Pratt & Whitney, one of the operating segments of diversified business conglomerate United Technologies Corp. (UTX), recently issued a statement about its intentions to discontinue the joint venture with Rolls Royce Holdings plc (RYCEY). The strategic move is aimed to encourage fair competition in the market amid stiff regulatory environment.
In 2011, two of the revered forces in commercial aircraft engines had collaborated to form a joint venture to manufacture engines that would power mid-size aircraft with a passenger capacity of 120-230.
However, both the companies felt that the regulators will object to the monopolistic market share of the joint venture and consequently dissuaded to carry on with it. Post-split, both Pratt & Whitney and Rolls Royce agreed to continue to invest independently to the mid-sized aircraft market segment and develop applications of its geared turbofan engine.
Rolls Royce is the second largest aircraft engine producer after GE Aviation Systems, an operating unit of General Electric Company (GE). Earlier this month, Rolls Royce divested its 50% stake in the joint venture that manufactures helicopter engines. The business was sold for €293 million ($386 million) to Turbomeca, a French manufacturer of low- and medium-power gas turbine turbo-shaft engines for helicopters and subsidiary of Safran SA (SAFRY).
The asset sale was part of the corporate strategy of Rolls Royce to increase its liquidity. However, despite the joint venture sell-off, Rolls Royce will continue with its other existing engine manufacturing programs like the RRTM Adour engine, which powers the BAE Systems-made Hawk and Anglo-French Jaguar jets.
Pratt & Whitney is among the world’s leading suppliers of aircraft engines for the commercial, military, business jet and general aviation markets. Pratt & Whitney’s Global Services provides maintenance, repair and overhaul services, including the sale of spare parts, as well as fleet management services for large commercial engines.
Based in Hartford, Conn., the parent company United Technologies provides high-end technology products and services to the building systems and aerospace industries worldwide. The company is a diversified business conglomerate serving various end markets such as aerospace, defense and commercial construction. The business diversification allows the company to remain profitable amid tough economic times.
United Technologies presently has a Zacks Rank #3 (Hold).
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