Air Transport World

'No more tickets for spares': Pratt & Whitney faces up to the fact that costs must be trimmed in the current climate of more competition, extended warranties and fewer sales.(Includes article on need for Boeing to cut costs)

Pratt & Whitney faces up to the fact that costs must be trimmed in the current climate of more completion, extended warranties and fewer sales

For several years, airframe and engine makers have paid lip service to cutting costs. Except for GE's ever-attentive managers and despite airline pleas that cost per seat was rising excessively when yields were declining, the talk was mostly that.

But the 1990s have been brutal to aerospace firms, so they are trying again. Boeing's efforts (ATW, 4/94) may seem insufficient to some (see box, page 56) but its low-ball bid for SAS's 737-600 order must anticipate some success.

Now, Pratt & Whitney has faced reality, after its own false starts (ATW, 3/88). It had no choice and one comparison shows why. In 1968, the company produced 1,420 commercial and 2,319 military engines. This year, it will build 336 commercial and 100 military power plants. The commercial total figure includes the V2500, JT8D, PW2000 and PW4000.

Karl Krapek, a veteran manager from parent United Technologies' Otis and Carrier units, was made president in late 1992, to turn talk into action--and fast. First, Krapek says, "I had to convince myself this was a business we could make money in." He found that the commercial engine makers' returns on sales previously had exceeded those of their airline customers and the airframe companies: 6.5%, 2% and 1-2%, respectively. But if that return was going to be duplicated, much less raised to the 13% that now is the goal, Pratt had to stop pretending the "good old days" would reappear magically.

Actually, the days of cozy guarantees of military sales were long gone. The Pentagon already had (1) created competition where none had existed; (2) slashed R&D and program budgets and (3) allowed parts suppliers to end-run original-equipment makers and sell directly to the military.

Pratt's commercial, JT8D-dominated business had changed, too. The Boeing 727 trijet's follow-on was a twin. Pratt engines didn't power the current versions of the best-selling 737. Twins were replacing widebody trijets and the 747. Modern engines were more reliable, with fewer parts and longer warranties. So spares sales had sunk, from $2 billion-plus, when Pratt's airfoil plant alone was providing one-third of UTC's profit, to $ 1.6 billion in 1994, though commercial spares were still 28% of total 1994 sales. And in 1991-92, airlines not only stopped ordering new equipment but canceled many existing orders and options. The carriers swear they won't repeat the 1980s excesses.

Because of these factors, Pratt lost $544 million pretax in 1991 and 1992, Largely owing to $688 million for restructuring. The losses didn't have to be that bad. But Pratt's plant, equipment and staffing still reflected the glory days. …

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