Thank you, Ed [Haldeman], for the introduction and thanks for including me today.
About 15 percent of UTC's shareholdings are in Boston, second only to New York. We have a large business presence in New England with 30,000 employees and 23 manufacturing facilities covering 8 million square feet. These jobs are the best ones in manufacturing in America, essentially all aerospace and with exports providing about half the revenues. Reciprocally, we import just about nothing into these New England states from overseas. We build here aircraft engines, helicopters and aerospace systems including cabin pressure and temperature control systems, electric power generation and distribution for most aircraft in flight today, and all the space suits and fuel cells for NASA.
These aerospace businesses began with Pratt & Whitney. Founded in Hartford in 1925, four years later Pratt and Boeing agreed on the greatest horizontal/vertical merger ever and formed United Aircraft & Transport Corporation. Amazingly, beyond Pratt & Whitney and Boeing, United Aircraft then included Sikorsky Aircraft (helicopters), Hamilton Standard (propellers), Chance Vought (now LTV), several airlines which in time became United Airlines (taking our name), half the commercial airports in the United States, and our government's contract for air mail service nationwide. But this went away with a consent decree in 1934 ruling the integration was too much, so we went back to just Pratt, Sikorsky and Hamilton Standard.
We added Otis Elevator 1975, Carrier Corporation (air conditioning and heating) in 1979, Sundstrand (aircraft electric power generation and distribution) in 1999, Chubb (commercial security) in 2003, and Kidde (fire protection) earlier this year.
The result is $43 billion in revenues with 210,000 employees, and products and presence in just about every country of the world. Our companies have been market leaders for decades. We have also been innovation leaders, with R&D spending currently around $2.8 billion annually. Locally, we've been in Boston since 1856 when Otis installed an elevator at the Field & Fowler Department Store.
We've also had good investment results, with total shareholder returns of over 1,000 percent since the early 1990s, about three times the returns of both the indices and our peers.
But these developments affecting one company didn't happen without forces external to ourselves, and it's these which give us the basis for the optimism we have to have today.
During the last half century, America's gross output in physical volume and functionality has gone up more than six times. In other words, 85 percent of what we have today we didn't have in the 1950s. We would agree this is productivity.
Globalization was hardly an idea then. Foreign trade was less than 2 percent of GDP, today it's 10 times higher at more than 20 percent. Foreign direct investment was barely measured, but in 2000's extraordinary economy and stock market it went over a trillion dollars worldwide and even now is about $800 billion annually.
UTC had less than 25 percent of sales internationally when I joined the company 30 years ago; today the percentage is 60 percent and rising. Less than 5 percent of our employees were not Americans; today 70 percent are not.
Beyond globalization, the accomplishments have been in productivity and technology. Two things have driven productivity: lean manufacturing and the process focus which is all over world business today, and data communications and the explosion of computing and especially PCs.
Not everyone has understood the productivity revolution in the U.S. which began again in the early 1990s. As recently as 1998, Chairman Greenspan in his usual circumlocution called it less than a percent per annum. Since then, he's changed his mind but it's the prerogative of the Fed chairman not to admit this, and he didn't. It's been the most powerful force in the U.S. economy over the last 15 years and it's still here today. The advice to any management team and investors is to understand that productivity drives everything else.
I have good examples. We build three times as many elevators and service twice as many today as a dozen years ago with a work force 21 percent larger. Carrier's physical output is up the same three times over the same period with a work force 11 percent larger. It's all lean and the process focus. These numbers translate to 6 to 7 percent annual gains in physical volume productivity.
My productivity individually is up three times or more over the same period. When I had my first operating job at Otis in Latin America in the late 1970s, we got our foreign financial statements by telex. We scheduled overseas phone calls typically a day in advance. Our financial consolidation trailed local closings by three months. I used to dictate correspondence and often run this through a draft or sometimes two. I spent endless hours on the telephone.
Today, I do four things: motivate and communicate face-to-face, acquire information electronically, although I admit to still liking and relying on print media, communicate remotely with high speed and efficiency and largely by e-mail rather than telephone, and think about our businesses and how to make them better.
Engineering and product design is absolutely transformed. In our aerospace companies when I went to work, engineering and design were "build and bust," in other words we built prototypes and broke them and built them again. Product qualification took years to eliminate the problems and get truly reliable products in service in the field. Today it's simulation and computational engineering. We still build test products but in the range of a third as many as 15 years ago. Design and qualification cycles have been cut in half and often more.
The good news is none of these powerful forces of globalization, productivity and technology is over. Finance can talk all it wants about the balance sheet and P&L, and Wall Street can do their spreadsheet model and multiple analyses. But the fact is what has driven equity markets more than 30 times higher than they were 50 years ago is forces altogether different: globalization, productivity and technology.
There are challenges like the twin deficits, under-funded pension plans, health care costs and funding, Iraq, hurricanes, environmental impacts, the dollar, interest rates, and prices and availabilities of raw materials. But I might change Vice President Cheney's often quoted comment in 2000 that "deficits don't matter" to something as extreme as "nothing matters." Productivity and technology and globalization are the engines, and while they turn, nothing else does matter. This is why we can be optimistic about our economic futures, why the stock market isn't overpriced, and why the American system of market economies and labor mobility works and works powerfully.
But I don't mean to signal for a minute that these problems and negatives don't exist or that we can ignore them. What I do mean is that the engines if appropriately directed will take care of them.
Environmental impacts, direct and indirect, is one. Direct impacts are the badness that come from a company's own operations. Indirect impacts are the ones that come from their products. Like many others, we have rigorous conservation programs internally resulting in our direct environmental metrics being 10 times improved since the early 1990s and headed a further 10 times better.
But unlike many others, our products are long lived which can result in significant environmental impacts. It's an ugly but critical fact that UTC's products in service in the aggregate account for about 2 percent of greenhouse gas emissions worldwide each year. These lives and impacts are also why we must be and are relentlessly committed to efficiency improvements, and I see lots of reasons for optimism. We can also project commitments like this to a national agenda and believe that resolution to the energy crisis is as much in conservation via efficiencies as in continuing growth in energy consumption and production.
For example, commercial jet aircraft are three times more fuel efficient than 40 years ago and engine fuel consumption is a big part of this. A modern jet carries a passenger about 100 miles per gallon, and the Boeing 787 will take this figure 20 percent higher. Air conditioners are 42 percent more energy efficient than 40 years ago. These efficiencies will also jump a further 30 percent this next January with the new SEER 13 federal energy standard, and Carrier had a significant impact on and led this adoption. Otis' new Gen2 elevators in their regenerative configuration are 80 percent more energy efficient than a comparable elevator a decade ago. Last, half the energy in electric power generation goes up the stack as waste heat, and the advent of site specific co-gen systems offers the potential to capture this waste. The theory is simple: electric power transmits over distances with about a 7 percent loss, but heat doesn't. So move the electric power production to the point of use. These products exist today and offer paybacks readily of three years or even less.
I'd like to close with advocacy for a program very important to UTC and to me personally. It's UTC's Employee Scholar Program which stands alone among employee education efforts and has been comparably recognized. We launched the effort in 1997, and the idea is straightforward. Job change for many people is a positive experience. Most people in this room have changed jobs in their careers multiple times and most of the time it's a good deal. You get a promotion, a new place to work, a nicer office, higher compensation, and things are good. It's that way for educated people who are shaping their careers and shaping their lives. It may not be that way for people on the defensive. Education is the discriminator. It's a single word of great magnitude and great force.
This program at UTC has paid for more than 18,000 college and university degrees. A further 13,500 employees are currently enrolled, including 4,500 internationally. We pay all tuition and all fees. We provide paid time away from work on the basis that the scarce resource in a modern world is time not money. This paid time away from work is up to three weeks per year, doubling an employee's vacation entitlement to go to school. We set no limits on fields of study. And we grant $10,000 in UTC common stock on degree attainment as a way of saying to employees, "Congratulations and hurray for you." Our spending on Employee Scholars is currently $65 million a year. Finance gets after me that that's a lot of money and I tell them to go away. Total spending to date exceeds a half-billion dollars. We have granted more than 4 million shares of UTC common stock over this eight-year period, currently valued at more than $200 million.
Nothing does matter. As long as we sustain the engines of globalization, productivity and technology, and direct them wisely. They're forces bigger than anything and open limitless opportunities. We can have it all.
