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Hundreds of planes around the world will be grounded over the next few years due to problems with Pratt & Whitney engines, costing parent company RTX $3 billion and another setback for airlines already struggling to meet soaring post-pandemic travel demand. .
The US aerospace and defense group (formerly Raytheon) said Pratt & Whitney will recall 600-700 engines between 2023 and 2026, resulting in an average of 350 aircraft being grounded per year.
RTX said it will take charges of up to about $3.5 billion in the third quarter, mainly to compensate customers, and free cash flow will be reduced by $1.5 billion in 2025, a bigger hit than initially said in July.
The Arlington, Virginia-based company now expects full-year sales of $67.5 billion to $68.5 billion, compared with $67.1 billion in 2022. The company raised its sales guidance in July to a range of $73 billion to $74 billion.
RTX shares have been falling since the metal issues were disclosed in July, falling nearly 7% in early trading in New York.
The group said in July that contaminants in the powdered metal used to make the PW1100G-JM geared turbofan engines installed on Airbus planes meant some of its engines needed to be inspected earlier than expected.
The problem could lead to cracks in the high-pressure turbine disk during the manufacturing process, and the company’s chief operating officer, Chris Calio, told analysts on Monday that “the cracks found were larger than we expected.”
CEO Greg Hayes described the outage as “frustrating,” adding that it will have a “significant impact on our customers, our partners and RTX.”
When each engine is removed from the wing of an A320neo narrow-body jet, it takes an average of 250 to 300 days for the aircraft to return to the airline.
Kallio warned that engine inspections and any replacements would “lead to further congestion” in the company’s maintenance, repair and overhaul network, which is already experiencing delayed turnaround times due to issues with access to materials.
RTX said its “current plan is to continue delivering on our commitment to Airbus” by delivering new engines and spare parts. However, the impact of the issue may still hamper Airbus’ plans to increase production of the A320 family over the next two years.
The European group said on Monday it remained in “ongoing dialogue” with Pratt & Whitney and its customers and did not expect an impact on its “2023 deliveries or 2024 capacity plans.”
So many commercial planes are grounded, leaving airlines scrambling to find spare parts and engines to avoid flight cancellations.
Vertical Research analyst Rob Stallard said the $3 billion charge was “higher than expected” after the company had expected the first 200 engines to be inspected to reduce free cash flow by $500 million this year.
RTX said that taking into account the risk and revenue sharing partners in the PW1100 engine program (P&W’s share is 51%), the total cost is expected to be between $6 billion and $7 billion. Chief Financial Officer Neil Mitchill said about 80% is expected to be spent on customer compensation and the other 20% will be spent on labor and materials.
One of its engine project partners, MTU Aero Engines, with an 18% share, issued a profit warning on Monday, saying 2023 was “originally stable.”
The German group estimates a €1 billion impact on revenue and EBIT in the current financial year, with the liquidity impact lasting from 2024 to 2026.
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