insight
工程技術，地產投資，信仰家園，時尚生活
- PHOTO: YEN MENG JIIN
'We are a big conglomerate that's true but we are a simple company. We have two large forces that drive our markets: urbanisation and RPM (revenue passenger miles) growth.'
Louis Chênevert, chairman and CEO of United Technologies Corp (UTC), exudes an aura of solidity with his measured voice and big frame. He comes across as the kind of guy you'd like to have at your side in a difficult situation.
It's an asset for a person who runs a business that makes some of the most high-technology products in the world - goods which are expected to last decades and perform flawlessly under the most extreme conditions imaginable. You would literally put your life and well-being in the hands of these products more times than you realise.
As conglomerates go, UTC is far less well known than behemoths such as General Electric (GE) and Siemens. However, if we take the idea that a conglomerate is a sum of its parts, then UTC's group entities like jet engine maker Pratt & Whitney, Sikorsky the maker of the famous Black Hawk helicopters, Otis Elevators, and Carrier, which makes air-conditioners, are among the most venerated brands in the world.
UTC has five business units: Otis, Pratt & Whitney, Sikorsky, UTC Aerospace Systems and UTC Climate, Controls and Security.
Elaborating on the firm's rich history, Mr Chênevert rattles out a number of facts: Willis Carrier invented the first modern air-conditioner in 1902; Fred Rentschler founded Pratt & Whitney Aircraft, which developed revolutionary aircraft engines; and in 1857, Elisha Otis and the Otis Elevator Company began manufacturing the first passenger elevators with safety features.
So jet engines, air-conditioners, elevators and a host of aerospace and security systems make up the conglomerate. On the face of it, that's a pretty diverse bunch of products and technologies, and it would appear to be difficult to manage as one streamlined unit. Yet UTC's business model and growth driver is disconcertingly simple and straightforward.
"We are a big conglomerate that's true but we are a simple company. We have two large forces that drive our markets: urbanisation and RPM (revenue passenger miles) growth."
Rapid urbanisation, especially in the Asia-Pacific region, ensures a constant demand for elevators and air-conditioners. The UTC boss shares an interesting factoid: A year's worth of elevator sales in the US is equal to sales in China for a week or two. "More than 50 per cent of the world's tallest buildings will be built in China," he remarks.
There are chances that a building would last for 50-100 years. "This means we will service the product every year to ensure safety and functionality and then we'll be doing product upgrades like changing the controller, changing the electronics and then the cabin over time. That's the beauty of our business."
Another data point: There are around 2.5 million Otis elevators and escalators worldwide out of which Otis itself services 1.8 million.
Urbanisation is good business for air-conditioners, especially since most of the new urbanisation is happening in Asia. He notes that the the company's newest commercial air-chiller - the type used in public buildings - are 44 per cent more efficient than the ones it used to manufacture a couple of years ago.
"Now if you are in the north-east of US, you don't get very excited (due to the cold weather), although it's a great product. Let's say I propose to you, let's replace your chiller because the one you have is over 30 years old. You ask 'What's the payback?'. The payback would probably be within eight to 10 years.
"However, if you are in Singapore or in the equatorial region and you need to run the chillers 24 hours a day, seven days a week, I can look at you in the eye and say, 'You know what, if I sell you this chiller, the payback is within one year.' Now you get excited right? That's the sales proposition we take to customers."
Mr Chênevert honed his management skills at General Motors, where he was production general manager of the automaker's St Therese operation. He joined UTC in 1993 at Pratt & Whitney Canada and took over the entire division in 1999.
It was during his stint at Pratt that UTC's current boss (he took over as CEO in 2008 and as chairman in 2010) took a bold gamble which has paid off handsomely.
Pratt made a name for itself by making the famous Wasp jet engines used on thousands of B-24 bombers during World War II. After that, it produced one of the most famous commercial jet engines of all time - the JT8D - which powered the Boeing 727s and DC-9 airlines.
Aerospace cycles - especially for jet engines - usually run for 25-30 years, which is the usual lifespan of a plane. In the 1980s, one such cycle had started and Pratt decided to focus on wide-bodied aircraft such as the then new Boeing 747 Jumbo.
"While it was exciting business, it was not as high volume as 75 per cent of the market for jet engines were for narrow-body planes," Mr Chênevert notes.
As a result, Pratt lost out heavily in the commercial jet engine space, even while remaining a major player in the military jet engines business. In terms of volume, commercial is far bigger than military demand.
Around the time he took over at Pratt, another cycle was coming up. And that's when he convinced the previous UTC boss, George David, to fund a bold new initiative to build a new type of jet engine for narrow-body aircraft.
He notes that margins are so thin in the commercial airlines business that any innovation that could save on fuel consumption is a major deal, and Pratt wanted to take advantage of that.
Usually there are only two ways to improve the fuel efficiency of a jet engine.
One is to increase the combustion temperature so that the fuel is burned more efficiently, and the other is to increase the amount of air the fan in the front blows into the engine.
The problem with the first approach is that the temperatures within the engine are already so high that it's very near the melting point of the turbine blades - to increase temperatures even further, one needs to use exotic materials which leads to complexities and cost hikes.
The issue with the second option is that a bypass fan operates most efficiently at low speeds while the turbine blades are most efficient at higher speeds.
Engineers at Pratt, under the leadership of Mr Chênevert, developed an innovative solution for the second option by using a gearbox to control the airflow to the turbines.
There was a huge amount of scepticism over this approach in the aerospace industry. "I had confidence that we were on the right track from my days in the auto industry and working in the small-aircraft engine unit of Pratt. I was very comfortable with the technology.
"The engineers were also confident we could get the new technology working and we went to customers and did the development testing. The customers liked the numbers, they liked the product."
It turns out that Mr Chênevert's optimism was well placed. The PurePower Geared Turbofan engine, which cuts fuel consumption by 15 per cent and noise by half, has been a super hit in the lucrative regional jetliner business. Including this new engine, Pratt now has 3,000 orders on hand. "These engines will last us for 25-30 years. We missed the last window in the 1980s, now we've got it back."
After he took over at UTC, Mr Chênevert made some dramatic moves in aerospace. After a long courtship, UTC unveiled its acquisition of Goodrich Corporation, an aerospace company with a rich heritage that makes a host of sub-systems that go into aeroplanes, for US$18.4 billion (S$23 billion).
"This is the largest aerospace acquisition in history. It took us 1.5 years to get it done. Ultimately it's a compelling case when you consider they (Goodrich) add to the family of products in our company. We paid a fair price for the property."
"I'm very happy with the acquisition and it will be transformative for us. We've committed to exploiting our synergies. It gives us a better portfolio of products when we go to Boeing and Airbus."
Within the group, Goodrich and Hamilton Sundstrand have combined to form UTC Aerospace Systems. "We refunded a third of the debt in December. That's a big deal for investors to see that we can have that kind of cash generation capabilities."
Mr Chênevert reckons that Goodrich was more decentralised than UTC and believes he can squeeze more profit out of the division by applying UTC's proprietary ACE system.
ACE, which stands for Achieving Competitive Excellence, is the company's operating system and the foundation supporting UTC's commitment to provide top-level service to customers. The ACE programme requires every employee to focus on improving processes, eliminating waste and delighting customers.
The Goodrich acquisition wasn't the only major move by Mr Chênevert in the aerospace field. Last year, UTC bought Rolls-Royce's share in IAE International Aero Engines for a majority stake of 61 per cent.
IAE, founded in 1983, started as a collaboration between four of the world's leading aero engine makers to develop an engine to address the 150-seat, single-aisle airline market. The resulting engine, V2500, is the second most successful commercial jet engine programme in production today in terms of volume, and the third most successful commercial jet engine programme in aviation history.
Mr Chênevert says he has the technology and people in place for sustained growth. Now it's a question of execution to take the US$58 billion company to the next level. One thing he's sure about is that growth lies in the Asia Pacific region, and so that's where UTC would be ramping up its presence.
Some 65 per cent of the company's sales come from outside of the US, while the BRIC (Brazil, Russia, India and China) countries account for 21 per cent of turnover. In the US, UTC has modest growth and in Europe the growth momentum is flattish.
"The Asia-Pacific region offers us good growth opportunity. And that is why we are moving some of the centre of gravity to places like Singapore to support our products ... Our centre of high-rise excellence and business development for Otis Elevator moved from Farmington in the USA to Shanghai."
UTC made US$4 billion in China last year with half of that coming from the sale of commercial products like elevators and escalators. We see a lot of momentum developing in China, he adds.
"It's hard to participate from Farmington. So we are shifting gradually where the demand is. In the case of Otis, our products are 95 per cent localised. You cannot make an elevator in the US and ship it to China and still hope to compete."
India is another huge growth area, says Mr Chênevert, who is a member of the US-India CEO Forum and Business Roundtable. "I've visited India many times and there is a powerful force, which is infrastructure development - things like airports and metros - that drive demand for air-conditioners, elevators and security systems. Last year, UTC did US$1 billion in business in that country, most of it coming from elevators and air-conditioners. Going forward, aeroplane sales will also be a major growth driver," he explains.
Singapore is a big base for the UTC. "Last year we had US$1.5 billion in net sales in Singapore. We are opening a manufacturing facility here to make fan blades and high pressure turbine disks for aircraft engines."
Singapore is also a major engine overhaul facility for UTC in the region. "We are building on the 30-year relationship we have with the Republic."
He's looking to build his legacy at the company over the next decade.
"This is a very taxing job. I'm about to celebrate my 50th trip to China. Think of what that means in terms of travel. I've been to India 20-plus times and I come to Singapore all the time. Life is accelerating for business leaders like me. It is accelerating in two ways. One because of business demand expectation but also because of globalisation."
One can't talk about growing in China or India and not show up in these countries, he says. "Recently I brought my entire board to Singapore. They are always asking about the leadership talent in the region. There's no better way to show them than at a big reception we held where I brought 100 people from China, India and Indonesia. The board saw them and interacted with them and were happy."
Globalisation doesn't just mean finding markets outside of the US; production methods are also being globalised.
He gives the example of the Sikorsky S-92 medium-lift helicopter, which is in great demand for VIP duties and in the oil and gas sector. "The cabins are made in Hyderabad (India). Some of the composites are made elsewhere in India. The tail rotor boom is done in China. The mechanics is done in Stratford, Connecticut, while the final assembly is done in Keystone, Pennsylvania.
"It's truly a world helicopter and that's the world we live in. China is the sole source for the tail rotor. In Hyderabad we used to have two sources, now we're down to one. So these are trusted partners as we go forward to build these products. It's a very different world than what it was if you go back a decade when Sikorsky was 90 per cent Stratford-centred," he says.
"You come to work at UTC and there are so many exciting things we do every day. Every second an aircraft fitted with some part made by us takes off, and we move the equivalent of the world population every couple of days with Otis elevators. It can't get better than this."
LOUIS CHÊNEVERT
United Technologies Corp chairman & chief executive officer
Born: 1957
1979: Received Bachelor of Commerce degree in production management from Université de Montréal, École des hautes études commerciales (HEC)
1979: Joined General Motors. Appointed production general manager of General Motors' St Therese operation
1993: Joined Pratt & Whitney Canada as vice-president of Operations
1999: Appointed president, Pratt & Whitney
2005: Inducted as a Fellow of the American Institute of Aeronautics and Astronautics (AIAA)
2006: Held position of president & chief operating officer and served as a director of United Technologies Corporation
2008: Elected president & chief executive officer, United Technologies Corporation
2010: Elected chairman of United Technologies Corporation
