quote:
Pratt's Grand Design
Hartford Courant 02/22/05
author: John M. Moran
LONGUEUIL, Quebec -- Frosty winds whip across the choppy waters of the St. Lawrence River as a stream of cars rolls into Pratt & Whitney Canada's manufacturing plant and headquarters.
Thousands of engineers, machinists and managers jam this sprawling campus every workday, making Pratt & Whitney the largest employer in this city of 150,000 people just east of Montreal.
In the 76 years since it was founded, Pratt's Canada division has designed and built more than 55,000 small- and medium-size aircraft engines. It is best known for the PT6 turboprop engine, a workhorse that still powers thousands of small planes around the world.
Now, Pratt Canada is leveraging its know-how to introduce a new engine - one that analysts say could revolutionize the market for light business jets as Pratt Canada becomes an increasingly important part of its East Hartford-based parent company.
It's called the PW600, a cigar-shaped turbofan about the size of a household water heater. Though tiny when compared with the engines that lift commercial airliners, the PW600's narrow profile and lightweight design are tailor-made for a new generation of business jets about to hit the market.
Already, two aircraft makers - start-up Eclipse Aviation and industry veteran Cessna Aircraft - have chosen the PW600 for their latest planes, commonly known as "microjets" or "very light jets." Customers already have ordered hundreds.
"The market for this engine is very strong, and we need to gear up to be able to provide it," said Mario Modafferi, director of the Pratt Engine Center where the PW600-class engines will be built. "This engine's going to take over the world the way the PT6 did."
Actual production is still months away. But Pratt Canada is fashioning assembly lines capable of churning out 1,000 of the engines a year - or roughly one every eight hours, around the clock, seven days a week.
In a corner of Pratt's Longueuil complex, a mock-up of the production line offers a glimpse of how it will be done. Cardboard versions of the PW600 are used to simulate the path of an engine as it moves through 11 assembly stages, or "pitches." Racks of tools and parts bear the cryptic labels of engine production: pin-rigging control, sling engine rod assembly, anti-rotation.
Off to one side sit four refrigerator-size brown cardboard boxes, each with the trademark Pratt eagle on the end and the UTC logo on the side. These are the shipping containers that will carry the completed engines once production begins.
Dressed in a gray T-shirt and blue jeans, Pratt engineer Michael Tremblay, a 25-year company veteran, is meticulously studying which tool and part should be used at each step in the process. With tools and parts evolving constantly, it's a relentless challenge, he said.
"I'm making sure that everything is in place," said Tremblay, his English tinged with the accent of French commonly spoken on the shop floor. "You have to make sure that it's the good stuff, that it's the latest one. You need to do it continuously."
Pratt's engineers have worked so hard to design the manufacturing process that the company prohibits photographs of the prototype assembly line, so as not to tip off competitors.
Though sometimes referred to as "Little Pratt," the Canadian division is making a big impact on the company's overall revenues and profits these days.
That's because sales are booming at Pratt Canada, which now accounts for about $2 billion worth of Pratt's $8 billion in annual revenue. That share could grow still larger, analysts say, as the Canadian unit expands its markets and builds its installed base of engines.
"They have one of the best, longest-running monopoly positions in the history of aviation with the PT6," said Richard Aboulafia, an analyst with the Teal Group. "That thing has been around for decades, and no one's been able to challenge it."
Still, Pratt Canada has faced some difficult times.
Long dominant in the world of small-engine turboprops, Pratt Canada fumbled the transition to jet engines, allowing competitors to grab strong positions in the market for regional jets.
That grip is proving difficult to break. Pratt Canada's PW800, which was built specifically for regional jets, still has no launch customers. Pratt Canada also suffered a setback with the PW800 in the military market, when Airbus awarded a $3.8 billion contract on the A400M military transport to a European consortium led by Rolls-Royce.
In addition, the economic downturn earlier this decade hurt sales of small aircraft, leading Pratt Canada to close a plant and cut 1,450 jobs from its payroll.
The company has since begun rehiring. In December, union workers overwhelmingly ratified a new three-year contract.
But its recent difficulties are all the more reason that workers and managers alike see the PW600 as a key to the company's growth in the burgeoning market for business jets and air taxis.
Allain M. Bellemare, Pratt Canada's president, said the market is especially promising because the new breed of business jets is slashing the cost of executive flight.
Today's least expensive business jets still cost more than $4 million, a price tag that can intimidate even well-to-do executives, Bellemare said. But the new Cessna and Eclipse jets are priced at one-half to one-quarter of that amount - greatly expanding the market for planes and the engines to drive them.
"It's a market that really doesn't exist today," Bellemare said.
At the same time, excitement is also growing about the use of these small jets for point-to-point charter flights - a kind of air limousine or air taxi.
Although the concept is still on the drawing boards, analysts see the potential for a network of 15 to 20 regional hubs, each operating as many as 200 small, short-hop jets. If that market materializes, it could mean thousands of orders for new engines of the kind Pratt Canada is about to produce.
To be sure, uncertainties remain and there is no guarantee that Pratt Canada will actually see explosive growth. But the signs are encouraging, analysts say.
"Pratt Canada is extremely well positioned in the small-engine space," said Kevin Michaels, principal and co-founder of Aerostrategy Management Consulting. "They've got a broad portfolio, which is a very positive thing. They're winning a lot of business jet competitions. They are rated very high in customer service."
Eclipse Aviation, maker of the Eclipse 500 jet, says it already has orders for 2,200 of the aircraft, which are priced at $1.175 million each. That alone would translate to 4,400 engines. At prices of $100,000-plus an engine, that single program would account for nearly a half-billion dollars for Pratt Canada on the basis of existing sales.
Cessna has more than 200 orders for its Citation Mustang aircraft powered with PW615 engines. These orders could add another $100 million to Pratt Canada's backlog on PW600-class engines.
PW600-class engines are hardly Pratt Canada's only products. In addition to the still-popular PT6, the company also makes a variety of turboprop engines for small- and medium-size aircraft, engines for several helicopter models, and various other small jet engines.
Pratt & Whitney does not break out separate revenue figures for its business units, so it's impossible to get a precise fix on how well the Canada division is doing. But some measures suggest the company is already seeing an upturn in its fortunes.
Engine shipments at Pratt Canada have risen for three straight quarters - reaching 500 units in the fourth quarter of 2004, up 40 percent from the same period a year earlier.
Employment is on the upswing as well. Pratt Canada added 400 people to its workforce in 2004 and Bellemare said the company expects to add a "few hundred" more this year as production grows.
"We are not only back to where we were in 2001, but we're exceeding it," he said. "We're well on our way to having fantastic revenues moving forward."
Overall, Pratt Canada employs about 8,500 people worldwide. In Canada, the total is 6,500 workers, with 5,000 at the Longueuil plants; 1,000 in Mississauga, Ontario; 400 in Halifax, Nova Scotia; and 100 in Lethbridge, Alberta.
The economics of the small aircraft engine market differ significantly from the large-commercial engines produced by "Big Pratt" in East Hartford and Middletown for use on airliners made by Boeing and Airbus.
Large engines typically sell for millions of dollars. And since they tend to remain in near-constant use, they generate a steady demand for lucrative spare parts and repairs.
Small engines, by contrast, are much cheaper but also get less use. So it takes many small engine sales to equal the revenue produced by even one large engine.
At the same time, smaller aircraft tend to have a single engine supplier, eliminating the cut-throat price competition common to large-commercial engine sales. As a result, small engines are priced closer to the actual cost of making them, so profitability comes sooner after the initial sale.
"You get cash-flow positive quite a bit earlier than in the large-commercial world," said Mark Bobbi, an aerospace analyst. "You still have to wait for the aftermarket [to achieve profits], but you don't have to wait as long."
At the moment, there's only one storm cloud on Pratt Canada's horizon. Honda Motor Co. last year formed an alliance with General Electric, Pratt's rival in the large-commercial engine market, to develop a small jet engine that could one day challenge Pratt Canada in the microjet market.
Meanwhile, Pratt Canada looks forward to the PW600 and continues to build its installed base of nearly 40,000 engines now in use around the world.
"We've got engines flying everywhere," Bellemare said. "Our fleet is growing."
