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Business News/ Companies / News/  In the right business at the right time in India: UTC’s Chênevert
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In the right business at the right time in India: UTC’s Chênevert

UTC is running two years behind in its goal of earning $2.5 billion in annual revenue from India, chairman and CEO Louis R. Chnevert says

Photo: Ramesh Pathania/MintPremium
Photo: Ramesh Pathania/Mint

New Delhi: United Technologies Corp. (UTC), the maker of Otis elevators, Carrier heating, air conditioning and refrigeration systems, Sikorsky helicopters and Pratt and Whitney aircraft engines, is running two years behind in its quest of earning $2.5 billion in annual revenue from India, chairman and chief executive officer Louis R. Chênevert said in an interview on Tuesday.

In 2012, the company, which posted nearly $63 billion in sales last year, had reckoned it would be able to reach its goal of quintupling its 2010 revenue from India by 2015. But then the economic downturn in India deepened. Even so, the Canadian-born Chênevert said he remains optimistic about India’s potential both as a market and a manufacturing base for UTC, which builds cabins for S-92 helicopters in a Hyderabad-based joint venture with Tata group and emergency escape chutes for aeroplanes in a Bengaluru factory it inherited from Goodrich Corp., the world’s biggest maker of aircraft landing gear it acquired in 2012. One reason for the optimism is the new government, in which, he said, he senses “passion, energy, enthusiasm" after meeting finance minister Arun Jaitley on Monday.

“We are in the right businesses at the right time and it’s nice to be in India," he said. Edited excerpts:

On manufacturing in India

I’m very happy that I had a chance to visit our Bangalore facility where we have UTC Aerospace Systems (UTAS), which came through the Goodrich acquisition. We produce motor drive electronics, we produce cargo systems for large narrow-body and wide-body airplanes; and more importantly, the emergency escape chute that goes on these planes. Especially on “made in India", there is no better example than what we have done in Bangalore.

We are the sole source provider of these emergency chutes on (Airbus) A380, A330, A340, (Boeing) 777.... We make those chutes here in Bangalore, India, and it’s not for local use, it’s for sending to Boeing, Airbus and Embraer.

So we actually make goods here that we export. And until recently we had to export these to our US company to be shipped back to Airbus or Boeing. Now with the credibility of the facility, we are able to direct ship it to the customer going forward. So that means we produce the emergency chutes and we deliver them to the point of use in Toulouse, in Hamburg, in Seattle. This is a great new story for “made in India". More importantly, it is made in India for the world market.

The same is true with Hyderabad, where we have the Tata relationship to produce the helicopter cabin, the S-92 cabin...now 100% of the cabin for the S-92, which is used for VIP travel, which is used for oil and gas exploration, is done in Hyderabad; we make 40 helicopter cabins a year. What should be a source of great pride is, we manufacture in Hyderabad, we export to Coatesville, Pennsylvania to finish the helicopter to be shipped to the customer.

You probably read in the paper that Sikorsky won the Marine One contract (to build helicopters for the office of the US President based on the S-92 platform).... You could look at people in India and say we are manufacturing the cabin that is going to be a part of the US President’s helicopter. That’s a pretty big deal, right? There are 11 other heads of state who we support, but the fact is to me, it’s a very large deal.

On the UTC Building and Industrial Systems (BIS) side, we have a factory in Bangalore that manufactures elevators—that has been very successful. And we have a factory in Gurgaon that manufactures HVAC (heating, ventilation, air conditioning) stems. We have the Midea relationship (Carrier’s joint venture with the Midea Group of China to manufacture and distribute AC systems in India), we sell Toshiba products here. A year ago we created BIS (to provide elevator, airconditioning and fire safety and security systems packaged together).... We can now package solutions as per customer needs. It’s been very successful...

On aviation business

Last time I was here, we talked about the geared turbo fan—it has continued its tremendous successful journey.

When we last spoke in 2012, we had the (Bombardier) C Series, the MRJ (Mitsubishi Regional Jet) and the (Airbus A320) neo and now we have the Embraer platform on top of it. Air Costa, for example, is buying the Embraer E2. We have sold 6,500 (geared turbo fan, or GTF) engines in total. So, for those who didn’t believe in the geared turbo fan technology, there it is—better fuel burn, 75% less noise. It is getting a lot of traction. We are very pleased that, for example, IndiGo is going to be one of the lead airlines to start flying the A320neo at the end of 2015, when it enters service.

But everything is on track. The product is flying today and it’s on track to enter service later next year. (IndiGo, India’s largest airline by market share, in October ordered 250 A320neo planes).

Then of course we have a couple of campaigns on the military side that we are still hopeful...the envelope will be opened for the Naval Hawk (Sikorsky Sea Hawk multi-role helicopter for Indian Navy). We have had the bid in place for a long time and hopefully that’s a contract we win. We have the C17 that is in service that has done its first humanitarian mission with the floods—taking emergency equipment and evacuating some tourists. Seven of the C17s have been delivered and three more are to come in and then there is an option for six more.

On UTC’s performance in India

I would say last year was a tough year, not a lot of momentum in the economy. But with the new Premier (Prime Minister Narendra Modi in office)… yesterday (Monday) I met with minister of finance (Arun) Jaitley and I see very good alignment with the leadership and I sense passion. I think the young generation is also very enthused about the prospect of what’s going to happen here in India.

It’s only been a couple of months since the new government (came to office) but I sense passion, energy and enthusiasm, which is good for us in business. Because the two powerful forces that drive UTC are urbanization and commercial aerospace and India is going to be urbanizing at a rate that is beyond China.

If we look at the statistic it suggests 350-400 million Indians will move to the cities versus 300 million in China in the next 15-20 years. We are in the right businesses at the right time and it’s nice to be in India.

On whether UTC is on track to meet its revenue goal in India

With the economic challenges, we are not on track with 2015, but we are on track to achieve that goal. If you look at the sales last year they were $1.2-1.3 billion, so we are about half-way there. So we had planned 5x and we are kind of 2.5x and we got more momentum to go. But recently we won very large projects in India; you are aware of the (orders for elevators and escalators by) Hyderabad Metro; we had the Mumbai (airport) win. We also have (an order from) the Delhi Metro system. It feels that we are earning new projects that will give us the runway to double our sales from where we are today.

So clearly for the end of 2015, (it’s) not possible (to reach the target). Probably by the end of 2017, we still feel that the $2.5 billion target is realistic. And I’m sure I’m not the only company to report that things didn’t turn out exactly the way we had planned. But sometimes progress is lumpy. I’m optimistic, we have a good team, we have doubled our workforce since 2009. Our employees here in India are around 6,500 now. That’s direct (employment).

On opportunities for UTC in India

I see opportunities in all my businesses. And the reason is simple. We thrive on countries that are urbanizing. And India is urbanizing at a faster rate in the next 10-20 years than any other emerging market. So, therefore, big demand for our products, big demand by the way, for our localized products because to be competitive in delivering escalators, elevators, security systems, you can’t import the goods; you have got to make them here. And the same is true for aerospace—there is huge demand for new aircraft in this market.

UTC Aerospace Systems has a couple of million dollars of content on every single aircraft that gets delivered. That’s the chutes, the electric system, rotors, etc. GTF is another good example. Then of course Sikorsky.

This is a country where helicopters are really enablers to productivity, on the commercial side for oil and gas exploration. But then on the military side, the experience on the C17 with our engines and the experience on hopefully soon with the Naval Hawk for the Indian Navy will give them confidence that our products are best-in-class, reliable, predictable. And as time goes by, with some of these opportunities, we see a chance to manufacture these products, and make the content more and more localized.

On the Indian government’s bid to boost manufacturing

I am very proud of our track record of manufacturing here for the Indian market in the case of BIS, but also for the world market in the case of aerospace. I would say a couple of things are needed to support in-country manufacturing.

Certainty is the friend of business and I can think a couple of areas to really get heavy manufacturing and advanced manufacturing accomplished here.

Land reform that’s been discussed, I think is key, to make sure that we have a clear right to land so if you establish a plant, you’ll know what the rules of the game are. Clearly the availability of power that is robust, reliable is absolutely critical because right now, the chutes that we make in Bangalore, require a lot of labour but there’s not a lot of machining—it is manufacturing of goods that don’t have these huge machines running. The next step for us for our evolution is more heavy manufacturing. You need a lot of power but also you need a lot of dependability because if you have a power flick or power outage you will destroy components and parts. So power is critical.

And then making sure the tax policies are well understood for manufacturing business. I am encouraged by the meeting I had with the minister of finance, Mr. Jaitley, and by the other players I have seen here. They have had a common message and they have realized those are some of the opportunities. The new (rail) line that they are talking about between Delhi and Mumbai and another one between Bangalore and Chennai, with the mega cities and the smart cities. I love smart cities—those are opportunities for us. Tall buildings, elevators, escalators, air-conditioners, security systems, so we could take an important position to support that growth.

I have been coming here for a long time, I like India, I like the culture, I like the simplicity, the language and it’s easy to do business here. It’s a democracy so we applaud that. Sometimes, with democracy, there’s a bit of challenges with making sure you are agile but I sense this new government wants speed, they want execution and they want to make sure that they welcome companies to do more locally; 15-16% manufacturing is done here today (as a share of gross domestic product). The goal is 25% and I think it could be done. It doesn’t happen overnight.

On joint ventures and potential acquisitions in India

The JV that we have with Tata will continue to expand. So far it is cabins for S-92, but there’s a chance to do more on both commercial and military (sides). You look at the joint venture we have with Midea here for the HVAC market here. We have built a new factory with Midea.

We continue to look at acquisitions in India. I think there are some opportunities in small, complementary products that could enhance our building offerings and our ability to execute on the aerospace challenges we have. It’s actually looking quite good.

On global economic prospects

The world is always different than we plan. To start with, the US economy has been recovering and it’s probably doing a little better than we expected. Europe was coming out of the slow momentum late last year and early this year but it kind of stalled again. Middle East is still quite good. China, we knew, was going to slow down. It probably slowed down a little faster than we expected and India has been growing, not as fast as we all thought, but we are optimistic as to what’s about to happen.

Those are the important markets for us. South America has been a little challenging versus what we had planned.

But all in all, look at our results, the $4.7 billion we invested in technology and all the new products, our organic growth for the year looks like it’s going to be 4%. In Q3 it was 5%, so it’s nice to see organic growth resume, something which we have not had in a couple of years.

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Published: 21 Nov 2014, 01:08 AM IST
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