United Technologies Corp. (UTX) expects Chinese orders at its Otis elevator unit to grow at least 10 percent next year as the business wins customers back following a fatal escalator accident in Beijing.
“What we are booking for next year is very good,” Chairman and Chief Executive Officer Louis R. Chenevert said today in an interview in Chongqing, China. “I am optimistic we will see double-digit order growth for next year.”
United Technologies opened a new plant in Chongqing today, boosting its presence in a country that accounts for about half of worldwide elevator sales. Otis’s global head of strategy has moved to Shanghai as the company repairs its reputation after last year’s accident in the capital city’s subway system.
About 30 people fell and one person died when an upward- bound escalator at a Beijing Zoo station exit abruptly changed direction in July 2011. The city suspended purchases of the company’s escalators after an investigation blamed faulty parts for the malfunction.
China’s equipment orders at Otis, the parent company’s third-biggest business, tumbled 13 percent in the second quarter after dropping 9 percent in the previous three months.
Additional causes of the decline were China’s slowing economic growth and a price increase Otis adopted last year amid rising costs for rare-earth components, Chief Financial Officer Greg Hayes said yesterday at the Citi Global Industrials conference in Boston.
China’s gross domestic product expanded 7.6 percent in the second quarter from a year earlier, the smallest gain in three years and the sixth quarterly deceleration. Growth may cool to 7.4 percent this quarter, based on the median estimate of 23 economists surveyed by Bloomberg News from Sept. 11 to Sept. 18.
The new factory, operating under the Xizi Otis brand, will build the Gen2 line of elevators targeting 20- to 40-story buildings in the region, Chenevert said today. The plant, which has an initial capacity to build 15,000 units a year, will help the company pare transportation costs as it caters to central and western provinces that account for 40 percent of its sales in the country.
“There’s a lot of momentum embedded in the passion of Chinese here to adopt higher-standard of living,” he said. “They want their apartment, they want their cars, they want their air conditioning. This presents a lot of opportunities.”
United Technologies also opened a “high-rise center of excellence” in Shanghai and streamlined the unit’s management structure, with China CEO Tom Vining now reporting directly to Otis President Pedro Baranda.
The moves are showing signs of paying off, Chenevert said Sept. 13 at the Morgan Stanley Industrials & Autos Conference in New York. The Hangzhou Metro ordered 299 escalators and 50 elevators from Otis for the first phase of its second line, the company said June 18 in a statement.
Otis is on pace to regain an 18 percent to 19 percent share of the Chinese market by the end of this year, about the same level as before the Beijing subway accident and up from 11 percent at the end of the first quarter, Hayes said at the conference in Boston.
United Technologies’ $16.5 billion Goodrich Corp. acquisition, which closed in July after approval by U.S., European and Canadian regulators, will be a “strong driver” for the company’s earnings next year, Chenevert said today.
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