For decades, United Technologies (NYSE: UTX) has played a supporting role in the airplane market. It manufactures a world-class product in its Black Hawk helicopter. It makes great engines for Boeing (NYSE: BA) at subsidiary Pratt & Whitney, aircraft power systems at subsidiary Hamilton Sundstrand, and even builds propulsion systems for the U.S. space shuttle. What is hasn't had, though, is an airplane all its own. This week, United Tech (UTC) took a small step toward rectifying that.
On Wednesday, UTC announced that it's taking a minority interest (no word on exactly how minor) in Eclipse Aerospace, maker of the Eclipse 500 "very light" business jet. Now, on the one hand, this might just be UTC "lending a helping hand" to a customer in distress. After all, Eclipse planes use Pratt & Whitney turbofans to power their flight. As a victim of the Great Recession, Eclipse can certainly use some help getting its business up and running once more after declaring bankruptcy in 2008.
By providing funds, UTC helps ensure that Eclipse won't slip back into bankruptcy. By providing support for the business, UTC also hopes to get Eclipse's manufacturing lines back in operation and get Eclipse buying Pratt &Whitney turbofans once more. Of course, by stepping in to help a customer in distress, UTC also protects its flank and prevents an increasingly acquisitive General Electric (NYSE: GE) from getting any bright ideas about poaching its client.
Up, up, and away?
In short, there's every reason for UTC to do this deal, and no reason not to. Indeed, if the recent revival of business jet sales is any indication, this might be precisely the right time for UTC to make a move into the airplane market. Last month, we saw moderately bullish sales news at the business jet divisions of General Dynamics (NYSE: GD) and Textron (NYSE: TXT). Berkshire Hathaway unit NetJets is also expressing an interest in buying more business jets (albeit from Embraer (NYSE: ERJ).
By buying an interest in Eclipse, UTC puts itself in position to expand its investment if the recovery keeps picking up steam; perhaps even buying the entire company. (It wouldn't cost much; last time Eclipse went on the block it was snapped up for just $40 million.) Worst case, even if business jet sales sag, UTC has at least shored up its revenue stream with one customer.
