RTX Shares Drop 10% Amid Manufacturing Issue Impacting Popular Engines
Shares of RTX experienced a 10% decline on Tuesday, a direct response to an announcement by the aerospace giant regarding a manufacturing glitch affecting some of its widely-used engines. The situation demands expedited inspections for around 200 of these engines.
The complication stems from powdered metal employed in crafting specific engine components. RTX, the parent firm of leading airplane engine manufacturer Pratt & Whitney, attributed the problem to this factor. A critical point to remember is that engines currently in the midst of production remain unaffected by this issue.
Given this challenge, RTX has adjusted its annual cash flow projection, marking it down by $500 million to $4.3 billion.
During RTX’s earnings call, CEO Greg Hayes emphasized the notable financial commitment required to rectify the issue. He also underscored the company’s dedication to compensating airlines for any operational disruptions incurred.
This development compounds the existing struggles airlines are grappling with, including aircraft delivery delays, amid heightened travel demand and limited aircraft availability.
Pratt & Whitney has foreseen the possible need to remove roughly 1,000 additional engines from airline fleets over the upcoming nine to twelve months.
Notably, Noah Poponak, an aerospace and defense equities analyst at Goldman Sachs, projected that the fallout from this situation might extend into next year and possibly even 2025. The extent of unscheduled repairs needed for the roughly 1,000 engines will dictate the timeline.
Poponak, maintaining a neutral rating on RTX with a 12-month price target of $102, deemed the stock’s reaction to the situation rational. On Tuesday, trading concluded with shares at $87.10.
Poponak also highlighted past maintenance challenges faced by these engines, particularly in high-temperature environments.
Reassuringly, RTX affirmed its commitment to continued delivery of new aircraft engines and components. A spokesperson for the company also affirmed that this issue does not compromise the safety of flights.
The situation is set to impact A320neos, a popular narrow-body aircraft, further intensifying competition with the Boeing 737 Max.
The Federal Aviation Administration (FAA) has not overlooked the matter. It’s actively engaged with Pratt & Whitney and the affected airlines, pledging to ensure appropriate measures are undertaken.
The industry’s significant players are responding to this development as well. Delta Air Lines, a notable Airbus customer, is currently evaluating the situation. Both Airbus and JetBlue Airways are conducting assessments to gauge the impact on their respective operations.
Interestingly, General Electric, a rival engine manufacturer, saw its shares surge over 6% on Tuesday, reaching a more than five-year high. The boost is credited to the conglomerate’s enhanced revenue and cash flow projections for the year, largely driven by robust demand for jet engines.