UTC breakup won’t hurt the state

The News-Times (Sunday) - - Front Page - DAN HAAR

Sev­eral years ago, I asked a rank­ing sci­en­tist at the United Tech­nolo­gies Re­search Cen­ter in East Hartford what holds the com­pany to­gether.

It was fine for a cor­po­ra­tion to have busi­nesses that made jet en­gines, air­plane and space sys­tems, he­li­copters, el­e­va­tors, air con­di­tion­ing and build­ing se­cu­rity. Tougher to pull off if you’re the cen­tral re­search arm of that con­glom­er­ate.

But he had a ready an­swer: “We make things that go up and down and spin.”

Around the same time, Gre­gory Hayes, then chief fi­nan­cial of­fi­cer at United Tech­nolo­gies Corp., told Wall Street an­a­lysts in March, 2010, that the com­pany was look­ing to move work to lower-cost lo­ca­tions. Asked what he meant, Hayes said, “Any­place out­side of Con­necti­cut is low-cost,” The Hartford Courant re­ported — send­ing the state into a dither.

At the time, UTC had 26,000 em­ploy­ees in Con­necti­cut, in­clud- ing 9,300 at Siko­rsky in Strat­ford.

Cut to Novem­ber, 2018 and Hayes has now been the CEO for four years af­ter the pre­vi­ous chief ex­ited abruptly. What has that meant for jobs in the home state? The an­swer is sur­pris­ing.

On Mon­day, Hayes an­nounced the breakup of UTC into three sep­a­rate, free-stand­ing, pub­licly traded corporations: Aero­space, in­clud­ing Pratt & Whit­ney jet en­gines, with a to­tal of $39.5 bil­lion in an­nual sales; Car­rier, the air con­di­tion­ing and build­ing sys­tems busi­ness, with $18 bil­lion in sales; and Otis, the el­e­va­tor and es­ca­la­tor com­pany, with $12 bil­lion in sales.

UTC, with its world head­quar­ters in Farm­ing­ton, sold Siko­rsky to Lock­heed Martin in 2015.

The stream­lin­ing con­tin­ues even though a lot of old-timers think UTC held to­gether just fine as a cor­po­ra­tion that made things that go up and down and spin — along with things that heated and com­pressed air and made noise in the event of fires and break-ins. The idea be­hind di­ver­sity was that one in­dus­try rises as an­other one falls, evening out the in­evitable swings.

That’s what Harry J. Gray, the leg­endary chair­man and CEO was think­ing when he pi­o­neered the hos­tile takeover in the 1970s and com­man­deered Otis, then Car­rier — trans­form­ing the com­pany from United Air­craft to United Tech­nolo­gies, a mem­ber of the Dow Jones In­dus­trial Av­er­age of 30 gi­ant, bell­wether U.S. corporations.

But the guide words nowa­days are “sim­ple and clear,” as Wall Street de­mands in the 21st Cen­tury. We’re see­ing it at Gen­eral Elec­tric and many of the big fi­nan­cial com­pa­nies, not just UTC. And Wall Street gets what it wants es­pe­cially when a fi­nance guy like Hayes, not an en­gi­neer, sits in the cor­ner of­fice.

You’d think UTC in Con­necti­cut

would be smaller now, nearly nine years later, un­der the very man who trashed the head­quar­ters state. Wrong. UTC to­day has more than 18,000 peo­ple, com­pared with 16,700 (not in­clud­ing Siko­rsky) on the day Hayes dropped that bomb­shell.

More dra­mat­i­cally still, Hayes has pushed the head­count up by at least 3,000, prob­a­bly more, since he took over af­ter Louis Chên­ev­ert’s de­par­ture in Novem­ber, 2014.

And the near-term prospects for more growth in Con­necti­cut are bright, even if a spinoff in 2020 means some of­fices de­part.

“Ev­ery­thing is trend­ing up as far as em­ploy­ment and con­tracts,” said John J. Thomas, spokesman for Pratt & Whit­ney.

How’s that pos­si­ble? Haven’t we heard non­stop bad news about the state’s eco­nomic prospects?

The an­swer is that Pratt has been the heart of UTC’s Con­necti­cut op­er­a­tions since the com­pany formed as United Air­craft & Trans­port Corp. in 1929, and Pratt re­mains the heart to­day. As it hap­pens, busi­ness is strong at Pratt — which has in­creased its head­count by 1,500 in the last year alone.

Pratt has some­where be­tween 11,500 and 13,000 em­ploy­ees in Con­necti­cut, in­clud­ing more than 3,000 hourly pro­duc­tion work­ers. United Tech­nolo­gies, through a spokesman, de­clined to give any specifics about per­son­nel at its op­er­at­ing busi­nesses — num­bers the com­pany did pro­vide in past years.

What­ever the break­down, the 18,000 fig­ure mat­ters greatly to the en­tire state, for two rea­sons. First, it makes UTC — be­fore the breakup and most likely long af­ter it — the largest pri­vate em­ployer in the state.

Sec­ond, each aero­space job gen­er­ates at least four jobs in the state’s econ­omy be­cause the money comes from out­side the state, and be­cause the jobs are high-pay­ing — in con­trast to many of the jobs at the sec­ond-largest pri­vate em­ployer, Stop & Shop. That in­cludes ven­dor po­si­tions, many of which work right at the Pratt plants as “yel­low badge” con­trac­tors.

Even if peo­ple in Fair­field County don’t have neigh­bors at Pratt and other United Tech­nolo­gies com­pa­nies, “You want and you root for com­pa­nies else­where in the state to be the big dogs like th­ese guys be­cause the per­cep­tion in the state that Fair­field County is sup­posed to tow the rest of the state be­hind it ... it’s not cor­rect,” said David Lewis, founder and CEO of Op­er­a­tions Inc, a hu­man re­sources con­sul­tancy in Nor­walk.

The linch­pin deal for all of this was cut by Gov. Dan­nel P. Mal­loy in 2014: The state un­locked $400 mil­lion in pre­vi­ously un­us­able UTC tax breaks in ex­change for the com­pany build­ing an en­gi­neer­ing cen­ter and head­quar­ters in East Hartford, a cus­tomer ser­vice cen­ter in Wind­sor Locks, main­tain­ing the head­quar­ters of Pratt for 15 years and Siko­rsky for five years in Con­necti­cut, an ex­pan­sion of the cen­tral re­search labs and a bunch of other projects.

Im­pres­sive col­lec­tion

Let’s look at the parts of United Tech­nolo­gies to un­der­stand the ef­fect of the breakup in Con­necti­cut.

Pratt will be joined with Collins Aero­space, still un­der the name United Tech­nolo­gies, still with Hayes as CEO. Collins com­prises Rock­well Collins, a maker of avion­ics, air­plane struc­tures and a bunch of other avi­a­tion stuff, which UTC ac­quired on Mon­day for a cool $30 bil­lion; and United Tech­nolo­gies Aero­space Sys­tems, or UTAS, which makes air­plane con­trol sys­tems, brakes, and, like its new com­pany-mate, a vast amount of other stuff in­clud­ing space suits, de­vel­oped in Con­necti­cut.

Be­sides Pratt, Collins in Con­necti­cut in­cludes the old Hamil­ton plant in Wind­sor Locks, with at least 3,000 peo­ple — again, UTC re­fuses to say be­cause if and when there are lay­offs, it wants to be able to do them se­cretly. Collins also in­cludes a plant in Dan­bury with sev­eral hun­dred em­ploy­ees, part of the old Goodrich Corp., and a smaller plant in Cheshire.

Collins has no head­quar­ters cur­rently. It’s un­likely that will end up in Con­necti­cut, as the di­vi­sion home of­fice be­fore Mon­day was in Char­lotte and Rock­well Collins was based in Iowa.

Now we come to Car­rier and Otis. Car­rier was based in Farm­ing­ton, but now is based in Palm Beach Gar­dens, Fla. As best as I can tell, it has at most a few hun­dred of­fice-dwellers left, per­haps un­der 200, and there’s no rea­son to be­lieve they’ll stay af­ter the spinoff.

Otis is still based in Farm­ing­ton but its Amer­i­cas head­quar­ters is in Palm Beach Gar­dens. In re­cent years there’s been a steady mi­gra­tion of peo­ple from Con­necti­cut to Florida and al­though Otis has had op­er­a­tions here, where its head­quar­ters lands af­ter the spinoff is any­one’s guess.

Both com­pa­nies are spread all over the world with op­er­a­tions; 180 coun­tries for Car­rier, for ex­am­ple.

The re­search cen­ter, with a few hun­dred peo­ple, many of then hold­ing Ph.D.s, will re­main in East Hartford un­der United Tech­nolo­gies, the aero­space com­pany.

The point: UTC was vast in Con­necti­cut be­fore Car­rier and Otis and it will re­main so if they exit. And the non-Pratt aero­space busi­ness has grown here un­der Hayes, not shrunk.

Pow­er­ful his­tory

Back in 1929, Pratt founder Frederick Rentschler and Wil­liam E. Boe­ing — yes, that Boe­ing — brought their young com­pa­nies to­gether un­der United Air­craft, with Rentschler and pres­i­dent (CEO was a goofy ti­tle that came later) and Boe­ing as chair­man.

Rentschler’s brother, pres­i­dent of the bank that be­came Cit­i­group, was on the board. The com­pany in­cluded Siko­rsky, 10 years be­fore Igor Siko­rsky made the first prac­ti­cal he­li­copter in Bridge­port; Chance Vought Corp. and Northrup Air­craft, both air­plane-mak­ers, like Boe­ing; an air­port com­pany; Hamil­ton Stan­dard, the pro­pel­ler maker that be­came the core of to­day’s sprawl­ing aero­space com­po­nents busi­ness; and the three trans­porters that later be­came United Air­lines.

To­tal sales were $31.4 mil­lion, or $465 mil­lion in to­day’s dol­lars and the profit that first year was $9 mil­lion.

Con­necti­cut was the cen­ter of that uni­verse, though Boe­ing was in Seat­tle. Five years later the fed­eral gov­ern­ment broke it up, leav­ing Pratt, Siko­rsky, Hamil­ton and other busi­nesses un­der United Air­craft — the heart of Con­necti­cut’s man­u­fac­tur­ing econ­omy then and now.

Gray’s idea — which he talked about in a se­ries of in­ter­views with me in 1996 — was to have United Tech­nolo­gies as the cen­tral brand for all of it. He lost that bat­tle. As one for­mer UTC ex­ec­u­tive put it this past week, “In China, no­body knew what the hell UTC was. They knew Pratt & Whit­ney, they knew Otis El­e­va­tor.”

What­ever the brand, the home­town se­cret was en­gi­neer­ing. We all talk about pro­duc­tion jobs, but they’ve waned since a com­bined peak of per­haps 60,000 dur­ing World War II.

“The strength of United’s position is due in sub­stan­tial mea­sure to the un­matched en­gi­neer­ing staffs of its sub­sidiary com­pa­nies,” the com­pany’s first an­nual re­port told stock­hold­ers.

That’s still true to­day, as en­gi­neer­ing for the two ma­jor Pratt pro­grams — the geared tur­bo­fan com­mer­cial en­gines and the F135 en­gine for the Joint Strike Fighter — has pow­ered the com­pany’s home­town growth, mak­ing things that go up and down and spin.

The en­gi­neer­ing golden era may end, but the breakup will not af­fect it.

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