Rising Tide in Airline Business Helps Buoy Pratt Canada
As Pratt & Whitney Canada (Chalet (A) 330) saw revenues from its business jet engine segment suffer through one of the industry’s steepest downturns in history, the company’s highly diversified product line has allowed it to, as P&WC president John Saabas put it, “ride the wave” of fortune in other sectors and consolidate its leading position in the small engine business.
P&WC’s investment in the regional airliner segment, for example, has paid handsome dividends, particularly in the aftermarket business, as turboprops continue to gain market share from small regional jets, due largely to stubbornly high fuel prices. Some 5,000 PW100-family turboprops now fly throughout the world, often logging 2,000 hours per year. As always, the returns from aftermarket services far outpace those from sales of the airplanes themselves, so the coming wave of overhauls promises a surge in income.
“It has been a good marketplace for us,” said Saabas, who estimated that airlines account for some one third of the company’s revenues. “It has been a good one in terms of aftermarket, support, spare parts…so yeah, it’s like, why does everyone want to get into the narrowbodies? Because there are hours flown there…it’s not anywhere near the same business numbers as the single-aisles, but for a business of our size at Pratt Canada it’s important.”
Further investment in what the company calls the “Next Generation Regional Turboprop” (NGRT) reflects its optimism in the future of larger prop-driven airliners, as Bombardier and ATR, both of whose current products use Pratt Canada engines, weigh a business case for offering airframes capable of holding 90 passengers or more. This year P&WC expects program partner MTU to complete compressor demonstrator tests ahead of work on the gas generator next year.
Saabas said that at the current rate of progress the company would have the NGRT ready by the end of next year; however, if an airframer comes calling sooner than that, P&WC has the capacity to accelerate development.
“We’re on a pace that would take until next year to finish it,” said Saabas. “It’s not a year’s worth of work, it’s just [a question of] at what rate do you want to fund it? So if ATR comes back and says that we need to go faster, we’ll go faster.”
For now, Pratt Canada needn’t rush into finishing development of its PW800 turbofan either, given the lack of an application for that engine following the cancellation of the Cessna Citation Columbus in 2009. In fact, Saabas balked when asked about reports of the engine possibly going on a new Gulfstream jet.
“We have no program to announce…we have a demonstrator program,” he said. “We don’t get money from UTC (its parent company, United Technologies Corp.) to launch a full program until we get a committed customer. We don’t have that. We’re in discussions with everybody. But until the skinny lady sings, there’s nothing.”
That doesn’t mean Saabas believes the PW800 hasn’t got a prominent place in the company’s future, however. Using the same core as the PW1000G geared turbofan Pratt & Whitney developed for the Bombardier CSeries, the engine remains vital to Pratt Canada’s efforts to more effectively penetrate the heavy business jet market.
Saabas named three factors that have helped companies sell airplanes, such as the Bombardier Global 6000, Gulfstream 650 and Dassault Falcon 7X trijet–the one program in the sector on which P&WC does enjoy a position with its PW307. First, he said, lenders still offer attractive financing rates for large business jets less than 15 years old; second, people who typically buy such airplanes–namely, billionaires–don’t necessarily need financing; and finally, demand in the Middle East and Asia, where a few, high-net-worth individuals want to fly direct to Europe and North America, has increased.
“There’s only 300 heavy, large, long-range jets made a year,” noted Saabas. “So even if that grew at a couple of percent a year, the number of billionaires is growing at 3 or 4 percent a year. You don’t have to make a whole bunch of sales to keep that part of the market strong.”
But while the large business jet segment remains buoyant, due to its comparative immunity from the vagaries of liquidity availability, for the rest of the market a lack of attractive financing terms remains a serious problem, according to Saabas.
“The risk profile associated with business jets–smaller business jets–has changed, in terms of what interest rate people will lend money at,” he said. “That hurts the ability to sell.”
Saabas explained that following the banking crisis, changes to the rules governing the measurement of risk profiles of certain kinds of loans hit business jets particularly hard, while defaults on loan payments led to a glut of low-time airplanes for sale, resulting in plummeting values.
“I think after the last crisis there were a lot of airplanes not paid for…half paid for; they were dumped off at bargain prices,” said Saabas. “We saw [numbers of] less-than-five-year-old aircraft for sale that have never been as high and the prices never as low. If you’re an OEM trying to sell, [and] the used price of something with 500 hours on it is 30 percent less than your list price, what are you going to do? You’re going to drop the price of the new to be able to sell. Or you have to add new features or give other things away.”
Still, Saabas expressed optimism for the future, based on signs of gradual economic improvement in the U.S. and rising confidence in markets in general.
“We’re starting to see modest pickup,” he said. “I think it’s going to be that way until there’s a little bit more certainty in the U.S. about a lot of things, more certainty in Europe about a lot of things and just the access to capital. So those three things all have to move. They’re all moving slowly because they’re big macroeconomic kinds of things. They don’t turn overnight.”
In the meantime, Pratt Canada’s top executive believes the company can count on continued growth in the airliner market, as well as helicopter and general aviation markets, which all remain “pretty strong,” he said.