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United Technologies

by Phil MatteraCrocodyl.org

For the latest company profile on United Technologies, visit our corporate malfeasance wiki, Crocodyl.org.

One of the last remaining powerful U.S. conglomerates, United Technologies Corporation (UTC) is the parent company of Pratt & Whitney, one of the most famous names in jet engines; Sikorsky, a leader in helicopter production, including the famous (or infamous) Black Hawks; Carrier Corp., the largest supplier of heating and air conditioning systems; Otis, the world’s largest elevator company; and Hamilton Sundstrand, a leading producer of aerospace products. UTC also has a large fire-safety products business based on its acquisition of British firms Chubb PLC and Kidde PLC.

UTC, which began with the amalgamation of various aviation companies during the 1920s, has had severe ups and downs over the years, especially at Pratt & Whitney. The engine maker once ruled the industry, then suffered a series of technical mishaps and fell behind competitors like General Electric. Since the early 1990s, UTC has remade itself, putting more emphasis on selling non-military products in foreign markets, where it has also shifted a substantial portion of its production and employment.

The company’s restructuring and overseas shift have worsened relations with its unions and with communities—especially in Connecticut—where it has cut back or shut down longstanding operations. Over the past two decades, UTC and its subsidiaries have paid tens of millions of dollars in fines and penalties in environmental cases.

In March 2008 UTC made an unsolicited $2.6 billion offer to acquire Diebold Inc., the controversial producer of electronic voting machines as well as ATMs and security systems.

Global Fortune 500 position: 127
Ownership status: Publicly traded
Number of employees worldwide: 215,000
Chief executive officer: George David
Tel: 860-728-7000
Fax: 860-728-7028
Corporate accountability
Accountability overview: 

Like other major U.S. military contractors, United Technologies has at times been accused of cheating the federal government. In 1992 the company pleaded guilty to four felony charges and agreed to pay $6 million in penalties in connection with an admitted conspiracy by Pratt & Whitney to defraud the Pentagon by using insider information when bidding on contracts.

In 1994 UTC was forced to pay $150 million to settle claims that Sikorsky had submitted inflated bills in connection with its production of helicopters for the Pentagon. The amount was then the largest amount ever in a federal whistleblower suit.

In 1997 Pratt & Whitney agreed to pay $14.8 million to settle charges that it took part in a scheme to divert $10 million in U.S. military aid to a slush fund under the control of an officer of the Israeli Air Force. In 2005 the Presbyterian Church USA called on UTC to stop providing military equipment and technology to Israel for use in the occupation of the Palestinian territories.

For the past decade, other religious groups have been filing shareholder resolutions at each of the company’s annual meetings raising questions about UTC’s foreign military sales.

In 2006 Norway’s government pension fund announced that UTC was one of the companies it was banning from its investment portfolio because of its assumed involvement in nuclear weapons.

Labor: 

UTC’s domestic workforce has traditionally been heavily unionized, though about two-thirds of the company’s 215,000 employees are now based outside the United States. The remaining domestic workforce is represented by more than 20 different collective bargaining agreements. Labor relations have grown more contentious in recent years in the face of large-scale layoffs and restructuring. The majority of workers at Pratt & Whitney have long been represented by the International Association of Machinists (IAM). Relations between the union and management traditionally were adversarial but peaceful. A major exception came in 1985, when thousands of workers struck the company to demand improved job security provisions and a better wage package than the company was offering. The two-week walkout ended with an agreement that improved worker protections regarding subcontracting and other job security issues.

In 1993 there was upheaval at Pratt’s plants in Connecticut in response to announced layoffs affecting a large portion of the workforce. The company threatened even more layoffs unless it got work-rule concessions from the IAM and tax concessions from the state. Both the union and the state gave in, the latter providing a package of tax breaks worth about $32 million.

Pratt kept on trying to cut employment, and the IAM did what it could to limit the loss of jobs. In 1998 IAM members approved a 38-month contract that committed the company to keeping its Connecticut plants open for the duration of the agreement. The following year Pratt tried to relocate 550 aircraft engine repair jobs from Connecticut to three southern states, but the move was blocked by a federal appeals court ruling that the move violated the union contract.

In 2001 IAM members walked off the job at four Pratt plants in Connecticut in a dispute over job security and pensions. The 11-day strike ended after workers ratified a new contract in which the company had agreed to strengthen job security language. During the next contract negotiations in 2004, workers rejected the company’s final offer but voted against striking, thus causing the company’s terms to take effect. In 2007 Pratt workers approved a contract that provided some additional job security but increased out-of-pocket health costs.

As a result of a decertification of the Machinists and the United Auto Workers in the wake of a 1960 strike, most workers at Sikorsky Aircraft are represented by the Teamsters. In 2006 Sikorsky workers in Connecticut and Florida struck the company for six weeks. The walkout ended after the workers reluctantly approved a company offer that reportedly was little different from the one they had rejected before deciding to strike.

Nearly 800 Hamilton Sundstrand workers represented by the United Auto workers were locked out of their jobs in Rockford, Illinois in 2003 after they rejected what the company called its final offer in contract renegotiations. The workers were allowed to return to the job a month later after they approved a new contract that was reportedly identical to the company’s previous offer. In the late 1980s and early 1990s the Sheet Metal Workers union used a variety of in-plant tactics in lieu of striking in support of contract demands at Carrier Corp. The union attributed the success of their 1988 negotiations to the campaign. Contract negotiations went more smoothly in the 1990s, with the union winning substantial wage and benefit improvements. Since 2003, however, Carrier has eliminated several thousand U.S. jobs and moved more of its production overseas.

Environment and product safety: 

UTC and its subsidiaries have paid tens of millions of dollars in fines and other penalties in environment cases in the United States over the past two decades.

During the 1980s, UTC came under federal scrutiny for its handling of polychlorinated biphenyls, which are suspected carcinogens. In late 1989 the U.S. Environmental Protection Agency filed a complaint against the company alleging various violations of PCB regulations; two years later the company agreed to pay $730,000 to settle the charges.

In 1991 UTC was the target of the largest criminal fine ever levied to date for a hazardous waste violation. In response to charges brought by the EPA, the company agreed to plead guilty to six felony violations and pay a fine of $3 million in connection with illegal dumping of toxic wastes at the Sikorsky Aircraft operation in Stratford, Connecticut. The EPA's complaint included the charge that the in-house environmental officer called attention to the dumping—which involved oil, transmission fluid, and industrial solvents—in 1982, but the company did nothing to correct the situation.

In 1993 the EPA and the Department of Justice fined UTC $5.3 million for a series of abuses and handling and discharging hazardous wastes. The company also agreed to undergo extensive environmental audits through the end of the decade.

In 2005 the EPA reached a settlement with Carrier Corp. and UTC under which the companies promised to spend $27.8 million to help clean up groundwater contamination at the San Gabriel Valley Superfund site in Southern California.

In 2007 Hamilton Sundstrand pleaded guilty to two felony violations of the federal Clean Water Act and to pay $12 million in penalties for dumping contaminated wastewater into the Farmington River in Connecticut.

Human rights: 

In 2006 Control Arms—a campaign launched by Amnesty International, the International Action Network on Small Arms and Oxfam International—published a report which noted (p.16) that engines produced by Pratt & Whitney were being used in Chinese Z-10 attack helicopters that were being sent to Sudan and could be used in attacks against civilians. The report also noted (p.13) that Pratt engines were used by the Brazilian company Embraer in its Super Tucano aircraft that were being sold to Colombia, where they could also be used against civilians.

United Technologies is one of a small group of U.S. companies seeking permission to sell electronic surveillance equipment to the Chinese government. The equipment is mainly designed to boost security during the 2008 Beijing Olympics, but critics note that it will remain in place after the games and could easily be use to monitor domestic dissidents.

Anti-competitive and consumer protection: 

In February 2007 the European Commission levied fines against several companies, including Otis, for operating a cartel for the installation and maintenance of elevators in Belgium, Germany, Luxembourg and the Netherlands. Otis was forced to pay a civil fine of about 225 million euros, then worth about $295 million.


Location:
United Technologies Building
Hartford, CT, 06101
United States

Brief company history: 
United Technologies began with the commitment of Frederick Rentschler to making better airplane engines. While serving in the Army Signal Corps during the First World War, Rentschler ended up inspecting engines at the pioneering Wright-Martin Aircraft Co. (later Wright Aeronautical). He stayed on after the war and eventually worked his way up to the presidency. He grew frustrated, however, with the preoccupation of the company's directors with short-term profitability, so in 1924 he resigned and set out to form a company of his own to build powerful air-cooled engines of a type that the U.S. Navy wanted.

Rentschler was able to achieve his goal with the help of Edward Deeds, a business friend of his father, and George Mead, chief of engineering at Wright. Deeds was chairman of machine tool company Niles Bement Pond, which owned a Connecticut gun company called Pratt & Whitney. Established in 1860, P&W had prospered making arms for the Union Army during the Civil War. The two founders, Francis Pratt and Amos Whitney (a cousin of Eli Whitney), went on to become international arms merchants, but by 1901 they were getting old and decided to sell out to Niles.

The new owner pushed P&W to focus on making machine tools for manufacturing weapons rather than the weapons themselves. This strategy paid off, and by the First World War P&W was an important military contractor. After the armistice, however, the company lost most of its business and was looking for new ventures. Deeds persuaded his fellow Niles board members (who included Rentschler's brother Gordon, the president of the company) that Rentschler's engine plan made perfect sense for P&W.

Everyone agreed, and in 1925 Pratt & Whitney Aircraft was formed, half owned by P&W, which put up $250,000 for development and turned over its idle machine tool plant in Hartford to Rentschler. After only six months Pratt & Whitney turned out the first Wasp engine for the navy. The admirals were pleased and, encouraged by the recent recommendation of the presidentially-appointed Morrow Board that the military make long-term procurement commitments, they ordered 200 of the engines.

Having established Pratt & Whitney with the military, Rentschler turned to the civilian sector. The aircraft makers and carriers were starting to grow as a result of federal incentives provided by air mail contracts. Rentschler formed an alliance with William Boeing, the son of a timberman who had started building planes in 1916. The result was the Boeing 40A, which started out as a fighter but was adapted and became a popular air mail carrier. During this period Rentschler, who made extensive use of subcontractors to keep up with demand, also began to export engines.

Pratt & Whitney was a thriving operation, making a profit of some $2 million on the sale of nearly 1,000 engines. Also prospering were Boeing's operations, which included both building planes (with Pratt Wasp engines) and flying them on various air mail routes. Their mutual success encouraged Rentschler and Boeing to join forces and make even more money. In line with the financial consolidation that was spreading throughout American business at the time, they formed a holding company in 1928, which, under the name United Aircraft and Transport Corp., soon became the largest aviation company in the world.

It was also one of the most profitable companies in the world, at least for Rentschler and Boeing. They and the principals of the other firms that were brought under the umbrella, including Sikorsky Aviation and the Hamilton propeller company, exchanged stock in their own firms for the rapidly appreciating shares of the holding company and enjoyed massive gains.

United Aircraft, which in 1930 bought some additional carriers and formed United Air Lines, became an increasingly dominant force in U.S. aviation, especially after Boeing introduced its 247 in 1933. That lead, however, evaporated after Donald Douglas came out with his remarkable DC-2.

The industry was turned upside down in 1934, when the consolidation that had been encouraged by Postmaster Walter Folger Brown came under attack after the Roosevelt administration took office. The result was the passage of the Air Mail Act of 1934, which mandated both a ban (that turned out to be short lived) on private transport of airmail and a more permanent requirement that aircraft producers and air transport companies be separated from one another.

This meant that the United Aircraft behemoth had to be partially dismantled. United Air Lines and Boeing's manufacturing operation were spun off, and the United Aircraft Co. name was used as the parent firm for what remained, which included Pratt & Whitney, Hamilton-Standard, Sikorsky Aviation, and Chance Vought.

United survived a series of embarrassing Congressional hearings and controversy over its dealings with Japan to play a major role in the great airplane production push during the Second World War. Pratt & Whitney expanded its manufacturing facilities enormously in 1939 and began turning out huge numbers of engines, first for the French government and then the British. The company had more orders than it knew what to do with; still, it was slow in ending its relationships with companies in Germany, Japan and Italy.

In the United States President Roosevelt made a bold call in May 1940 for the construction of 50,000 airplanes a year--at a time when the military's total fleet was under 3,000. United's divisions, like the rest of the aircraft industry, were jolted into high gear (and high profitability). Pratt & Whitney was chosen as the primary engine maker for the navy, Hamilton-Standard had a near monopoly on propellers, and a huge contract for observation planes was granted to Vought and Sikorsky. The company was excluded from early work on jet engines, but Sikorsky was given military funding to develop helicopters.

After the end of the war, United was faced with the sudden loss of most of its revenues. Yet unlike other aviation executives who began diversifying their operations, Rentschler was confident that civilian and military demand would soon rebound. The advent of the Cold War (and later the Korean conflict) and the revival of commercial air transport bore him out. At first United depended mainly on the military, concentrating on the production of the jet engines that were rapidly replacing piston engines in the Pentagon's fleets.

Pratt & Whitney was, however, slow in making the conversion to jets in its civilian business. One problem was that some of its customers were uncomfortable dealing with a company that was tied to a competing airframe maker, namely Chance-Vought. So in 1954 Vought was spun off (and later became part of LTV). Pratt & Whitney shot ahead when the J-57 engine it originally built for the military was enthusiastically accepted by the aircraft makers and the airlines that were entering the age of civilian jet travel. In 1958 United branched into avionics with the purchase of Norden-Ketay Corp., producer of sophisticated components for most of the Pentagon's missiles.

While continuing to expand its military activities, United also maintained its lead in the civilian engine area largely through a close association with Boeing. In the early 1960s the Seattle company introduced its 727 jet, which was powered almost exclusively by Pratt & Whitney, and later in the decade, when Boeing was prompted by Pan American to build huge planes that would become known as jumbo jets, it looked to Pratt to supply the power plants (as engines are called in the industry).

The final design of the planes turned out to be considerably heavier than Boeing originally intended, and this put much greater demands on the engine Pratt & Whitney was developing. When the 747 began flying it experienced frequent problems with engine overheating, and the jumbos often had to be taken out of service. The repair costs that had to be borne by United ran to several hundred million dollars. This, along with problems relating to work on the F-111 fighter, caused the company in 1971 to report its first net loss since 1934.

United's board brought in Harry Gray, the number three man at the Litton Industries conglomerate, to try to fix the damage. Gray's efforts were made more difficult by problems the company was having with another engine—the F100—which was being developed for a joint air force-navy program. The power plant was stalling and even exploding during tests, but the military was so eager for the engines it lowered its standards to allow Pratt & Whitney to pass. But when the problems persisted, the navy dropped out of the joint procurement plan, and the company was starting to run up major expenses in fixing the engines supplied to the air force, which gave money to Pratt & Whitney's rival General Electric to develop an alternative product. Meanwhile, Gray was pursuing his goal of turning the company (which he arranged to rename United Technologies in 1975) into a conglomerate like Litton. His first major move in this regard was the 1975 takeover of the venerable Otis Elevator. Gray was outbid for nuclear reactor maker Babcock-Wilcox by J. Ray McDermott & Co., but in 1979 he snared Ambac, a producer of diesel fuel injection systems; Carrier Corp., a leading supplier of heating and air conditioning systems; and Mostek, which made semiconductors (which was shut down in 1985 in the face of intense competition from the Japanese).

While Gray was out shopping, Pratt & Whitney was losing ground in the commercial as well as military arena. Part of the problem was the success of Airbus in taking business away from the leading U.S. airframe makers Boeing and Douglas. Airbus, a European consortium, initially decided to get its power plants from General Electric. In 1984 the company suffered another blow when both the air force and the navy turned to GE for major fighter plane engine contracts.

Pratt & Whitney sought to stabilize itself by joining the trend toward international cooperation among engine makers. In 1974 General Electric had created a joint venture with France’s SNECMA. By the mid-1980s such partnerships were the only way new engines were being developed. The biggest combination was International Aero Engines, formed in 1983 by Pratt & Whitney, Rolls Royce, and companies from Japan, Italy, and West Germany.

International Aero stumbled in its development of engines for the Airbus A340, allowing GE-SNECMA (later known as CMF International) to fill the void. GE also shot ahead of Pratt & Whitney in their individual efforts. Starting in the mid-1980s Pratt lost its 30-year lead in the engine business as a result of poor planning and a deteriorating reputation for quality and service.

Robert Daniell, who took over United Technologies after Harry Gray reluctantly retired, set out to revive the company by cutting costs, including the elimination of thousands of jobs. He also sought to change the corporate culture from the autocratic atmosphere that prevailed under Gray to one that was said to encourage team building, "worker empowerment," and closer relationships with customers. He also got Pratt into some joint ventures with its rival GE.

Daniell’s measures could not prevent Pratt’s business from taking a nosedive in the early 1990s when its customers—the major airlines—fell into a slump themselves. Compounding the problem for the company were cutbacks in military aircraft spending by the Pentagon. On the other hand, Pratt’s losses were being counterbalanced by strong results from UTC’s other major businesses.

Daniell and his successor as chief executive, George David, dealt with Pratt’s turbulence by seeking to restructure the entire conglomerate through some 15,000 layoffs, relocation of jobs overseas, revamping manufacturing techniques and entering more joint ventures. More emphasis was also put on selling non-military products in foreign markets such as China, where Otis soon controlled 25 percent of the booming elevator market.

Although David and Daniell (who continued as chairman) ended Gray’s nonstop acquisitions binge, they did purchase Sundstrand Aerospace for about $4 billion in 1999 and merged it with Hamilton Standard. That same year UTC sold off its $2 billion automotive business. Plans for a merger with Honeywell International collapsed in 2001 when that company accepted a last-minute offer from GE (but that deal later collapsed). In two separate deals in 2005, UTC agreed to acquire Boeing’s Rocketdyne Propulsion and Power subsidiary and British fire-protection company Kidde PLC (which was combined with a similar firm, Chubb PLC acquired two years earlier). In 2007 Sikorsky received its single largest contract ever—a $7.4 billion commitment from the Pentagon to purchase 537 Black Hawk helicopters for the Army and the Navy.

Financial information

Pratt & Whitney (22 percent of 2007 revenues). Pratt is among the world’s leading suppliers of commercial, general aviation and military aircraft engines, though over the past two decades it has fallen far behind rival General Electric. Its Rocketdyne business (bought from Boeing) is a leader in the design and production of advanced aerospace propulsion system for military and commercial applications, including the space shuttle. Pratt is involved in various collaborations with other companies, including International Aero Engines. One of the company’s current military projects is the development of the F135 engine. Military sales account for about one third of Pratt’s revenues. Its major commercial customers are Airbus and Boeing.

Sikorsky (9 percent of 2007 revenues), Sikorsky, a legendary name in helicopters, sells in both commercial and military markets. Its current military programs include the MH-60S and MH-60R Black Hawk helicopters for the U.S. Navy.

Hamilton Sundstrand (10 percent of 2007 revenues). This business is a leading supplier of sophisticated aerospace components such as flight systems, engine control systems and environmental control systems. Hamilton has been engaged in development programs relating to the F-35 Lightning II and A400M military aircraft as well as the Boeing 787 and Airbus 380 airliners.

Carrier Corp. (27 percent of 2007 revenues). Carrier, which has rebounded in recent years after slumping in the early 2000s, is the world’s largest manufacturer and distributor of heating, ventilation, air conditioning and refrigeration systems. Carrier’s international operations, including U.S. export sales, now account for more than half of its revenues.

Otis (22 percent of 2007 revenues). Otis, the world leader in elevators, has been another big growth area for UTC, especially in its international operations, which account for 80 percent of the segment’s revenues.

UTC Fire & Security (10 percent of 2007 revenues). This segment was created in 2005 after UTC acquired Kidde PLC, a leading producer of industrial and commercial fire-safety products. The segment also includes UTC’s former Chubb segment as well as its electronic security business.

Specialized Information

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