Annual Meeting 2014 - Creating Value in a Long Business Cycle

Creating Value Through R&D in a Long Business Cycle
Alan Epstein, PhD, Vice President Technology & Environment, Pratt & Whitney

While it was the most exciting industry of the early 20th century, aviation is considered now by many to be mature. After all, a B787 jetliner looks much like its B707 forbearer. True, but the newer airplane burns 70% less fuel per passenger, has greatly reduced emissions, and is much, much quieter. This improvement has driven the cost of air travel down by a factor of 5-8. Commercial aviation now grows at four to five percent per year and is the largest manufacturing export of the US. This is an important, exciting business, one in which a technically differentiated product can generate $billions in value for a producer and its customers.

The airplane development cycle is long, but that for the engines is even longer – typically four to five years, with an R&D bill of $1-2B. This product will then remain in service for three to five decades, generating hundreds of billions of dollars in revenue, but with relatively little opportunity for substantial technology insertion. Technology management has proven crucial in generating value in these highly engineered products. The very limited time window in which new technologies can be introduced, compared to the time it takes to mature those technologies, implies that a coherent, sustained technical vision of the product combined with a disciplined technology maturation process are key to generating value