3 Reasons to Feel Positive About United Technologies

United Technologies' aviation engine company Pratt & Whitney has been subject to disappointment over its geared turbofan engine. Here are three reasons those fears may be overplayed.

Jul 17, 2014 at 11:41AM

Another day, another announcement that a major airline, American Airlines, is placing 100 orders for CFM International's LEAP-1A engines to power its fleet of Airbus 320neo. This is good news for General Electric (NYSE:GE) (CFM is a joint venture between General Electric and Snecma) as it competes with United Technologies' (NYSE:UTX) Pratt & Whitney for engine orders on the revamped A320. It's obviously not such good news for United Technologies. Moreover, given that a Pratt & Whitney engine recently caught fire on a Bombardier (TSX:BBD.B) CSeries jet on a ground test, investors are entitled to start feeling apprehensive about United Technologies' prospects going forward. Is it really that bad for United Technologies?

Bombardier's CSeries problems
The CSeries matters to Pratt & Whitney, because the PW1000G geared turbofan engine is the exclusive engine option on the planes. In fact, aside from the A320neo -- where it competes with CFM -- the engine is currently only offered elsewhere as an option on some smaller circulation regional jets. Therefore, earlier in the year, when Bombardier's CSeries jet was delayed for a fourth time, investors must have started to downplay expectations for the PW1000G. Indeed, the CSeries -- originally expected to enter service in 2013 -- is now expected to be commercially available for service as late as the second half of 2015. Throw in the engine fire mentioned above, and the problems appear to be mounting for Pratt & Whitney.


Photo: The Motley Fool

Why it isn't so bad for United Technologies
With that said, there are a few reasons investors shouldn't panic just yet over Pratt & Whitney, or, for that matter Bombardier's, fortunes.

First, time and cost overruns are pretty much part and parcel of developing a new aircraft these days. Fools already know that Boeing has had production issues on the 787 Dreamliner, even as the company sticks to its planned ramp up in production rates on the program in 2014. Moreover, the Airbus A350 is also running significantly behind schedule. In other words, the delay in the CSeries deployment, although regrettable, should not be unexpected. Boeing and Airbus have had their issues, too.

The second consideration is that the fire issue in the Pratt & Whitney engine on the CSeries appears to be a minor issue. According to an article in FlightGlobal, Pratt & Whitney's chief engineer described the problem as a "minor blip" that was "unrelated to the fan-drive gear system, which is a unique feature of the PW1000G engine family." While the issue is embarrassing -- Bombardier couldn't actually fly the CSeries at the Farnborough air show -- it doesn't look likely to significantly hold back CSeries sales.

Third, Bombardier has actually been recording significant orders and letters of intent for its CSeries range. In fact, Bombardier is on record as claiming orders and commitments for 495 jets (203 firm orders) when the company expects 300 firm orders by the time it enters service in the second half of 2015 -- good news for Bombardier and for United Technologies. Furthermore, according to recent presentation by Pratt & Whitney's president, Paul Adams, the company has lifted orders to 6,000 units from a backlog of 5,500 in late May, as it strives to achieve comparable orders to CFM on the A320neo.

The bottom line
All told, the setbacks with Bombardier's CSeries are obviously disappointing, but they shouldn't come as a surprise given the increasing complexity of modern airplane production. Moreover, United Technologies continues to compete with General Electric on the A320neo, so it isn't just about Bombardier for United Technologies. The issue of the engine fire appears to be under control, and as the media headlines subside on the issue, Bombardier is quietly building its order book.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW, and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion-dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made in China" for good. Click here!

Lee Samaha has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers