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UTC expects hit from 737 Max grounding but maintains 2019 target

United Technologies (UTC) expects the global grounding of the 737 Max will dent 2019 profits, although the company still expects its aerospace business will meet financial targets amid strong demand for new equipment and aftermarket sales.

“We are very confident that this segment will be able to deliver on its full-year operating profit commitment, and that is even with the potential for up to 10 cents of headwind related to the Boeing 737 Max programme,” said UTC chief financial officer Akhil Johri on 23 April.

That 10-cent-per-share impact on UTC stock equates to a roughly $86 million hit for one of the 737 Max’s prime suppliers.

In April, Boeing responded to the continued grounding of its re-engined narrowbody by cutting monthly production from 52 to 42 aircraft, a 19% decline. Some suppliers, including fuselage maker Spirit AeroSystems, which is particularly reliant on the 737, have said they will maintain the 52-aircraft monthly rate.

Boeing’s output reduction has also delayed indefinitely its pre-grounding plan to boost 737 production to 57 aircraft monthly in 2019.

Collins Aerospace - formed through the merger of United Technologies Aerospace Systems and Rockwell Collins - has selectively reduced deliveries of some components, while maintaining shipments of others to support the higher rate, Johri says.

Collins products on the 737 Max include landing systems, avionics, sensors, power systems and a range of cabin systems.

Despite the 737 Max grounding, UTC still expects operating profit at the division will increase by $1.55-$1.6 billion year on year, a similar range given in previous earnings calls.

Collins Aerospace generated a first-quarter 2019 operating profit of $856 million - up 46% year on year - on sales of $6.5 billion, up 71%.

Those results largely reflect the impact of the $30 billion Rockwell acquisition, but executives say sales were strong even when compared to the combined pre-merger results of UTAS and Rockwell. They cite double-digit percent first quarter gains in sales of commercial OEM and aftermarket products.

“We have a great future ahead of us at Collins Aerospace,” says UTC chief executive Greg Hayes.

The UTAS and Rockwell Collins merger is “on track to deliver approximately $150 million of cost synergies this year,” Hayes adds. “We still see at least $500 million of total cost synergy potential.”

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