for those aircraft while reducing fuel burn. The core of the engine is the same one used on the CSeries, and with the MRJ core forthcoming, P&WC could readily have another engine available in the 10,000 to 12,000 pounds thrust category. With the neo core they could get up to 20,000 pounds thrust for even larger applications, although there’s nothing on the horizon for that quite yet. But the heavy jet segment is worth about 270 aircraft per year. Then add 2-3% growth, things look good for P&WC in that market. Despite China having seen a slowdown, and also Brazil, with the PW800 John believes the company has a good future, indicating “it’s a good place for us to play.”
Another possibility for the PW800 is the Dassault Falcon 5X, which has been delayed two years because of Snecma’s difficulties with the Silvercrest engine. While Dassault has indicated they intend to stay with the Silvercrest, the next six months will determine what happens. We are keeping very close to them in that regard. P&WC has a strong reputation and long history with Dassault – almost 18 years. The Silvercrest was also the original selection for the Cessna Hemisphere, but that process has now been re-opened.
We asked about the potential for a re-engining of the Bombardier CRJ. John indicated that P&WC has not put any thought into this, but could easily use a lower thrust PW800. A PW812 would be feasible. “We would not be worried at all about the “hammering” an engine like this would take with many short cycles per day because we’d use the MRJ core, and that core is designed for the same type of flight schedules.” Any stress would be in the core and the core can handle that. But they haven’t been asked to look at that.
P&WC recently announced a new Advanced Turboprop to replace the PW100 series for the regional market, with a substantial upgrade in performance. We asked John about this engine and applications. He indicated that P&WC still believes there is a need for a 100-seat turboprop. There is need for a new airframe and cabin, with features like active noise balancing and propeller balancing. We’ve completed the design for the compressor for our NGRT – our compressor is mapped out. We are looking at a range between 3,500 to 6,000 SHP. The new engine will offer better SFC, lower noise and lower operating costs than the PW150.
Our belief is that someone will need to invest in a true 100-seat turboprop. We would offer 35% better fuel efficiency on a typical 500NM mission than a jet. The challenge is to make the cabin comfort similar to that of a jet to ensure passenger preference.
We asked John about longer-term threats, particularly the Siemens/Airbus joint venture to develop a hybrid aircraft engine. John indicated that P&WC is aware of the Siemens/Airbus hybrid development program, but that it’s not clear what will result from that program – how much of the engine will be electric? We could see a co-existence for the next twenty years of various technologies. We have the experience with the market and supporting operators in this market. It’s not only about SFC – it’s also about product support. Today we can offer additional support in terms of data, pro-active maintenance systems that improve engine time on wing. We have continuously improved our maintenance costs to enable our customers to stay competitive.
We are also developing our engine propeller electric control systems (EPECS) which has patents pending. We should demonstrate this technology within a year from now. It’s a full FADEC with propeller controls and health monitoring built in. We need a new aircraft program to drive this innovation.
John began by indicating that the PT6 is not an engine – but a family of engines ranging from 500 shp to 1900 shp. Although it dates back to 1963, the power to weight has improved 50%, SFC improved 20%, with pressure ratios now up to 14:1. The PT6 is a family that has evolved a lot. But it is more than an engine. It’s a brand. It a modular design that has allowed P&WC to mix and match – up to 120 variants with 89 applications and 45 of those applications over the last 52 years still in production.
The PT6 is a vast thing that keeps evolving. We have 400m hours of flying time! We have a total shutdown of 3 per million flight hours. Nobody is going to replace the PT6 tomorrow. And we are currently investing in what the next generation PT6 will be. John indicated that P&WC will be able to match our new competition, and combine it with their strong customer base, broad service and support network, continue legendary reliability and that P&WC will aggressively defend their market leadership in the PT6 segment.
P&WC has taken responsibility for the APU business at UTC, and that segment is growing quite nicely. John indicated that P&WC will pursue additional programs and continue to grow this segment, in which they can leverage the advantages of the PW toolkit to stay ahead of their competitors.
The Bottom Line
Overall, John seems quite comfortable in the growth trajectory of P&WC, and their positioning in its major market segments. P&W president Bob Le Duc described P&WC as the “jewel in the crown”, so that comfort is supported. Technologically, P&WC is leveraging the GTF core and other elements from the P&W and UTC tool kits, and P&WC is committed to continuing its leadership in the turboprop and business jets segments while gaining market share in APUs.