Innovation Blog

Innovation CAN Create Jobs: Pratt & Whitney Shows How!

By Shlomo Maital

 Pratt & Whitney’s PurePower 1000G: “This Changes Everything”  

In a recent blog, I quoted Nobel Laureate Michael Spence, who explained why America’s innovation ecosystem has overall brought zero benefit to America’s middle-class workers.   Now, in a case study, I can show how innovation, in a very specific case, did indeed create a lot of well-paying U.S. jobs – the case of jet engine maker Pratt & Whitney’s geared turbofan engine. * 

     Here is the essence of this best-practice benchmark:

     Over two decades ago, Pratt & Whitney, a $12.9 b. U.S. jet-engine maker and a division of United Technologies Corp., which had sales of $54.3 b. in 2010, began to develop new engine technology known as geared turbo fan, GTF.  Despite several economic downturns (1991/2 recession, 2000/1 dot-com bubble, 2007-9 global crisis),  Pratt & Whitney doggedly moved the GTF project ahead.  Before it had a single customer for the new engine, it invested $1.5 billion in R&D.  Its proponents within the company used “guerilla funding” to scrounge R&D money and keep the project alive – not unlike the passionate developers of the Macintosh computer.   Today the GTF is winning rich beauty contests.  Facing formidable rivals GE and Rolls-Royce in three tender contests, Pratt & Whitney won all three, gaining orders from three Airbus 320neo customers, including Lufthansa, as well as from Canada’s Bombardier (regional jets) and Mitsubishi.  The GTF engine was a “bet the company” proposition for Bombardier, President David Hess admits. After losing market share in commercial aviation for years, because of tepid innovation, the new engine may well restore technological market leadership for Pratt.   As it does so, skilled American workers and engineers will find secure employment for decades.   Pratt & Whitney expects GTF to double its business (including the after-market, for maintenance).  Pratt now has orders for 1,200 engines and expects to sell – and of course, maintain —  as many as 10,000.  Assembly will be done in the U.S. and Canada, as well as elsewhere.  Some 450 jobs were created by the GTF project in the past year in the United States, and 1,000 jobs were created worldwide.  Turbine blades are a key element of any jet engine.  They are very high-precision products. Pratt has a cadre of highly talented shop workers in its Middletown, Conn., operation.  They make exotic turbine blades that combine titanium and aluminum. It takes 20 years to train a skilled worker, who can earn as much as $100,000.   Since these jobs are a key element of Pratt’s innovation, they are not moved abroad, but retained in the U.S. Some of the lower-value-added jobs have indeed been moved overseas, to Singapore, Turkey and China.  And Pratt has shifted some production from high-cost union plants in the Northeast to Georgia.   But it has found major advantages in linking its R&D to manufacturing, since jet engines need constant redesign to meet airline companies’ specifications, and constant redesign means constant retooling and changes to the manufacturing process. When R&D and manufacturing are adjacent, at least in the same region, the innovation-production link is strong and productive.

   The Bush Administration criminally gave tax incentives to U.S. firms to produce abroad, where taxes are low.  The Obama administration, typically, has done nothing to reverse this insanity. 

   The question is – why?

  • S. Maital. Case study: Make what you invent, invent what you make.  S. Neaman Institute, 2011.  Available from: smaital@mit.edu  

 

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