Pratt & Whitney Receives $300 Million From The Federal Government

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Dec 09, 2014
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Pratt & Whitney (UTX, Financial) has announced that it will be receiving $300 million in tax incentives and subsidies from the federal government. The funds will be used to support 1,500 jobs across various production facilities the company owns. The funds will be in the form of a repayable contribution through the government's Strategic Aerospace and Defence Initiative. The company has been building jet engines in Canada since 1928 and employs more than 6,000 people. Pratt & Whitney has been building jet engines in Canada since 1928 and employs more than 6,000 in Canada. The company is building the new geared turbo fan engines that are being used on Bombardier's CSeries aircraft which is undergoing flight tests.

In a release, the government said Pratt & Whitney has invested more than $10.6 billion of its own money in research and development since 1982. But a Fraser Institute study last year found that Pratt & Whitney had received more than $3.3 billion in Canadian government subsidies in inflation-adjusted terms since 1970, more than any other private company has received from Industry Canada. This gives a sense on how the company plans to spend the investment it is due to receive. The analysts have now questioned whether this would be the best use of the money received. One of the analysts has even opined that these subsidies are politically popular but they don't make companies efficient.

The aerospace engine maker has also revealed plans to spend more than $1 billion on research and development in the coming years. This will be carried out with the help of a further $300 million loan from the Ottawa administration. One thing that is clear from the comments and also the trend analysis that the company plans only to keep o increasing its research and development budget. This is definitely good but the company must also look beyond that and also focus on other productional aspects.

Industry Minister James Moore was on hand at the Mississauga plant on Monday for the announcement that is expected to help maintain 1,500 existing jobs at Pratt & Whitney plants in Ontario and Quebec. Moore also told the reporters that he expected the investment would help create other jobs in the broader aerospace industry, though he couldn’t offer a specific number. “This will no doubt create jobs,” he said. “If you can imagine 1,200 suppliers throughout the supply chain, if every single one of them were to create one job, this creates hundreds, over a thousand jobs conceivably, over the course of the investment.”

More than 65 Canadian companies supply parts for engines made at Pratt & Whitney Canada plants. The Mississauga plant employs about 700 workers, including 450 engineers. The plant builds engines used by aircraft makers like Cessna, Dassault and Bombardier. Infrastructure Minister Denis Lebel made the same announcement in Longueuil, outside Montreal. Pratt & Whitney’s U.S. affiliate is building the geared turbofan engine for Bombardier’s new CSeries aircraft at a plant near Mirabel. Known as the PurePower engine, it is the next generation of aircraft engines and is quieter and more fuel efficient.

The $300-million federal loan been discussed about, granted under the government’s Strategic Aerospace and Defence Initiative, will be paid out over five years. The company has 15 years to repay the interest-free loan. In 2010, the company received a similar $300-million loan to boost research and development efforts.

To Conclude:

The funding will be used exclusively for research and development work in Canada, said Pratt & Whitney Canada President John Saabas. The government could rather help the company and the economy as a whole by laxing the regulations of international trade. This would also help ease the general tax-payer’s burden a great deal. Well, discussing such macroeconomic issues would be beyond the scope of the content of this article. Saabas insisted Ottawa was not giving the company a loan. “It’s called a repayable contribution. It’s different from a loan,” he said. “It’s not just like borrowing money. It’s a risk investment that the Canadian government makes with us in new technologies.” The company has big plans for the coming four to five years. It waits to be seen how the company goes about fulfilling its targets.