United Tech sales up 2.7 percent amid engine issues, weak markets

(Adds details about Airbus delays)

By Alwyn Scott and Ankit Ajmera

July 25 (Reuters) - United Technologies Corp, maker of Otis Elevators, Pratt & Whitney engines and Carrier air conditioners, on Tuesday reported a 2.7 percent rise in quarterly revenue, helped by higher sales in three of its four business units.

The organic revenue growth, which excludes foreign exchange and acquisitions, prompted the company to raise its forecast for full-year sales. It also lifted the low end of its range for adjusted earnings.

But the company reported narrowing profit margins and slowing sales in some regions as it tries to sell elevators amid tough economic conditions in China and increases production of the Geared Turbofan aircraft engines.

Engine losses are expected to peak next year, Chief Executive Officer Greg Hayes said on a conference call. Engine makers typically lose money on their initial production until they reduce costs.

The company plans to reduce factory space and flatten its organizational structure to cuts costs this year and next, Hayes said. Moves by Boeing and Airbus to capture more of the market for airplane parts and service could prompt United Technologies to raise prices for those parts, he said.

Boeing has launched a services unit that aims to capture $50 billion in profitable aftermarket sales, a market currently served mostly by suppliers.

United Technology shares were down 2.5 percent to $120.08.

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United Technologies beat expectations for quarterly revenue and profit in the latest quarter, and said it had solved a supply chain problem with the Geared Turbofan engines that had caused Airbus to delay deliveries of the new A320neo aircraft.

Pratt retested some engines in the second quarter, but still plans to deliver 350 to 400 this year. "It did cause a problem to Airbus, no doubt," Chief Financial Officer Akhil Johri said in an interview. Now, however, "our production issues are pretty much in control."

A person familiar with Airbus production plans indicated that problems persisted. "We know what the fix is, but the time it takes to put it in place keeps unraveling," the source said. "A wave of airplanes keeps getting pushed back each month, which makes it harder to eat into the earlier delays," he added.

Another industry source said some airlines were refusing to take delivery of Airbus A320neo aircraft because not enough spare engines were being made available.

Airbus declined to comment.

Pratt built 145 engines in the first half, seven more than in all of last year, and delivered 134.

Net income rose to $1.44 billion, or $1.80 per share, in the quarter, from $1.43 billion, or $1.71 per share, a year earlier.

Adjusted earnings rose to $1.85 per share, up from $1.82. Analysts expected $1.78, according to Thomson Reuters I/B/E/S.

Net sales rose to $15.28 billion from $14.87 billion. (Reporting by Alwyn Scott in New York and Ankit Ajmera in Bengaluru and Tim Hepher in Paris; Editing by Amrutha Gayathri and Jeffrey Benkoe)