United Tech's Pratt issues will drag on cash flow: CEO

September 16, 2016 3:55 PM EDT

The logo of Dow Jones Industrial Average stock market index listed company United Technologies and their subsidiary Pratt & Whitney is pictured in San Diego, California April 21, 2016. REUTERS/Mike Blake


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By Alwyn Scott

NEW YORK (Reuters) - United Technologies Corp's (NYSE: UTX) chief executive officer said on Friday the company would deliver 150 Pratt & Whitney engines this year, missing its target of 200 and putting "pressure on cash flow."

United Technologies shares fell about 1.8 percent after CEO Greg Hayes spoke about the issue at an investor conference hosted by Morgan Stanley. They were down 2.3 percent at $100.33 in afternoon trading, the biggest decliner in the Dow Jones Industrial Average.

Hayes said front fan blades are among about five engine parts "that are causing us pain" by slowing deliveries. The company is continuing to build the engines, since fan blades go on at the end of assembly.

Hayes' remarks, his first since Canadian planemaker Bombardier Inc flagged the problem this month, provided details about the severity and potential impact of the issue.

Production problems are not unusual with a new product. Pratt's engines are a new design available on single-aisle planes such as the Airbus A320neo and the Bombardier CSeries. Last year, the company found an unrelated problem with the engine shaft that slowed the startup process.

The fan blade, developed with Alcoa Inc (NYSE: AA), is made of aluminum-lithium alloy and tipped with titanium on the leading edge. Efforts to speed up blade manufacturing have taken longer than expected, leaving Pratt with fewer units than it expected by now, according to people familiar with the process.

This year, we talked about delivering about 200 engines," Hayes told investors. "As I stand here today, I think that number is probably plus or minus 100 - more like 150 engines for the full year."

Unfinished engines have welled up at Pratt's factory in Connecticut, Hayes said, and it is likely to take the better part of a year for production to return to normal. The company declined to say how many engines are awaiting delivery.

"Airlines aren't happy they are not getting the engines," Hayes said, adding "there will be pressure on cash flow" in the third and fourth quarters. The company's ability to hit cash flow targets "will be dependent on getting engines out the door," he said.

Pratt likely will ship 350 to 400 engines next year, versus its forecast of about 400, and production will be "caught up by the end of next year," Hayes said. "But it will literally take us another nine or 10 months to get caught back up."

(Reporting by Alwyn Scott; Editing by Jeffrey Benkoe and Will Dunham)



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