Pratt’s $10B plans relies on military, service

PHOTO | Contributed A Pratt & Whitney employee works on one of the East Hartford company's jet engines.

HBJ PHOTO | Brad Kane Mark Buongiorno, Pratt's vice president for the F135 propulsion system, said he is working to sell single-engine jet fighters to more U.S.-sanctioned foreign militaries including Japan and Israel.

HBJ PHOTO | Brad Kane Pratt & Whitney President Paul Adams discusses the companies five-year plan to grow revenues by $10 billion.

PHOTO | Contributed A Pratt PurePower engine going through testing.

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East Hartford jet engine maker Pratt & Whitney has mapped out an ambitious five-year plan that is projected to add an extra $10 billion in revenues.

Pratt President Paul Adams unveiled his blueprint to grow the company's annual sales from $14.5 billion to $24 billion by 2020 at the firm's annual media day in early April. While the bulk of the plan includes boosting sales of its PurePower family of engines to commercial airlines, Pratt also wants to expand its military business and revamp its service contracts for all products to maximize profitability and customer satisfaction.

In 2013, the number of Pratt commercial engines installed on airplanes worldwide reached its lowest level in 35 years due to a decline in the company's legacy products. That trend, however, will reverse itself in a big way as Pratt ramps up sales of its next generation of engines starting next year; by 2025 the number of Pratt commercial engines installed on aircrafts will reach record levels, Adams said. “We've got a great product that creates great customer value,” Adams said. “We've got a great backlog.”

While commercial engines make up the majority of Pratt's $57 billion backlog, the company wants to generate additional revenues by taking the technology it developed for the U.S. military's F135 joint strike fighter program and selling it to more foreign nations.

“The [F135] program is in really good shape…We are going to continue to add customers,” said Mark Buongiorno, Pratt vice president for the F135 propulsion system.

Military superiority

The F135 program began when the U.S. Navy, Air Force, and Marines needed a fighter jet to replace the F-16, F-18, and the Harrier aircrafts. So Lockheed Martin and Pratt designed three different versions of the same jet — the F-35 — that could do conventional takeoffs and landings for the Air Force, take off from aircraft carriers for the Navy, and perform vertical takeoffs and landings in combat zones for the Marines.

Once the Marines start operating its version of the F-35 this summer, all three versions of the jet will be in service.

Pratt and Lockheed will produce 2,443 single-engine jet fighters for these three branches of the U.S. military by 2039. In addition, eight other countries (Australia, Canada, Denmark, Italy, the Netherlands, Norway, Turkey, and the United Kingdom) partnered on the program, and will need 3,100 more aircraft in the next 24 years.

“This will be the fighter for generations to come for all key Western nations,” Adams said.

To grow the F135 program beyond the initial partners, Pratt wants sell the fighter to more U.S.-sanctioned foreign militaries, Buongiorno said. Japan, South Korea, and Israel already have signed on.

Pratt delivered 46 engines for the F-35 in 2014, but the company plans to more than quadruple that production level; it wants deliver more than 200 engines annually by 2020, Adams said.

Foreign military sales, however, are extremely complicated and sensitive, Buongiorno said. Not only is Pratt limited to selling to Pentagon-approved countries, but each country weighs military purchases based on its own political and cultural systems, as well as its desire to ally with the U.S.

Once the purchase is made, Pratt also must provide certain concessions, including on the production of the product, said Joe Sylvestro, Pratt's vice president for manufacturing operations.

When Italy decided to participate in the F135 program, for example, the country wanted to have some of the production performed on its soil by Italian workers, Sylvestro said. So, Pratt opened a facility in Italy.

“They want to have some ability to control their destiny,” Sylvestro said. “Foreign governments want to be able to do maintenance on their engines.”

New service model

Military engines make up a quarter of Pratt's $57 billion engine backlog; the rest is tied up in commercial engines. A key driver of Pratt's business will be the PurePower family of engines, a more fuel-efficient, quieter propulsion system for airplane designs ranging from the Airbus A320neo narrowbody to the Gulfstream G500 and G600 business jets.

Pratt has 6,300 PurePower engines on backlog and expects the engine family to make up two-thirds of the company's installed commercial engine base by 2030, Adams said.

“Only 17 percent of the world's population has been on an airplane at this point in time, so there is tremendous upside,” Adams said.

This will mark the first time Gulfstream uses a non-Rolls-Royce produced engine for its business jets. Pratt expects its market share in the business jet segment to grow to 50 percent in the coming years, Adams said.

To maximize the impact of the PurePower ramp up and all its other engine sales, Pratt is changing its aftermarket service model from one of repair and maintenance to fleet management, Adams said.

Fleet management includes long-term agreements to supply, service, and improve the products Pratt sells. Rather than selling a customer an engine and performing extra repairs when needed, Pratt will monitor engines and maximize their performance over the life of the product.

“It really aligns our objectives to our customers' objectives much more closely,” Adams said.

Fleet management includes three methods to drive profitability for Pratt, Adams said.

The first priority is to increase an engine's time on the aircraft's wing, using Pratt's unique knowledge of the product to diagnose issues before they become problems.

Second will be to perform more on-wing maintenance when problems do arise, Adams said. Third is to broaden workscope when an engine must be taken off wing for service to minimize future problems.

This new service model applies for military and commercial engines, although the armed services are prepared to do a lot of their own maintenance. Still, as the F135 program grows and deploys aircraft around the world, Pratt is setting up service and manufacturing centers in nearby locations to provide parts and maintenance when needed, Sylvesto said.”