United Technologies CEO Sees Decade-Long Engine Effort Pay Off

United Technologies Corp. Chief Executive Officer Louis Chenevert was president of the Pratt & Whitney unit when he promised in 1999 that a new geared turbofan would return the company to the biggest airline market.

The decision yesterday by Toulouse, France-based Airbus SAS to offer Pratt & Whitney’s engine, now called the PurePower, on the upgraded A320 jet may prove him right.

“It’s a nice victory to see recognition that the strategy you put in place -- if you live long enough -- comes true,” Chenevert said in an interview, adding that he’s confident the engine will perform. “I’ve been with the company 18 years, most of them at Pratt, and there was a strategic challenge. I’d say we’ve answered the strategic challenge in a big way now.”

The PurePower returns Pratt & Whitney to the market for narrow-body aircraft engines that it makes on its own. Until now, it has been a member of a consortium making engines for the A320. Three decades ago, the company took a pass on the bestselling Boeing Co. 737.

The PurePower will compete with the Leap-X from CFM International, a joint venture of bigger rival General Electric Co. and Safran SA.

Airbus’s decision to offer the PurePower “is an important strategic turning point for Pratt,” said Jeffrey Sprague, an analyst at Vertical Research Partners in Stamford, Connecticut, who follows both GE and United Technologies. “They still have to execute and compete, but the 20-to-30 year story of secular decline at Pratt commercial has come to an end.”

Revenue Stream

United Technologies shares closed yesterday at their highest price in three years. The Hartford, Connecticut-based company rose $2.99, or 4 percent, to $78.26 in New York Stock Exchange composite trading. Fairfield, Connecticut-based GE gained 47 cents, or 3 percent, to $16.30. Safran climbed 4.7 percent, to 25.28 euros in Paris.

Developing a new jet engine, which can cost more than $1 billion, offers decades-long revenue streams to manufacturers from maintenance and parts. Pratt & Whitney spent more than that over the decade it developed the PurePower. It previously stumbled in its effort to tap the market, when the PW6000 engine failed to attract sales on the A318 model.

“We have not dropped the geared fan technology,” Chenevert said in a 1999 interview. “We are proving we are not prisoners of our past and will compete in the marketplace going forward.”

The PurePower engine uses a gear to slow the outer fan of the engine, increasing fuel efficiency and reducing noise. CFM’s Leap-X concentrates on improvements in the engine’s core, or hot section.

CFM’s Leap-X

CFM’s offering for the Airbus will help cement its leading position, President Eric Bachelet said in an interview. The venture already makes the sole power plant for Boeing’s 737 and offers an engine for existing Airbus narrow-body models.

“The choice by Airbus of the Leap-X validates the technology choices and options put on the engine, and that’s a very good thing,” Bachelet said. “Second, it increases the number of applications for this engine and it improves the business case.”

In 2010, CFM expects to produce 1,275 engines, both commercial and military, and 1,400 in 2012, said Jamie Jewell, a company spokeswoman. The A320 and 737 are twin-engine models that seat about 125 to 185 people. List prices for each plane range from about $65 million to $95 million, depending on the version. GE Aviation is the world’s biggest jet-engine maker, followed by London-based Rolls-Royce Group Plc and Pratt & Whitney.

Competing Engine

Pratt & Whitney and Rolls-Royce currently offer a competing engine on existing A320 models via a venture called International Aero Engines. Rolls-Royce has decided not to offer an engine for the Airbus’s upgraded line of aircraft, Andrew Shilston, the company’s chief financial officer, said yesterday.

“We found the business case unappealing,” Shilston told investors at the Credit Suisse Aerospace & Defense Conference in New York. “We have other options that look to be more profitable.”

Montreal-based Bombardier Inc. has opted to use the Pratt & Whitney geared turbofan on its new 110-seat CSeries jet, while Commercial Aircraft Corp. of China, or Comac, will offer the Leap-X on its new narrow-body aircraft, the C919.

“What they’re doing is upgrading their existing airplane with a new engine, which does help, but it still really can’t compete with a new CSeries,” Gary Scott, who runs Bombardier’s commercial aerospace division, said in an interview yesterday. “We’re delighted, actually, that Airbus has endorsed the geared turbofan and our engine selection.”

To contact the reporter on this story: Rachel Layne in Boston at rlayne@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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