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United Technologies Makes A Push Into What May Be Its Most Profitable Division

Summary

The Pratt and Whitney Geared Turbofan program is seeing its first commercial deliveries recently.

Currently the program is facing a number of technical issues affecting its profitability and delivery schedule.

Despite the issues, the jet engine business is very profitable for competitors such as GE and could be United Technologies' most profitable division or close to it in several years.

Img 1: A Pratt and Whitney Geared Turbofan Engine

United Technologies (NYSE:UTX) has made a major push into what may be its most profitable venture going forward. With 20 years of research and $10 billion in R&D, the recent commercial launch of its Geared Turbofan engine will drive substantial revenue growth at its Pratt and Whitney division in the years ahead.

Img 1: UTX Operating Margin By Segment

Img 1: UTX Operating Margin By Segment

Pratt and Whitney boasts a backlog of 8,200 engines and expects to deliver 200 of the engines in 2016 followed by 400 in 2017, 600 in 2018 and 1,200 annually by 2020. It is not just a revenue driver but something that could drive a major increase for profits at United Technologies. For General Electric (NYSE:GE) the jet engine business is its most profitable by margin. Currently the GE Aviation division has a profit margin of 20.7% versus 10.1% at Pratt and Whitney.

The reason for the current lagging profit margin at Pratt and Whitney's engine division stems from a number of issues...


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