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Elevator and Escalator Consulting Engineers

Possible Major Elevator Industry Changes Taking Place

Company: Otis Elevator

United Technologies' Carrier Global Corp., the heating-and-cooling business, and Otis are expected to become separate companies in 2020, leaving United Technologies to focus on aerospace.  
 
Otis is seeking approval from regulators on its future capital and tax structure and is setting up its own management and finance systems, United Technologies Chief Executive Gregory Hayes said at an investor conference recently. That will entail additional costs because Otis will no longer benefits from centralized functions. Mr. Ghai, the newly announced CFO, is expected to focus on reducing costs across departments and on pruning the independent entity's portfolio, said Joshua Aguilar, an analyst at Morningstar Inc.
 
Otis in its latest quarter reported a 6% drop in new equipment orders compared to the same prior-year period. Some of that decline is down to slowing economic growth in China, an important market for Otis, resulting in pricing pressure for the manufacturer. (Source: The Wall Street Journal)
 

Company: ThyssenKrupp Elevator

ThyssenKrupp AG announced a year ago that it was planning to sell its elevator division. They will receive first bids this week, three people familiar with the matter said, as major stakeholders differ over whether the conglomerate should sell a majority stake in its most profitable asset. 
 
Finnish rival Kone will submit an indicative bid for Elevator Technology by Friday, teaming up with private equity firm CVC, which is poised to buy assets that may have to be divested for antitrust reasons, the people said. (Source: Financial Post)
 
 An acquisition would need approval by European competition authorities, but Kone Chief Executive Henrik Ehrnrooth told Reuters that talks with them would only begin once there was "a real case on their table". "The main reason why we are doing this is geographic coverage and to obtain more growth. Ehrnrooth added after KONE earlier reported a higher-than-expected quarterly profit. "We have said that we are very interested." 
(Source: Reuters)
 

How Will the Above Affect the Canadian Elevator Landscape? 

Considering that the changes at both organizations (if they happen) will take many years for full implementation, we see little to no impact in the near term within both organizations in Canada. We note the continued focus on the operating profits of the major elevator companies which has resulted in service reductions and extra to contract charges but this pressure has been in place for well over a decade now.
 
 Over the long term, a ThyssenKrupp-Kone merger would create the world's largest elevator company and eliminate a major player in an already tight field here in Canada. Thus fewer options to developers and property managers. 
 
Considering the record amount of construction taking place in both Canada and the United States and this trend likely continuing, we are not convinced that fewer players will result in positive results for the industry as a whole. 
 
Sources and further reading:
https://www.wsj.com/articles/united-technologies-to-separate-into-three-independent-companies-1543272920
https://www.reuters.com/article/us-utc-divestiture/united-technologies-to-separate-into-three-companies-idUSKCN1NV2QZ
https://www.barrons.com/articles/teva-and-other-opioid-defendant-stocks-jump-on-strong-earnings-51573141213
 
https://business.financialpost.com/pmn/business-pmn/kone-ceo-flags-interest-in-buying-thyssenkrupp-elevators
https://www.reuters.com/article/us-thyssenkrupp-kone/kone-signals-thyssenkrupp-elevator-interest-might-have-to-sell-some-assets-idUSKBN1X21QG
https://www.bloomberg.com/opinion/articles/2019-09-10/kone-and-thyssenkrupp-elevator-deal-would-raise-oligopoly-fears