United Technologies chief executive Greg Hayes suggested on Monday that the firm's contracts with the federal government were a factor in its decision to keep a Carrier plant in Indianapolis open at the request of President-elect Donald Trump, according to CNBC.
Hayes noted in an interview with CNBC's Jim Cramer that the U.S. government is a major customer of the company. The firm's subsidiaries manufacture jet engines and other components for aircraft, and those contracts accounted for about $5.6 billion in sales last year, according to company filings.
"There was a cost as we thought about keeping the Indiana plant open. At the same time, and I'll tell you this because you and I, we know each other, but I was born at night, but not last night. I also know that about 10 percent of our revenue comes from the U.S. government," he said. He added that "a better regulatory environment, a lower tax rate, can eventually help UTC over the long run."
Analysts had speculated that contracts might have made United Technologies more willing to cooperate with Trump. It's unclear if the relationship with the federal government came up specifically in the company's talks with the incoming Trump administration. It would be unlawful, some say, for an official to use government contracts as leverage to achieve political aims.
"It would be highly illegal. Period," Mackenzie Eaglen, a defense analyst at the American Enterprise Institute, told The Washington Post last week.
In the interview, Hayes pushed back against the idea that the federal government could dramatically slow globalization. "At the same time I would tell you the genie of globalization is not going back in the bottle," he said. "Free trade is still essential to the growth of this country."
United receives billions of dollars in federal government contracts. Pratt and Whitney, a subsidiary, manufacturers the engines for the F-35 Joint Strike Fighter, the most expensive weapons program in the history of the Pentagon. Earlier this year, Pratt and Whitney received a contract worth nearly $2 billion for the latest batch of engines, and the program is just ramping up.
In its filings, United Technologies says that its "military business sales are affected by the U.S. Department of Defense budget and spending levels." The share of the firm's revenue derived from federal contracts is far less than that of major contractors such as Lockheed Martin. And United Technologies' sales to the government have dropped in recent years, from $6.3 billion in 2013 to $5.6 billion last year. Last year it sold Sikorsky, the helicopter manufacturer that had won a series of lucrative contracts, to Lockheed Martin.
Pratt and Whitney currently has a case pending before the Army Service Board of Contract Appeals that, if it loses, could cost it millions. In 2014, the Defense Contract Management Agency accused the company of overbilling and demanded it repay nearly $211 million. Pratt and Whitney appealed, and a hearing is set for late 2017.
Chris Davenport contributed.