UTC Chief Defends Jobs Move From US to Mexico

A maintenance worker inspects a Pratt & Whitney engine

A maintenance worker inspects a Pratt & Whitney engine

3/11/16

By Robert Wright, New York
The Financial Times

Greg Hayes, chief executive of United Technologies defended its decision to close an air conditioning plant in Indianapolis and move the jobs to Mexico in the face of attacks from Donald Trump and signaled that more closures could follow.

Mr Hayes was speaking after an investor day in New York, where the company highlighted the potential to boost profits by shifting further manufacturing from high-cost countries to low-cost areas such as Mexico.

A worker’s video of a manager’s announcement in February that Carrier — a division of UTC — was closing its Indianapolis plant and moving the work to Monterrey has become a big debating point in the US presidential election. Mr Trump, the Republican frontrunner, has vowed there will be no such closures if he becomes president.

Mr Hayes insisted that the decision to close the Indianapolis plant with the loss of 1,400 jobs and another nearby site with the loss of 700 jobs was “one of the hardest decisions” the company had made. It plans to move the work to Monterrey starting next year and finishing in 2019.

“The fact was the supply chain had moved to Mexico, along with about half the competition over the past few years,” Mr Hayes said.

He appealed to politicians to avoid erecting new trade barriers to avoid such moves, saying they would do workers more harm than good. UTC exported about $10bn of goods annually from the US and imported far less, he added.

“If you ever thought about putting trade barriers up, it’s going to hurt the American worker a lot more than it would protect him,” he said.

Nevertheless, Mr Hayes was clear that there was potential for more of the industrial conglomerate’s work to leave the US for cheaper locations. “There are one or two [factories] perhaps,” he said.

Analysts believe much of the appeal of Mr Trump and Bernie Sanders, the “Democratic Socialist” mounting a strong challenge for the Democratic nomination, stems from their tapping into worker resentment over issues such as outsourcing.

Defending UTC’s record, Mr Hayes pointed out that its Otis elevator division moved some production in 2012 back from Mexico to South Carolina.

Its Pratt & Whitney aero engine business was in the process of investing billions of dollars in facilities in Connecticut and Florida to manufacture its revolutionary Geared Turbofan jet engine, Mr Hayes added.

“The fact is we have a great, skilled workforce,” he said. “Expensive — but high-tech, high value-added work like the jet engine you can afford to do the work in higher-cost locations.”

On February 23, 12 days after the video of the Carrier announcement was filmed, it emerged that Honeywell, UTC’s industrial rival, had approached UTC about a $90bn cash-and-shares takeover. UTC rejected the approach, saying that regulatory issues made a deal impossible.

However, Mr Hayes denied that the pressure of a potential takeover or pressure from activist investors had inspired decisions such as the Indianapolis closure.

“Being cost focused is always a part of UTC,” he said. “We’re always looking to be cost competitive.”

During the investor meeting, Akhil Johri, chief financial officer, said the company still had 50 per cent of its manufacturing capacity in high-cost locations.

“So there’s an opportunity to drive cost through relocation to lower-cost locations,” he said.

Ahead of the meeting, UTC had reaffirmed its projections for full-year adjusted earnings per share — excluding restructuring and other one-off costs — of $6.30 to $6.60 on sales of $56bn to $58bn.

The original article can be found here.

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