Raytheon Technologies (RTX) dropped a bombshell on Monday, revealing that a manufacturing glitch in its Pratt & Whitney unit is set to take a $3 billion bite out of its pretax results for this quarter. The culprit behind this financial turbulence is a flaw in the production of engines that is forcing RTX into a sprint of accelerated inspections. The fallout? Hundreds of aircraft engines are destined for removal and scrutiny through the year 2027.
The news sent shockwaves through the market, with RTX shares plummeting nearly 8% on Monday to $76.90, marking the lowest point in over two years.
The glitch, unveiled back in July, originates from defects in the powder metal used to craft Pratt & Whitney’s popular geared turbofan engines. This glitch has the potential to cause cracks, leading to a cascade of consequences for the aviation giant. RTX now projects that 600 to 700 engines, surpassing initial estimates, will need removal for inspections by 2026.
This hiccup is creating a turbulence of its own for airlines, coming at a time when the travel industry is trying to regain altitude post the Covid-19 pandemic. Wizz Air, a European budget carrier reliant on Pratt’s GTF engines, announced a 10% capacity reduction in the second half of fiscal 2024 due to the problem.
Airlines in the U.S., such as Spirit Airlines and JetBlue Airways, also count on the GTF-powered planes, but as of now, they have not commented on the situation.
RTX anticipates that the inspections, necessitating the removal of engine components, will create backlogs in its repair facilities, with a forecasted wait of up to 300 days before engines are back in action.
The financial turbulence is far from over, with RTX estimating a hefty $7 billion cost for the issue. Pratt & Whitney, holding a 51% stake in the GTF PW1000 engine program, will share this financial burden with partners, including Germany’s MTU.
RTX’s CEO, Greg Hayes, addressed the issue candidly, acknowledging the frustration and significant impact on customers, partners, and the company. Despite the challenges, he emphasized the company’s proactive approach to managing the crisis, channeling all necessary resources to navigate the situation for the benefit of stakeholders.
While RTX reaffirmed its adjusted earnings estimates for 2023, standing at $4.95 to $5.05 per share, it did brace investors for a $1.5 billion hit to cash flow in 2025. This adjustment brings the cash flow estimate to $7.5 billion, down from the earlier forecast of $9 billion, signifying the financial repercussions of the engine manufacturing flaw.
