United Technologies Corporation formally announced Tuesday its plan to spin off the operations of Carrier and Otis Elevator in order to focus more heavily on the aerospace industry.
The announcement comes just days after UTC’s purchase of the Iowa-based Rockwell Collins Aerospace was complete, adding more than $6 billion to the company’s aerospace portfolio.
UTC’s CEO Greg Hayes told CNBC Tuesday morning, "The fact is when we looked at over the past ten or fifteen years the cash flows from the aerospace business covered all of the R&D, and their share of the dividend, so there was no cross-subsidy required.”
He added, “I think that was the magic moment when the board said we don't really need to be together and the question was should we be together.”
Otis Elevator and Carrier will be split off to become independent companies with the same financial backers as United Technologies. They will have new headquarters, corporate leadership, and possibly new locations in the future.
Hayes said he expects it to take two years for the splits to be complete, saying tax issues are the most complicated parts of the move.
"Our split here is actually quite simple, complex in the tax restructuring, but in terms of separating we already have three businesses that run by themselves. Our goal now is to set up three public company headquarters to support those businesses."
Gov. Dannel Malloy weighed in on the UTC announcement, saying, “we believe that UTC is committed to retaining jobs here and continuing to call Connecticut home, and given the increased hiring we have seen in the state in the last few years this should good for Connecticut residents.”
UTC and Pratt Whitney have commitments with the state to keep their headquarters in Connecticut for the next 15 years in order to use some tax credits.
In total, UTC employees more than 18,000 people in Connecticut, but the company did not specify how many are employed by Carrier and Otis, respectively. UTC’s largest workforce is with Pratt and Whitney.
David Cadden, a business and entrepreneurship expert at Quinnipiac University says the move by UTC signals a corporate shift to a more focused aerospace giant.
"I think we've finally seen the end of the conglomerate notion where you have a collection of different businesses in different industries and the notion is that they will balance each other out. The reality is sometimes it's extremely difficult to coordinate different businesses and come up with a coherent strategy that will be successful for the entire entity."