United Technologies Corporation: Company Strategy & Performance Analysis
United Technologies Corp (UTC) provides high-technology products and services to the building systems and aerospace industries. The company has organized its business operations into four divisions: UTC Aerospace Systems; Pratt and Whitney; UTC Climate, Controls and Security; and Otis. The Otis division manufactures elevators and escalators; Pratt and Whitney build commercial, general aviation and military aircraft engines; UTC Climate, Controls & Security provides heating, ventilation, air conditioning and refrigeration solutions.
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Increase in government-funded and non-funded contracts
The company’s order backlog posted a compound annual growth rate (CAGR) of 6.9%, rising from US$71.5 billion in 2012 to US$93.3 billion in 2016 due in part to an increase in volume of government funded and unfunded contracts received. The order backlog of the Pratt and Whitney division posted an annual increase of 9.1%, rising from US$43.6 billion in 2012 to US$61.8 billion in 2016.
UTC ranks second in terms of MRO revenue
UTC registered an annual growth rate of 10.6%, from US$9.0 billion in 2015 to US$10.0 billion in 2016 after GE aviation which registered an annual growth rate of 12.9%, from US$10.1 billion in 2015 to US$11.4 billion in 2016. The increase in UTC’s MRO revenue is mainly due to the implementation of innovative solutions and cost reduction strategies to support the growth of operating revenue across its major contributing business divisions. In addition, high commercial aftermarket sales at Pratt & Whitney and UTC Aerospace Systems positively contributed to the growth in net sales.
Robust R&D capacity to strengthen the firm’s product portfolio
UTC invests a significant amount of its total revenue in R&D activities to strengthen its competitive position in the market. The company’s annual expenditure on R&D is variable. In 2015, UTC reported a 2.5% increase in its R&D expenditure, from US$2.27 billion in 2015 to US$2.33 billion in 2016. The company’s majorly R&D investments are in aerospace and engine production at Pratt & Whitney, and the Mitsubishi Regional Jet, Airbus A320neo, and Airbus A350 programs at UTC Aerospace Systems.
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