RTX shares tumble on Pratt & Whitney airliner engine problem

rtx-shares-tumble-on-pratt-&-whitney-airliner-engine-problem
RTX shares tumble on Pratt & Whitney airliner engine problem

Shares of parent company RTX (RTX.N) dropped 10% on Tuesday as Pratt & Whitney announced that over 1,000 engines must be removed from Airbus planes for inspection due to microscopic cracks. This development is the latest setback for the U.S. engine maker’s efforts to dominate the narrowbody jet market, potentially exacerbating the capacity crunch faced by airlines during the peak summer travel season.

RTX Corp revealed that a “rare condition” in powdered metal necessitates the inspection of 1,200 out of the 3,000 engines built for the twin-engined Airbus A320neo between 2015 and 2021. These engines must be taken off and checked for micro cracks indicating fatigue. The issue stems from microscopic contaminants found in the metal used in the engine’s high-pressure turbine discs.

Out of the 1,200 engines, 200 must be inspected by mid-September due to their time in service, while the remaining engines will be inspected over the next year. However, engines currently in production are unaffected by this problem, according to RTX.

In an interview, Chief Executive Greg Hayes acknowledged the airlines’ frustration with the recurring problems faced by the Geared Turbofan (GTF) engines over the past seven years. Despite this, he dismissed the possibility of airlines switching to alternative engines from CFM International, a GE-Safran (GE.N)(SAF.PA) venture. Hayes stated that changing engines would be a drastic step, and there may not be enough capacity available in the short term.

This disclosure comes after RTX recently assured a Paris Airshow audience that their current issues were primarily related to supply chain problems rather than technical ones. However, the company revealed that it began addressing the metal problem approximately ten days ago.

Robert Stallard, an analyst at Vertical Research Partners, highlighted past problems with engine durability and supply in a research note titled “GTF. OMG.” He noted that while some investors may be giving up on RTX, the negative response in share prices may be excessive. Stallard also raised questions about the cash impact of these developments.

RTX announced a reduction in its 2023 cash-flow forecast by $500 million to $4.3 billion due to the inspections. The company expects to have more information about 2024 and 2025 in the next couple of months. Airbus confirmed that there are no safety issues or impacts on current deliveries, but its stock fell 2.5%.

Major customers affected by this issue include Spirit Airlines Inc (SAVE.N), JetBlue Airways (JBLU.O), and Wizz Air (WIZZ.L). Hungary’s Wizz Air stated that it anticipates a mid-single-digit percentage decrease in first-half capacity. However, high demand could lead to higher fares, maintaining profitability.

Replacing the discs in the engines requires a 60-day process of removing, disassembling, and reassembling the engine, according to Hayes. Jet-engine manufacturers have faced pressure to improve fuel efficiency and emissions, aiming for net-zero by 2035. The “powder issue” highlights the extreme engineering involved in next-generation engines, which has resulted in unexpected maintenance, according to analysts at Benchmark.

Pratt and other suppliers have also encountered issues related to wear and tear in hot and dusty climates. Low-cost Indian carrier Go First, which faced a financial crisis this year, blamed “faulty” Pratt & Whitney engines for grounding half of its 54 Airbus A320neos. Pratt has countered by stating that the dispute masks Go First’s own financial problems.

During the announcement of quarterly earnings, RTX raised its 2023 sales expectation from $72 billion to a range of $73 billion to $74 billion. Hayes stated that the problem should not affect the company’s 2025 financial goals, including reaching $9 billion in free cash flow, but there may be a potential margin impact.

The article was reported by Pratyush Thakur in Bengaluru, Valerie Insinna and Mike Stone in Washington, with additional reporting by Susan Mathew in Bengaluru, Rajesh Singh in Chicago, and Tim Hepher in Paris. The editing was done by Shounak Dasgupta, Sharon Singleton, and Nick Zieminski. The article adheres to The Thomson RushHourDaily Trust Principles.

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Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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