Aerospace Company RTX Faces Issue with Aircraft Engines

Aerospace company RTX recently provided an update to its investors regarding a problem it is currently dealing with in one of its aircraft engines. This announcement did not sit well with investors.

RTX, formerly known as Raytheon Technologies, announced on Monday that it will incur a charge of approximately $3 billion in the third quarter to address a “rare condition in powder metal” that is used to manufacture engine parts for its geared turbofan engines, specifically those powering the Airbus A320 jets.

As a result of this news, RTX stock experienced a decline of 3.1% in premarket trading. In contrast, S&P 500 and Dow Jones Industrial Average futures saw increases of 0.4% and 0.2%, respectively.

Powder metallurgy is a widely adopted process for producing metal parts, offering various options such as forging, casting, machining, or employing metal powder to create the desired components. The selection of a specific process depends on numerous factors, including the required physical properties of the part.

The issue with powder metal directly affects the repair and maintenance of certain RTX engines manufactured by its subsidiary, Pratt & Whitney. The company also mentioned in its recent release that approximately 600 to 700 engines will need to undergo shop visits between 2023 and 2026 to address this issue. The majority of these visits are expected to occur in 2023 and early 2024.

Challenges in Powder Metal Manufacturing

In a recent news release, RTX CEO Greg Hayes addressed the challenges arising from the powder metal manufacturing issue. He emphasized that the company will never compromise on the safe operation of their fleet, and that the Pratt & Whitney team has been working diligently to develop a fleet management plan. Additionally, he acknowledged the difficulties faced by customers and assured proactive measures to support and minimize operational impact.

Updated Guidance

Alongside this announcement, RTX updated its guidance. The adjusted full-year earnings-per-share guidance remains unchanged at a range of $4.95 to $5.05, while the guidance for free cash flow remains at $4.3 billion. However, due to the powder metal issue, the sales guidance has been lowered to a midpoint of $68 billion from $73.5 billion.

Impact on Stock Performance

RTX stock has experienced a decline of approximately 12% over the past 12 months, largely attributed to the engine problem. The disclosure of this issue in late July resulted in a 10% drop in RTX stock, and it has further decreased by an additional 4% since then.

Comparatively, the S&P 500 has also witnessed a 2% decline during this period. Boeing (BA) stock has seen a similar 2% decrease, while General Electric (GE), another aircraft engine maker, has observed a 1% increase in its shares.