What financial and competitive considerations did Pratt & Whitney take into account when they decided to invest billions of dollars in new engine technology?
In 2007 the management of United Technologies (UTC) and its Pratt & Whitney division was ready to launch a new kind of large aircraft engine following years of research and testing. However, to get the GTF engine from its current state to a commercial product would require incremental investment in the billions of dollars. Pratt & Whitney believed strongly that it had developed a superior engine, one whose technology would shape the aircraft engine market going forward. However, given the large development costs and a steep production learning curve, Pratt & Whitney would have to sell several thousands of engines for this new engine to break-even. Aware of the financial risks and competitive assaults that might follow, Pratt & Whitney nonetheless felt that without the GTF engine, the company would be in a no-growth position. This case, supported by an epilogue revealing that the engine proved to be a solid win for UTC, illustrates to students the complexity of the airline industry and the competitive dynamics that must be considered when launching capital intensive new technologies.
Case ID: 200306