United Technologies 2012 Annual Report Download - page 41

Management’s Discussion and Analysis 2012 ANNUAL REPORT 39
Effective July 1, 2012, the auxiliary power unit business
(APU) of the UTC Aerospace Systems business segment was trans-
ferred to the Pratt & Whitney business segment. The APU business
designs and manufactures a variety of products for commercial and
military aircraft. Annual sales for the APU business are approx-
imately $600 million. The reclassification has been made pro-
spectively; prior year results have not been restated for the transfer
of the business.
Pratt & Whitney is among the world’s leading suppliers of aircraft
engines for the commercial, military, business jet and general avia-
tion markets. Pratt & Whitney Commercial Engines provides main-
tenance, repair and overhaul services, including the sale of spare
parts, as well as fleet management services for large commercial
engines. Pratt & Whitney produces families of engines for wide- and
narrow-body and large regional aircraft in the commercial market
and for fighter and transport aircraft in the military market. P&WC is
a world leader in the production of engines powering business,
regional, light jet, utility and military airplanes and helicopters and
provides related maintenance, repair and overhaul services, includ-
ing the sale of spare parts, as well as fleet management services.
Pratt & Whitney’s products are sold principally to aircraft manu-
facturers, airlines and other aircraft operators, aircraft leasing
companies, space launch vehicle providers and the U.S. and for-
eign governments. Pratt & Whitney’s products and services must
adhere to strict regulatory and market-driven safety and perform-
ance standards. The frequently changing nature of these standards,
along with the long duration of aircraft engine development, pro-
duction and support programs, creates uncertainty regarding
engine program profitability. The vast majority of sales are made
directly to the end customer and, to a limited extent, through
independent distributors and foreign sales representatives.
Pratt & Whitney is currently developing technology, includ-
ing the PurePower PW1000G Geared TurboFan engine, intended to
enable it to power both currently-proposed and future aircraft. The
PurePower PW1000G engine targets a significant reduction in fuel
burn and noise levels with lower environmental emissions and
operating costs than current production engines. In December
2010, Airbus announced that it will offer a version of the PurePower
PW1000G engine as a new engine option to power its A320neo
family of aircraft scheduled to enter into service in 2015. In
November 2012, Pratt & Whitney commenced testing on this new
engine, the PW1100G-JM, being developed as part of a collabo-
ration with MTU and JAEC. Additionally, PurePower PW1000G
engine models have been selected by Bombardier to power the
new CSeries passenger aircraft, by Mitsubishi Aircraft Corporation
to power the new Mitsubishi Regional Jet, and by Irkut Corporation
of Russia to power the proposed new Irkut MC-21 passenger air-
craft. These aircraft are scheduled to enter into service in 2013,
2015 and 2017, respectively. Further, on January 8, 2013, Embraer
announced the selection of the PurePower engine to exclusively
power the next generation of Embraer’s E-Jet family of aircraft
scheduled to enter service in 2018. The success of these aircraft
and the PurePower PW1000G family of engines is dependent upon
many factors including technological challenges, aircraft demand,
and regulatory approval. Based on these factors, as well as the
level of success of aircraft program launches by aircraft manu-
facturers and other conditions, additional investment in the Pure-
Power program may be required. P&WC has developed or is
developing the PW210 engine family for helicopters manufactured
by Sikorsky, AgustaWestland and The Eurocopter Group and is
developing the PurePower PW800 engine for the new generation of
long-range and heavy business jets. Pratt & Whitney continues to
enhance its programs through performance improvement measures
and product base expansion.
In view of the risks and costs associated with developing
new engines, Pratt & Whitney has entered into collaboration
arrangements in which sales, costs and risks are shared. At
December 31, 2012, the interests of third party participants in
Pratt & Whitney-directed commercial jet engine programs ranged
from 14 percent to 48 percent. In addition, Pratt & Whitney has
interests in other engine programs, including a 50 percent owner-
ship interest in the Engine Alliance (EA), a joint venture with GE
Aviation, which markets and manufactures the GP7000 engine for
the Airbus A380 aircraft. Pratt & Whitney has entered into risk and
revenue sharing arrangements with third parties for 40 percent of
the products and services that Pratt & Whitney is responsible for
providing to the EA. Pratt & Whitney accounts for its interests in the
EA joint venture under the equity method of accounting. Pratt &
Whitney continues to pursue additional collaborators.
On June 29, 2012, Pratt & Whitney, Rolls-Royce, MTU and
JAEC, participants in the IAE collaboration, completed a restructur-
ing of their interests in IAE. Pratt & Whitney now has a 61% net
interest in the collaboration and a 49.5% ownership interest in IAE.
See the Business Overview section of Management’s Discussion
and Analysis for further information on the IAE transaction.