New Delhi: India’s economic growth may have stuttered, but US conglomerate United Technologies Corp. (UTC) remains confident of expanding its sales in the country five fold by 2015 from $500 million in 2010. This year, the company expects to clock $1 billion in India sales, having bought Chennai-based building management business Sauter Race Technologies Pvt. Ltd and Agnice Fire Protection Ltd, UTC chairman and chief executive officer Louis R. Chenevert said in an interview on a visit to New Delhi on Tuesday. “There’s enough work in the pipeline at this point to achieve and start closing the gap with my big goal,” the Canadian-born Chenevert said.
Hartford, Connecticut-based UTC’s portfolio includes Carrier heating, air conditioning and refrigeration systems, Otis elevators, Pratt and Whitney jet engines and Sikorsky helicopters. Last month, UTC sold $9.8 billion of bonds in the biggest US corporate debt sale in more than three years to pay for its $16.5 billion purchase of Goodrich Corp., the world’s largest maker of aircraft landing gear. “We surprised a lot of people,” Chenevert said about the bond sale.
Three of the bond offering’s six portions were sold at its lowest coupons on record, according to Bloomberg. UTC’s Pratt and Whitney unit has also paid $1.5 billion to buy out Rolls-Royce Group Plc.’s share of aircraft-engine venture International Aero Engines (IAE). Edited excerpts:
On purchase of IAE, Goodrich
This is an exciting time for us. We have got a lot of activity with two large transformational deals that I announced last year. That is the IAE transaction for V2500 engines that has a fairly nice installed base in India, with many customers. We will be acquiring majority control on IAE and we expect closing to occur between mid-to-late June. Everything is on track to meet that target. Of course, the other large transformational deal is Goodrich that I announced last fall, and that is on track to close by mid-to-late July. The nice thing about Goodrich is that it brings a complementary product line—landing gear and brakes—there is a lot of nice content that we will be adding to the portfolio of UTC. They also have a nice presence in India.
It (Goodrich) is very complementary to our aerospace portfolio. It is core (to our business). Second, it is a unique opportunity, these large transactions, the window where it could have happened, come around once in a lifetime. Basically you had the right company with the right interested buyer and the CEO was in the right period in his company’s history where he would consider basically the right offer for the right value. So that’s what happened. Ultimately, it creates a win-win with our customer and generally the customers—the OEMs (original equipment manufacturers), the airlines—are very enthused about the transaction because we will bring the UTC skill sets to the transaction that says we will create better value, better technology.
On Indian business
We have done some transformational deals in India with Agnice in the fire security segment and Sauter Race. I met with the Prime Minister earlier today. Basically, in an environment where there is mostly bad news—you know the economy is slowing, the people are a little pessimistic—I told him I was enthused about what we have accomplished in the last couple of years.
Back in 2009 when I met him, our employment for UTC (in India) was about 2,500 employees. By the end of this year, including the two transformational deals, that population will be...getting close to 7,000 employees. When I first started to come to India, our sales were about $100 million a year. Last year they were getting close to $700 million a year, and by the time we close on the transformational deals, we will be looking at a full-year run-rate of $1 billion for UTC in India.
Identifying opportunities: Chenevert says there is a big market for helicopters in India. Photo: Pradeep Gaur/Mint
And if you think about the fact that I put a big goal out there, with the theme of $2.5 billion by 2015, which at that time a lot of people thought might be impossible; it feels possible now, despite some challenges in the economy.
Of course we have had a nice run in India also with aviation. The Geared Turbo Fan (GTF, an airplane engine) has had a lot of nice traction in India, well embraced by the customers with 16% better fuel burn. You have got 50% less noise— think about what it does for airports and the surrounding communities.
Fifty per cent is a lot. People talked about improvement in this industry by a per cent or two. When it’s double-digit, it’s like wow! Also double-digit emissions improvement. (InterGlobe Aviation Ltd, which runs IndiGo, and Go Airlines (India) Ltd, operator of GoAir, have both ordered GTFs.) The nice thing about India is that it embraces new technology fairly quickly.
We have also improved our footprint here. I will be visiting tomorrow in Hyderabad our (helicopter-cabin building) factory in partnership with Tata. The first helicopter cabin that has been produced in Hyderabad has been incorporated into a real helicopter and it has flown. This is a big deal. This paves the way for increasing more content in India. I believe there is a big market for helicopters in India. The population of helicopters in India will double in the next couple of years.
The same is true for our commercial business. We have expanded the (elevator-making) factory in Bangalore. We are now going to be producing almost 10,000 units per year.
Then with Carrier we have got a partnership with Midea on the residential side. I think we have got a great commercial product. We are very focused on energy efficiency, which is a great priority for this country. (The joint venture with GD Midea Holding Co. Ltd is targeted at the residential air conditioning sector.)
On $2.5 billion India revenue goal
The reason why I’m confident (of achieving the target) is that, number one, we have got big demand on the elevator, HVACR (heating, ventilation, air conditioning and refrigeration) side. Number two is there are already some deals that have been announced on the aerospace side. Think about the GTF sale that we will start delivering (on) in 2015, think about the engines for the C-17 transport aircraft, think about the demand for helicopters. There’s enough work in the pipeline at this point to achieve and start closing the gap with my big goal.
On impact of Indian economic slowdown on sectors such as aviation
We see no big impact at this point.... Maybe if you got to a higher level, there is going to be some short-term up and down...but a powerful force in India is urbanization that is occurring in the elevation of the population to middle class. Maybe in near term we may encounter a bit of choppiness, but the fact is those powerful forces that are in place are the key drivers to our success long term—population embracing energy efficiency, population willing to travel. I met the president of IndiGo this morning; it’s doing very well.
There may be some choppiness and challenges. The fact is that you know (people in) emerging nations and developing nations want to travel, meet face to face with families, etc. The need for air transport is real and it’s not going to change. The key is to have the right business model and have the right initiatives, in my view, to succeed.
So I’m very optimistic about the aviation industry for this country long term. I think it’s a very small fleet that is installed for such a large population. I mean, you have got 1.2 billion people and you’ve got, what, 450-500 commercial airplanes. It is nothing. I would say that the penetration of air travel will continue to increase substantially. That to me is a very powerful force.
If you think about it, if you compare the data for the Indian market, per capita spend on HVACR in the Western world, developed markets, or even China and other countries, the numbers in India are still low, which puts a smile on your face. It says there is a lot of opportunity to keep growing.
On Indian proposal to tax transactions with retro spective effect
I believe that obviously the approach of going backwards could have some fairly negative consequences on attracting investments in this country. At the same time, as long as we as business understand the rules of the game, if people want to make change, and if we understand what these changes are, and the change of play going forward, well then we can make the appropriate decisions based on that and it’s a level playing field.
At the same time, when you have been committed to a country, like we have for a long time, and we have basically been trying to implement a big presence in the country with partnerships, with engineering talent, with commercial companies, I think it’s somewhat unfair to say we are going to go back and tax some things differently than what we as a company had been anticipating.
I do believe in the leadership in India and I believe the leadership will find the right path for success. I don’t think going backwards is in anybody’s best interest. If you want to attract more investment, foreign investment, more talent, more business, I think having some level of certainty that the business environment respects, those who have been your partners for a long time, is important.
Impact of the global crisis
Always my philosophy at UTC is that we focus on what we control, and therefore, we put a lot of energy in supporting our customers, a lot of energy about creating value for our customers. And it’s a level-playing field. Everybody faces the same market. There is no doubt the economies have slowed down. The US recovery is still sluggish although it’s improving. The European community obviously has got some big challenges with a couple of countries in Europe and they are trying to sort it out.
Still, South America, in the first quarter this year, was up 20% from last year (by revenue). You have got Russia and India where sales were up 30% from last year on the HVACR side. There are some challenges, in which we see slowing momentum, but at the same time we have good momentum developing if you have the right products for these markets. It’s about how we create the opportunities for ourselves.
Unfortunately, I think we will continue to see a period of difficulties between now and certainly the year-end with European markets especially and some of the other countries seeing smaller-than-expected growth perhaps. The enemy of business is always uncertainty, and right now there is a fair amount of uncertainty globally.
On the bond sale
We surprised a lot of people. First of all I am very pleased with the bond sale that we put forward. Number one, it goes in to support our acquisition of Goodrich....We did a bond offering that was well over-subscribed. We had $35 billion, almost $40 billion of demand for our bond, which says a lot about how UTC is admired and how people are willing to step in and be part of our story going forward.
Goodrich was the biggest acquisition in the history of aerospace. It (bond sale) is going to make our acquisition come together. We are actually clearing all the steps to bring the transaction in the family.