Pratt & Whitney Co. has gone from leading light to financial black hole. United Technologies Corp.'s aircraft-engine unit, once the profit leader among UTC's $22 billion array of high-tech businesses, lost $500 million in 1992. That spilled right to UTC's bottom line, as the company on Jan. 26 posted a loss for the year of $287 million, or $2.67 a share. The results include pretax charges of $701 million after accounting for retiree health benefits and restructuring charges. The weaknesses at Pratt also prompted Moody's Investors Service to consider downgrading some $2.3 billion in long-term UTC debt.

The problems at Pratt & Whitney are alarming: Demand for its engines and spare parts is in a tailspin. Parts volume, at $85 million a month, is running less than half the rate of two years ago. Engine orders from its military and commercial customers will be off at least 40% this year, with no recovery in sight. And the airlines it sells to are in deep financial distress--as UTC acknowledged by setting aside $447 million of the overall pretax charges to cover possible bad debts from customers.

In the clearest signal yet that it expects the downturn in the engine business to continue, UTC plans to cut employment at Pratt by 25%, or 10,000 positions, by the end of 1994. But some analysts question whether UTC has disclosed the full cost of the latest Pratt layoffs--the second in three months. A year ago, UTC took charges of more than $1 billion associated with Pratt's downsizing. This time, only $70 million is being charged for a similar restructuring. "We've got a lot further to go," says NatWest Securities Corp. analyst Nicholas P. Heymann.

ORDER BLANKS. And not just in terms of layoffs. Boeing's announcement of a 35% cutback in aircraft production and recent deferrals of plane purchases by United Airlines and Northwest Airlines suggest it will be some time before the airline industry will be buying large quantities of engines or parts. The latest Boeing cutbacks affect aircraft--widebodies such as the 747 and 767--on which Pratt has been a steady supplier of engines.

Even if the airlines do start ordering again, Pratt's newer engines--the PW2000 and PW4000 series--face aggressive competition from General Electric Co. and Rolls-Royce PLC. And the glory days of key older engines are probably over. Pratt's highly profitable JT8D engine, which powers McDonnell Douglas Corp.'s MD-80, earns Pratt as much as $500,000 a pop. But where Pratt once made 350 of the engines in a good year and even 160-plus last year, some analysts believe the company will be lucky to make 20 this year. All told, Pratt has advised analysts that its output in 1993 will be about 430 engines, down 21% from the 547 originally planned.

In its spares business, Pratt also faces a difficult future. Airlines are holding fewer parts on their shelves and cannibalizing grounded planes for parts to cut costs. And as older engines are replaced by newer, more efficient units, there is less demand for spares. The loss of spares business is especially damaging to the bottom line, because margins on some pieces reach 75%.

All those negatives add up to a bleak outlook for Pratt in 1993. The early analysts' consensus is that the UTC Power Systems group, which includes Pratt, will make an operating profit of only $160 million this year, down from an estimated $420 million in 1992. As a result, UTC can't expect to make much more than $550 million next year, little better than the $493 million it made this year before restructuring charges.

The pressure is on UTC's other units--including Carrier air-conditioning, Otis elevators, and Sikorsky helicopters--to continue their improvements and keep the big company's nose above water. Not long ago, it was Pratt's job to shore up the weaker performers in the UTC portfolio. But the latest numbers suggest that Pratt won't resume that role any time soon.

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