Leading through transformation: Louis Chênevert’s legacy at UTC
Retired aerospace industry executive Louis Chênevert is the former chairman and CEO of United Technologies Corporation (UTC). His journey to the executive leadership of the multinational industrial conglomerate saw him climb the ranks over 13 years at business unit Pratt & Whitney. He joined Pratt & Whitney Canada in 1993, became EVP Operations of Pratt & Whitney in 1996, and president in 1999. In 2006, he was named COO and a director of UTC, before being elected president and CEO in 2008 and chairman in 2010.
Chênevert took over as CEO from George David, a successful leader who grew UTC’s market capitalization tenfold during his 16 years in the role. While many analysts questioned whether Chênevert could fill David’s shoes, those concerns quickly evaporated due in part to Chênevert’s shrewd consolidation efforts, deep operations expertise, and ambitious eye toward the future.
Here’s a look at how Chênevert built upon the momentum kickstarted by his predecessors and transformed UTC into a sleeker, future-oriented industrial manufacturer during his 2008-14 tenure as CEO.
The Geared Turbofan
In product innovation, the Geared Turbofan (GTF) jet engine was one of UTC’s major achievements under Chênevert. He first took a special interest in the project during his time at Pratt & Whitney and eventually championed it to become a disruptive force in aviation. The first GTF engines took flight in Airbus and Bombardier jets in 2015.
Through testing, the GTF was proven to be 50% quieter and 16% more fuel-efficient than existing engines. Marketed as the PurePower family of engines, these accounted for about 30% of new-generation single-aisle jet engine orders in 2014, re-positioning UTC as a pioneer in jet engine development and “forcing GE to follow,” noted Stephen Vella of the advisory firm Kestrel Aviation, in a 2014 profile of Chênevert in Fortune.
The GTF employs an innovative use of gears to drive the fan that sucks in air at the front of the engine to generate thrust. Traditional jet engines have a direct drive shaft with a connected fan and turbine that rotate at the same speed, though the fan is more efficient at lower speeds and the turbine at higher speeds. By placing a gearbox between the fan and turbine, the fan can move at one-third the speed of the turbine. This approach limits engine noise and enhances fuel efficiency.
“Many people in aerospace were questioning its reliability and its capacity to be competitive,” noted Airbus CEO Fabrice Brégier in the Fortune feature. “I knew that if Louis was putting his weight behind the R&D and claiming it would work, that it would work.”
Industry leader in profitability for investors
In 2013, UTC registered $62.9 billion in revenues and ranked 45th on the Fortune 500 list, but ahead of competitors GE and Boeing in profitability and performance for investors. From 2008 to 2014— Chênevert’s tenure as CEO—UTC delivered almost 12% percent average annual returns compared to 8.4% for the S&P 500 during the same period.
Moreover, a study commissioned by Fortune in 2014 found that UTC generated 11.4% cash return on total assets in 2013, exceeding the industry average of 10.2% and far surpassing the 8.9% return for GE’s industrial businesses. During the 20 years ending in 2014, UTC produced shareholder returns of 16.3% per year, compared to 11% and 8.8% for Boeing and GE.
Much of UTC’s financial success during Chênevert’s tenure as CEO can be attributed to his efforts to restructure and simplify the sprawling corporation into two units, aerospace and building systems. Notably, he facilitated exits from multiple business lines, including industrial turbines and windmills, and bulked up its aerospace holdings. In 2012, he led the acquisition of aircraft components maker Goodrich for a record $18.4 billion, the largest-ever transaction of its kind in the industry.
Building & industrial systems business
Chênevert also pursued reorganization within UTC’s building and industrial systems businesses, combining field offices and establishing growth strategies in emerging markets for Otis Elevators and other units. For example, he placed about 2,500 field officers from different companies—Otis, Carrier, and Kidde and Chubb, to name a few—under one roof, reducing costs and driving synergies to better serve UTC customers.
Growth in emerging markets
With 60% of UTC sales at the time outside the US, Chênevert was a firm proponent of the growth potential in emerging markets like China and India. Under his leadership, UTC subsidiary Otis secured the contract for the installation of 50 double-decker elevators in the Goldin Finance building, a 117-story skyscraper in Tianjin, China, where UTC at the time had about $4 billion in sales. India, meanwhile, was just a $200 million market for UTC when Chênevert became CEO; in 2013 it exceeded $1 billion in sales.
Adjusting to growth trends, Chênevert also led the opening of a new Otis factory in Chongqing, China, to produce up to 15,000 elevators per year. He also globalized R&D, transitioning work from Europe and the US to the markets where the resulting products were sold. For instance, by 2014 about 90% of UTC products sold in China were also manufactured in China.