Selling its Sikorsky Aircraft business for $9 billion in 2015 generated pros and cons for United Technologies Corp., according to Gregory Hayes, CEO and chairman of the Farmington conglomerate.
On one end, selling Sikorsky to Lockheed Martin Corp. enabled UTC to leave the helicopter business, but Hayes on Tuesday said it also left a void for its aerospace business.
“We made some tough decisions early on when we divested Sikorsky,” Hayes said during a Tuesday morning conference call noting UTC’s announcement to split into three separate companies. “I think that was a great move for us, but it also left us, I would say, subscale on the aerospace side.”
That void was filled Monday when UTC completed its $30 billion purchase of Iowa-based aviation systems maker Rockwell Collins, creating one of the world’s largest aerospace companies. UTC also announced plans Monday to split into three separate companies.
The largest will be its aerospace unit including Collins Aerospace Systems — formed through the combination of UTC Aerospace Systems and Rockwell Collins — and Pratt & Whitney.
The other companies include Otis, a manufacturer of elevators, escalators and moving walkways, and Carrier, a global provider of HVAC, refrigeration, building automation, and fire safety and security products.
UTC said the proposed separation is slated to be completed through spin-offs of Otis and Carrier, and is on pace to close in 18 to 24 months after receiving regulatory and board approval.
The decision to split up UTC comes after a 14-month review of its business units and 74 other spin-off transactions that occurred over the last decade, Hayes said.
The three multibillion-dollar businesses, Hayes said, will serve as a model for others looking to spin-off certain business segments.
“We are spinning out three great businesses all with the ability to invest for the future and to invest with a long-term focus,” he said. “Again, the scale with Rockwell Collins is what enables all of that.”
When asked Tuesday about a past comment suggesting that splitting UTC was a bad idea, Hayes said the aerospace market has changed greatly over his four years leading the conglomerate.
“We always thought we needed commercial businesses to support the aero businesses, but with the aero scale the way it is today, that is no longer the case,” he said. “The world has changed. I think we all realize that focused businesses tend to do better.”
By year four of the UTC-Rockwell combination, the company says it will accrue more than $500 million in pre-tax cost synergies. That extra capital will drive further investments, Hayes said.
“Investment needs of Rockwell Collins are different than what is needed from an engine company,” said Akhil Johri, UTC’s executive vice president and chief financial officer. “When the next investment cycle comes, the cash profile of Collins will generate enough to support investment needs in the next cycle.”
